Do layer-1 blockchains solve the scalability of blockchain networks?
In the time that the idea of Blockchain technology was first introduced to the world in 2009, with the Bitcoin ( BTC) The primary goal was to provide an open and secure decentralized database technology that could cater to a transparent transaction capability.
This required the creation of an native token that could be used to facilitate payment for transactions that take place on the network, which led to popular cryptocurrencies like BTC being created. But since the blockchain technology was growing at an exponential pace and grew exponentially, it highlighted the main problem of the slowness of transactions and the lack of scaling offered by layer-1 blockchains.
An L1 blockchain which includes Bitcoin and Ethereum is the basis protocol which is used in conjunction with other third-party layer-2 protocols. It is often referred to for its L1-based blockchain or mainnet, or primary chain.
The primary issue of scaling the blockchain network is the issue ofdue in part to “proof of-work (PoW) consensus mechanism implemented by layer-1 blockchains, which requires large amounts of computational power to construct every transaction block in the network.
Additionally, the amount of transactions a layer-1 blockchain is able to handle is in direct proportion to the time it takes to complete them. This leads to an increased transaction costs or gas costs for these networks.
Since layer-1 blockchains are able to are able to process transactions and complete them using their own blockchain and are not able to make modifications to the protocol could affect the operation of the protocol and make the task of altering the consensus mechanism a risky option.
Ethereum is a layer-1 cryptocurrency that, like other blockchains has plans to change to a PoW consensus model to a proof-ofstake (PoS) model in an effort to overcome the scalability issue. While this may lower the computational burden and increase the efficiency of the blockchain’s energy consumption however, it will still rely on scaling solutions for layer 1 such as sharding . This will eventually allow for 100,000 transactions per second.
Sharding, which is the most popular one of two Layer-1 scale options is the process of dividing transactions into smaller sets of data and then employing an algorithm that splits horizontally to process them in parallel.
But, with the ability to validate the most important stakeholders of the PoS consensual model can result in a centralization that requires to be addressed especially in financial applications.
What’s a layer-2 Blockchain Network and why is it necessary?
It is undisputed that despite the speed and scalability disadvantages of layer-1 blockchains their increasing popularity and abundance of liquidity that follows has led to the emergence of layer-2 blockchains such as the the Ethereum-based Polygon blockchain or the Lightning Network, which is based on Bitcoin. Lightning Network.
Layer-2, or L2 blockchain solutions allow thousands of low-value transactions be validated using parallel blockchains. The the records transmitted to the central blockchain or mainnet, to ensure they are permanently stored.
The term was initially coined as a collective term to refer to a particular collection of Ethereum scaling solutions The layer-2 solutions were created to meet the demands that were higher than the blockchain’s 1 million daily transactions.
In the present, secondary blockchains are gaining popularity in scenarios to provide a high-end user experience, because of faster transactions per second, less cost of gas, and the certainty that every transaction, after completion are permanently stored in the primary blockchain.
In order to ensure that the mainnet is able to handle crucial issues of decentralization availability of data and safety, L2 technology is effectively shifting the burden of transaction onto their network parallel to it and de-congetting the mainnet as a result.
This resolves the issue of scaling that plagues layer-1 blockchains such as Bitcoin and Ethereum while also ensuring that robust decentralized security standards are available to a variety of applications that are decentralized (DApps)that are getting increasingly popular today.
Ethereum Rollups can be used as layer-2 scaling solutions
Rollups, referred to as roll-ups because these “roll-up,” or packet multiple transactions into one mainnet transaction they are layer-2 scaling solutions which ultimately benefit from the security offered by Ethereum. They can be further classified in two categories based on how the transaction information is stored on the blockchain layer 1.
The first one is Optimistic Rollups, which are blockchains that run in parallel with the main chain and eliminate the calculations that make Ethereum costly. In essence, they assume that all transactions posted are valid. They provide security because they are able to conduct fault-proofs in case that a fraudulent transaction is suspected.
The second kind is zero-knowledge Rollups or Zk-Rollups. These rollups instead use validation proofs to compute transactions off-chain, and then reduce hundreds of transactions prior to publishing cryptographic validity proofs on Ethereum’s mainnet. Ethereum mainnet.
The primary difference between these 2 types of rollups is the fact that the process of validating the block is significantly quicker for zero-knowledge rollups since they require the validity proof and not the entire transaction information, which is the case for Optimistic Rollups.
Zk-rollups reduce the time required for the transfer of cryptocurrency funds between layer-2 and layer-1 chains and makes them better suited for use cases that require financial transactions like the well-known Layer-2 cryptocurrency network Polygon.
However, Optimistic Rollups offer a greater level of decentralization and security because the transaction data is kept on the Layer-1 Blockchain, and are better suited for applications that have minimal activities on the blockchain. They also benefit from the complete Ethereum Virtual Machine (EVM) and Solidity compatibility which allows them to run everything on the Ethereum blockchain. Optimistic Rollup that is possible through Ethereum. Ethereum blockchain.
Decoding other popular kinds of L2 scaling
Sidechains are blockchains with separate identities that function independently, using their own consensus mechanisms however they also function in parallel with the Ethereum mainnet, which has a two-way bridge linking both blockchains.
They give developers the appearance and feel as the Ethereum mainnet as well as the ability to run their DApps on these sidechains in a relatively simple manner. However, since they employ a different consensus mechanism sidechains aren’t technically considered layer-2 blockchains since they have less decentralization built-in to their protocol.
Another bi-directional type of blockchain is a State channel, sometimes called to as a payments channel in which cryptocurrency funds are stored in a smart contract the layer-1 blockchain and the signed tickets are generated on the earlier. It is available both on and the Bitcoin and Ethereum mainnets, some of the most well-known instances include Lightning Network, which lets users make transactions quickly off-chain and then transmit the data and sends it back on blockchains on the Bitcoin mainnet afterward. Raiden Network is another state channel that is integrated in conjunction with the Ethereum blockchain, and permits customers to execute smart contracts on these channels.
Plasma chains are connected in the Ethereum mainnet and utilize fraud proofs, like Optimistic Rollups, to check the validity of transactions in the event there is a dispute. They are more suited to situations where transactions are made by random users at high speed, with less gas costs.
However the withdrawals of these blockchains may take a couple of days to allow for arbitration claims. This can result in an additional cost for capital when liquidity is required for assets that are fungible.
Nested blockchains, as they are called, are similar to plasma chains , however they contain multiple secondary chains interconnected that are built on top of layers-1 of the Blockchain. They form a parent-child connection. these nested blockchains share work among the child chains or secondary chains, and depend on the mainnet that is underneath to determine the parameters of the entire network web.
Validiums are very similar to zero-knowledge rollups in they aren’t susceptible to cyber-attacks, and have the benefit of having no delay when moving funds from these blockchains. However, they do require a lot of computational power , and aren’t cost-effective in instances with limited throughput.
Layer-1 and. Layer-2 blockchains
In spite of layer-1 scaling options like the creation of consensus protocol changes as well as the sharding process that aims to make blockchains such as Bitcoin as well as Ethereum more adaptable however, they remain an ongoing work-in-progress with numerous projects currently in the process of bringing to market user-friendly solutions.
Both approaches, however, both methodsare trying to address this “scalability trilemma,” a term invented by Ethereum founder Vitalik Buterin that alludes to the unsolved issue of distributed ledger technology-based networks where each node that is able to validate transactions can’t simultaneously attain decentralization, security and scalability.
Although the jury isn’t out on how effective they will be, these layer-2 solutions already facilitate transactions with speeds and costs which are perfect for scaling the blockchain ecosystem to fully unleash the potential of this revolutionary technology.
Many DApps are already using these methods to deliver previously unimaginable experiences within the gaming industry, Decentralized Finance (DeFi) and the Metaverse as well as changing traditional areas like corporate governance, finance auditing, and other areas.
Despite their advantages that these blockchains offer, the way they verify transactions must be evaluated in light of the application and the potential for validaters using the layer-2 blockchains committing fraud must be assessed with care. In any case the latest layer-2 scaling solutions are constantly being developed and the space is likely to draw a lot of attention, praise and criticism.
Blockchains of the future: L2’s future
As blockchain technology continues see a rise in real-world use and growth, the focus is on scalability speed, high processing speeds, and low fees will lead to developments on the L1 as well as L2 Blockchains. With L1 blockchains such as Ethereum promises to provide crucial modifications on the process of consensus, and the introduction of methods such as sharding which will have an greater impact on L2 blockchains which are connected to them.
Blockchains with L2 technology will inadvertently allow for quicker transaction speeds and reduce costs to levels not that was not previously seen. These advantages, in conjunction with the rapid growth of L2 blockchains, will definitely fuel the development in new apps, particularly in the DeFi area.
Furthermore, with the creation of more bridges between various blockchain platforms users can take advantage of greater blockchain interoperability , and will be able to open new possibilities in areas like the trade of digital currency.
So L2 scaling solutions will play a major role in the promotion of the multichain ecosystem and puts the burden on designers to guarantee that the growth is maintained without compromising on the fundamentals of decentralization, security and the ability to scale that blockchains are renowned for.
The whole crypto industry must join forces to constantly invent and collaborate with one another to introduce applications and scaling options for L2 to aid in the transition of the world towards a decentralized economy.