Do layer-1 guide on blockchains overcome scalability difficulties in blockchain networks?
When the notion of blockchain technology was first presented to the public with Bitcoin (BTC) in 2009, the major emphasis was on establishing a decentralized and secure distributed database system capable of transparent transaction capability.
It prompted the establishment of a native currency to facilitate payment for network transactions, resulting in the birth of prominent cryptocurrencies like as BTC. However, when the blockchain ecosystem expanded at an exponential pace, it revealed the core worry of slow transaction rates and the intrinsic lack of scalability afforded by layer-1 blockchains.
A layer-1 blockchain, such as Bitcoin or Ethereum, is the foundation protocol that is used in combination with third-party layer-2 protocols. It is also referred to as an L1 blockchain, mainnet, or principal chain.
The main difficulty with blockchain network scalability stems from layer-1 blockchains’ use of the proof-of-work (PoW) consensus process, which necessitates a large amount of computing resources to generate each block of transaction data on the network.
Furthermore, the amount of transactions that a layer-1 blockchain can process is inversely related to the time it takes to execute them, resulting in higher transaction or gas costs on such networks.
Because layer-1 blockchains process and confirm transactions on their own blockchain, any changes to the underlying protocol may disrupt its operation, making altering the consensus mechanism a dangerous endeavour.
In order to address this scalability issue, Ethereum, another layer-1 blockchain, intends to switch from its PoW consensus method to a proof-of-stake (PoS) architecture. While this reduces processing needs and improves the energy efficiency of the blockchain, it does relies on layer-1 scaling methods like as sharding to ultimately expand to 100,000 transactions per second.
Shading, the more common of the two layer-1 scaling options, involves breaking down transactions into individual data sets and then parallelizing them using a horizontally divided processing technique.
However, giving validation authority to the biggest stakeholders in a PoS consensus architecture results in a type of centralization that must be addressed, particularly for financial applications.
What exactly is a layer-2 blockchain network, and why is it required?
Despite the limitations of layer-1 blockchains in terms of scalability and speed, their growing popularity and the resulting abundant liquidity have resulted in the development of layer-2 blockchain alternatives such as the Ethereum-based Polygon blockchain or the Bitcoin-based Lightning Network.
These blockchain layer-2, or L2 blockchain, solutions allow thousands of low-value transactions to be validated on parallel blockchains before being moved to the main blockchain, or mainnet, to guarantee that they are immutably recorded.
Layer-2 solutions, originally created as a collective phrase to represent a particular collection of Ethereum scaling solutions, were designed to meet demand that exceeded the blockchain’s 1+ million transaction per day capability.
Today, these secondary blockchains are broadening their use cases to deliver a more superior end-user experience via greater transaction per second, reduced gas prices, and the certainty that all transactions, once completed, are irrevocably recorded on the mainnet.
L2 blockchain solutions successfully transfer the transactional load onto their parallel network while de-congesting the mainnet by guaranteeing that the mainnet manages important features of decentralization, data availability, and security.
This addresses the scalability issue that has plagued layer-1 blockchains such as Bitcoin and Ethereum, while also guaranteeing that rigorous decentralized security requirements are available to a diverse variety of decentralized apps (DApps) that are becoming more popular today.
Layer-2 scaling solutions using Ethereum Rollups
Rollups, so named because they “roll up,” or bundle many transactions into a single mainnet transaction, are layer-2 scaling methods that eventually inherit Ethereum’s security. They are divided into two categories based on how the final transaction data is stored on the layer-1 blockchain.
The first is Optimistic Rollups, which are blockchains that run alongside the main chain and avoid the computation that makes Ethereum costly. Assuming that all uploaded transactions are genuine, they provide security by being able to conduct fault proofs in the case that an invalid transaction is detected.
The second form is zero-knowledge Rollups, which use validity proofs to calculate transactions off-chain before compressing hundreds of transactions and uploading cryptographic validity proofs on the Ethereum mainnet.
The primary difference between the two kinds is that verifying a block on zero-knowledge Rollups is substantially quicker since they only need the validity proof rather than complete transaction data, as is the case with Optimistic Rollups.
As shown with the popular layer-2 crypto network Polygon, Zk-rollups allow near-zero latency in cryptocurrency money transfers from layer-2 to layer-1 chain, making them more acceptable for financial transaction-related use cases.
Optimistic Rollups, on the other hand, provide a greater level of security and decentralisation since transaction data is saved on the layer-1 blockchain and are better suited for applications with less on-chain activity. They also have full Ethereum Virtual Machine (EVM) and Solidity compatibility, allowing them to accomplish anything conceivable on an Optimistic Rollup on the Ethereum blockchain.
Other prominent forms of L2 scaling methods are being deconstructed.
Sidechains are alternative blockchains that function independently with their own consensus processes while simultaneously running in parallel to the Ethereum mainnet through a two-way bridge.
They provide developers with the same experience as the Ethereum mainnet, as well as the ability to launch DApps on these sidechains with reasonable simplicity. Sidechains, on the other hand, aren’t really layer-2 blockchains since they employ a distinct consensus method and have a lesser degree of decentralization incorporated into their protocol.
A State channel, also known as a payment channel, is another sort of bi-directional blockchain in which crypto money are placed in a smart contract on the layer-1 blockchain and signed tickets are issued on the latter. Popular examples include the Lightning Network, which allows users to transact quickly off-chain and afterwards record the final data back to the Bitcoin mainnet on both the Bitcoin and Ethereum mainnets. Raiden Network is another another state channel that connects to the Ethereum blockchain and allows users to execute smart contracts via it.
Plasma chains are linked to the Ethereum mainnet and employ fraud proofs similar to Optimistic Rollups to validate transactions in the event of a disagreement. They are ideal in cases where transactions are performed at rapid speeds with low gas prices between random users.
Withdrawals from these blockchains, on the other hand, require several days to allow for arbitration claims and incur an extra capital cost in circumstances when liquidity for fungible assets is needed.
Nested blockchains, like plasma chains, feature many linked secondary chains running on top of the layer-1 blockchain. Nested blockchains, which form a parent-child connection, allocate work to these subsidiary or child chains and depend on the underlying mainnet to determine settings for the entire network web.
Validiums are comparable to zero-knowledge rollups in that they are not prone to cyber-attacks and do not experience any delays while withdrawing cash from these blockchains. They do, however, need a large amount of processing power and are not cost-effective for low-throughput use cases.
Guide on blockchain layers 1 and 2
Despite layer-1 scaling solutions such as consensus protocol updates and shading aiming to make blockchains such as Bitcoin and Ethereum more scalable, they remain a work in progress, with numerous teams actively working on bringing user-friendly solutions to market.
Both methods, however, are attempting to solve the “scalability trilemma,” a term coined by Ethereum founder Vitalik Buterin that refers to an unsolved problem in distributed ledger technology-based networks in which every node that validates transactions cannot achieve decentralization, security, and scalability at the same time.
While the judgement is yet out on how effective these solutions will be, layer-2 solutions are already enabling transaction speeds and prices that are suitable for scaling the blockchain ecosystem and realizing the full potential of this game-changing technology.
Numerous DApps are already using these technologies to deliver previously inconceivable experiences in gaming, Decentralized Banking (DeFi), and the Metaverse, as well as revolutionizing established areas like as finance, corporate governance, auditing, and many more.
Regardless of the benefits, the manner these blockchains verify transactions must be considered depending on the use case, and the risk of validators on the layer-2 blockchain committing fraud must be carefully examined. Having said that, new layer-2 scaling solutions are continually being created, and this field will continue to garner a lot of attention, praise, and criticism.
L2 blockchains’ Future
As real-world usage of blockchain technology grows, the emphasis on scalability, rapid transaction speeds, and cheap gas prices will drive advances across both L1 and L2 blockchains. With L1 blockchains such as Ethereum offering significant improvements such as modifications to the consensus process and the introduction of mechanisms such as shading, the influence on L2 blockchains that are connected to them will be amplified.
L2 blockchains will accidentally be able to deliver significantly quicker transaction speeds and lower costs to previously unseen levels. These benefits, together with the growth of L2 blockchains, will surely drive the development of new applications, particularly in the DeFi domain.
Furthermore, by constructing more bridges across the different L2 blockchain platforms, users will be able to reap the advantages of increased blockchain interoperability and open up new paths in sectors such as digital asset trading.
As a result, L2 scaling solutions will play an important role in fostering a multichain future, putting the onus on developers to guarantee that growth is maintained without compromising the ideals of security, decentralization, and scalability for which blockchains are recognized.
To bring to market L2 scaling solutions and DApps that will aid the world’s transition to a decentralized economy, the whole crypto sector will need to join forces, continually develop, and interact with one another.