Layer 2 blockchains are secondary protocols built on an existing blockchain network. Layer 2 blockchain projects aim to solve issues of major crypto networks, such as scalability issues and low transaction speeds.
Layer 2 blockchains are mainly used as solutions to the scalability issues of many blockchains. The two major Layer 2 solutions are Ethereum Plasma and the Bitcoin Lightning Network. Each of these Layer 2 solutions has its working mechanisms, but both are aiming to provide increased throughput to blockchain systems. Layer 2 blockchains create a secondary infrastructure where crypto transactions can occur independently of the Layer 1 blockchain. This feature is why these solutions are referred to as off-chain scaling solutions.
One of the main benefits of these off-chain scaling solutions is that the Layer 1 blockchain does not require any structural changes as the Layer 2 chain is added as an extra layer. Layer 2 blockchains can achieve high throughput without compromising network security.
How does Layer 2 blockchain work?
Layer 2 crypto projects are any additional infrastructure built on the existing Layer 1 blockchain. These Layer 2 solutions are designed to solve issues that major blockchains face today. These Layer 2 blockchains balance throughput, scalability, and transaction speed while achieving high network security. These scaling solutions get this balance by processing blockchain transactions off-chain and transferring them back to the main chain.
Types of Layer 2 Blockchains
- Sidechains: Sidechains are separate blockchain networks that process crypto transactions efficiently and have full interoperability with their mainchain. Each sidechain has its security, block size, and consensus mechanism. The sidechain functions independently from the mainchain and is connected through a two-way bridge. Ethereum’s Plasma solution combines cryptographic encryption with Smart contract technology to enable cheap and fast transactions on Layer 1 blockchains. These results are achieved by offloading crypto transactions to sidechains known as plasma.
- Optimistic Rollups: These rollups function alongside the main blockchain to process transaction data. Fraudulent activities can be resolved through fraud-proof. In this case, crypto transactions are re-run with the available blockchain data. This process can extend the time it takes to add transaction data to the Layer 1 blockchain, but it is still faster than processing transactions in Layer 1 protocols.
- zkRollups: zkRollups create cryptographic proofs for blockchain transactions. These proofs are known as zero-knowledge proofs. Zero-knowledge proofs share whether a particular blockchain transaction is valid or not. The main benefit of such a solution is that it requires little data to be shared back to the Layer 1 blockchain. One of the drawbacks of zkRollups is that it does not have full Ethereum Virtual Machine (EVM) compatibility. This drawback means there are restrictions on the types of smart contracts that can utilize zkRollups.
Examples of Layer 2 blockchains
- Lightning Network: The lightning network is a Layer 2 scaling solution built for the Bitcoin network. This Layer 2 crypto solution implements Smart contract functionality to bundle transactions together without worrying about individual user payments or block confirmation times. This Layer 2 solution claims to support millions of blockchain transactions each second at a low cost.
- Loopring: Loopring is a Layer 2 solution for the Ethereum network. This solution employs zkRollups to increase network transaction speeds while reducing costs.
Layer 2 Blockchain Advantages
- Compatibility: One of the significant benefits of Layer 2 crypto solutions is that they do not affect the functionality of Layer 1 blockchains. This feature enables Layer 1 blockchains to scale using Layer 2 solutions without any changes to their protocol.
- Scalability: Layer 2 solutions reduce the network load of a Layer 1 blockchain and reduce transaction costs.
- Transaction Speed: Layer 2 solutions increase the network’s capacity to handle more crypto transactions. These solutions enable Layer 1 blockchains like Bitcoin and Ethereum to process thousands of transactions per second.
Layer 2 blockchain disadvantages
- Layer 1 blockchain dependency: Layer 2 blockchains cannot function independently and can only work as part of the Layer 1 blockchain. Thus, the success of a Layer 2 scaling solution depends on the underlying Layer 1 network.
- Limited Features: Layer 2 solutions have limited features since they cannot function independently. These network solutions can only be applied in specific situations.
Conclusion
There is more emphasis on improving transaction speeds, gas fees, and scalability of both Layer 1 and Layer 2 blockchains as blockchain technology continues to see increasing real-world adoption. Layer 2 blockchains will continue to offer faster transaction speeds and lower costs. These benefits, combined with rising Layer 2 use cases, will give rise to new dApps in the future.
More network bridges are being developed between layer-2 platforms. These innovations will lead to higher network interoperability and new use cases. Layer 2 solutions will play a vital role in promoting the multichain world in the future. Thus, developers should ensure the growth of these solutions without compromising on the principles of decentralization, scalability, and security.
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