Layer-2 scaling solutions are blockchain networks designed to scale (i.e., improve the transaction throughput) of other blockchains — commonly referred to as layer 1 blockchains.
As a general definition, L2 solutions are those that help scale applications by handling transactions off the mainnet (Layer 1) while taking advantage of the security of this Layer 1.
Vilà Brualla, M. (2023)
Many of today’s popular layer-2 solutions were developed to address Ethereum’s scalability challenges, particularly its frequently high gas fees. However, layer-2s are not limited to Ethereum.
Bitcoin, for instance, benefits significantly from its own L2 known as the Lightning Network.
The Importance of Layer-2 Solutions
Layer-2s have gained massive popularity in recent years. This surge in adoption has been fueled, in part, by Ethereum’s incredibly high gas fees during times of high network activity. Another factor is the time-to-finality of Ethereum transactions — a measure of how fast transactions are added to the blockchain.
Layer-2 scaling solutions offer major speed and efficiency improvements to their host layer-1 chain, using various approaches such as rollups and off-chain processing.
The core concept, common among all L2s, is that they rely on the layer-1 blockchain for decentralization and security.
What Are The Top Layer-2 Solutions?
The three most popular Layer-2 protocols are Arbitrum, ZkSync, and the Lightning network.
Lightning Network
The Lightning Network leverages the properties of the Bitcoin blockchain and custom smart contracts to create a web of interconnected payment channels. These channels allow participants to transact off-chain by updating balances without moving funds on the blockchain. Only when a channel is closed are the final balances settled on the blockchain.
It’s an efficient system that makes Bitcoin transactions virtually instant, eliminating the typical 15-minute to 1-day waiting times. It’s considered one of the fastest transaction methods in the world. For reference, the reported transactions per second (TPS) possible on Lightning are 1,000,000, compared to Visa’s 65,000.
Optimistic Rollups
Arbitrum and Optimism are two of the most popular Layer-2s based on optimistic rollups.
Optimistic rollups are blockchain networks that roll up transactions into a single batch that gets sent to layer-1, in this case, Ethereum for processing.
They are “optimistic” because the network assumes that the transactions are valid. This assumption can be challenged by financially incentivized network operators in a sophisticated system of transaction validation. This system is designed in such a way as to always, eventually, weed out invalid transactions.
This process takes time, however, so taking funds out of a layer-2 based on optimistic rollups can take up to a few weeks to ensure ample time for all transactions to be verified as legitimate.
ZK-Rollups
ZK-rollups also batch transactions together and send them to a layer-1 blockchain. However, they differ in the way they prove the transactions’ validity.
“ZK” stands for zero-knowledge proof, a mathematical method of proving that something is true without having to reveal any information about it.
Final Thoughts
Layer 1 blockchains like Ethereum and Bitcoin sit at the core of the cryptocurrency space. Ethereum is the platform on which most of the Decentralized Finance (DeFi) is built. Meanwhile, Bitcoin is arguably the driving force behind the ever-growing adoption of crypto.
With so much happening, these networks can easily become overwhelmed or simply fail to deliver on what users have come to expect. This is where Layer-2 scaling comes in — paving the way toward a future where the promise of decentralization can coexist with the necessity of better usability.
Vilà Brualla, M. (2023). Blockchain Layer 2 scalability solutions: A comparison framework (Bachelor’s thesis, Management Engineering). Advisor: Alessandro Perego. Co-advisors: Giacomo Vella, Davide Ghezzi. Student ID: 10848198.
https://www.politesi.polimi.it/bitstream/10589/205217/3/Blockchain%20Layer%202%20scalability%20solutions.pdf
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