What are Layer 2s and Who Will Win the Ethereum Scaling War?
But what is a Layer 1?
Before starting, we first need to understand what is Layer 1 — It refers to the underlying base layer of the blockchain network, which defines the rules and the fundamental structure of the blockchain network. It is also called the main chain or 'mainnet,' We will use all these alternative terms in this article.
Why does Ethereum Need Layer 2s?
Most Layer 1s are focused and designed to provide a high degree of security and foster a decentralized ecosystem, and so is Ethereum.
Ethereum was designed to support decentralized applications (dApps) and smart contracts. However, the demand for dApps and protocols built on top of the Ethereum blockchain increased tremendously over the years and has driven the need for the scalability of Ethereum Layer 1 for higher throughput and an improved settlement time.
Ethereum currently has a maximum throughput of 15-45 transactions per second (TPS), and this scalability problem is not just an inconvenience - it's a serious obstacle to Ethereum's growth and adoption.
Layer 2 solutions have emerged as a promising approach to address this issue, with several competing technologies focusing on improving Ethereum's performance. We will explore the key concepts and technologies behind Layer 2s and discuss the ongoing Ethereum scaling war, highlighting the major players and potential outcomes in this post.
Understanding Layer 2s: Key Concepts and Technologies
Layer 2s are off-chain scaling solutions designed to increase the throughput and scalability of blockchain networks by processing transactions outside the underlying Layer 1 chain, in this case — Ethereum. These solutions allow faster, more gas-efficient transactions without overloading the main blockchain network.
Rollups: zk-Rollups and Optimistic Rollups
Rollups are layer 2 scaling solutions that aim to increase Ethereum's transaction capacity by aggregating multiple transactions into a single proof, which is then submitted to the main chain. All transactions are verified off-chain in a rollup; only the final result is submitted to the Ethereum mainnet. This technique of deligating the load reduces the amount of data that needs to be stored on the Ethereum blockchain, increasing its capacity and reducing transaction fees.
There are two main types of Rollups: zk-Rollups and Optimistic Rollups.
zk-Rollups use advanced cryptographic techniques known as zero-knowledge proofs (zk-SNARKs) to create a compressed representation of multiple transactions that can be verified on-chain without revealing transaction details. These proofs ensure privacy and scalability, allowing for a significant increase in transaction throughput.
Optimistic Rollups, on the other hand, utilize fraud proofs and optimistic assumptions to achieve similar results. They assume that all transactions are valid unless proven otherwise, and network participants can challenge and remove any fraudulent transactions.
Optimism and Arbitrum are popular protocols utilizing Optimistic Rollups, attracting many dApps and DeFi projects.
Read more about rollups: Ethereum Scalability and Privacy: A Comparison of zkRollups and Optimistic Rollups
Plasma is a Layer 2 framework for Ethereum that allows the creation of child chains to offload transactions from the main chain. These child chains are responsible for processing a subset of transactions, while the main chain only needs to store a summary of the transactions, improving overall scalability.
State Channels & Payment Channels:
State channels are another off-chain scaling solution for blockchain transactions. They enable participants to conduct transactions quickly and privately through off-chain communication channels without involving the main chain. These channels can be closed once the participants agree on the final state, and the result is then submitted to the main chain.
The Raiden Network is the most famous payment channel protocol built on Ethereum. It is a Layer 2 payment protocol built for Ethereum. Like the Lightning Network for Bitcoin, Raiden enables fast, low-cost transactions using off-chain payment channels.
Creating these channels between user parties allows transactions to be conducted instantly and privately without involving the main chain.
Sidechains and Polygon
Sidechains are independent blockchains that run parallel to the underlying Layer-1 chain, enabling faster and more efficient transactions by offloading from the main blockchain network.
Polygon is a multi-chain scaling solution for Ethereum that combines several Layer 2 technologies, including Plasma, zk-Rollups, and sidechains, offering an extensive off-chain scaling solution.
The Ethereum Scaling War: Competing Layer 2 Solutions
Ethereum's scalability challenges have led to an ongoing battle between several Layer 2 scaling solutions, each vying for dominance in the rapidly evolving ecosystem.
Let's take a closer look at the major players in this scaling war —
As previously mentioned, zk-Rollups use zk-SNARKs to create a compressed representation of multiple transactions. They offer significant advantages in terms of transaction throughput and security, making them a strong contender in the Ethereum scaling war.
Optimistic Rollups also increase transaction throughput on Ethereum by using fraud proofs and optimistic assumptions. Although they tend to have slightly higher latency than zk-Rollups, they offer a more straightforward integration process with existing smart contracts, making them an attractive option for developers.
Polygon is an Ethereum scaling solution that combines multiple Layer 2 technologies to provide a comprehensive off-chain platform. With its flexibility and adaptability, Polygon has gained considerable traction in the Ethereum ecosystem, making it a notable player in the scaling war.
As mentioned, the Raiden Network is a Layer 2 payment protocol for Ethereum that uses off-chain payment channels to enable fast and low-cost transactions. While it has not gained as much attention as other Layer 2 solutions, it remains a viable option for specific use cases, such as micropayments.
Other Emerging Layer 2 Technologies and Projects
Several other Layer 2 projects and technologies are under development, each with unique approaches to solving Ethereum's scalability challenges. As the ecosystem evolves, new contenders may emerge, adding to the complexity of the scaling war.
Comparing Layer 2 Solutions for Ethereum
To better understand the differences between these Layer 2 solutions, we can compare them based on several factors, such as security, scalability, transaction speed, and ease of integration.
While each technology has advantages and disadvantages, it is crucial to consider how well they address specific use cases and applications in the Ethereum ecosystem. Ultimately, the solution that provides the best balance of performance, security, and ease of integration will likely gain the most adoption.
Let's take a look at the examples of popular projects that have adopted each technology —
Optimism and Arbitrum have attracted various DeFi projects and dApps, such as Uniswap and Chainlink, thanks to their ease of integration and compatibility with Ethereum smart contracts.
Aave, SushiSwap, Decentraland, and OpenSea are just a few popular projects that have chosen Polygon for its comprehensive and adaptable off-chain scaling solution.
The Future of Ethereum Scaling: Who Will Emerge Victorious?
Determining the winner of the Ethereum scaling war is challenging, as various factors influence the adoption and success of Layer 2 solutions. These factors include community support, ease of implementation, developer incentives, and cross-chain interoperability.
Ultimately, the outcome of the Ethereum scaling war may not be a single winner but rather a co-existence of multiple Layer 2 solutions, each catering to different use cases and requirements.
Layer 2s play a vital role in addressing the scalability challenges faced by Ethereum and other blockchain networks. By understanding the key concepts, technologies, and players in this space, we can better appreciate the potential outcomes and impact on the future of Ethereum. Keep an eye on the ongoing developments and stay updated on the latest advancements in Layer 2 solutions.
As the Ethereum ecosystem continues to expand, it is important for developers and users to stay informed about the latest developments in Layer 2 technologies and the ongoing scaling war.