Ethereum Layer 2: The Future of Blockchain Scaling

Ethereum's Layer 2 scaling solutions are designed to increase the network's transaction capacity without sacrificing security or decentralization.

Layer 2 scaling solutions, such as Optimism and Polygon, allow for faster and cheaper transactions by processing them off the main Ethereum blockchain.

These solutions use various techniques, including rolling upgrades and stateless clients, to improve scalability and reduce congestion on the main network.

Layer 2 solutions can process thousands of transactions per second, making them a crucial component of Ethereum's future scalability.

Ethereum is an open-source blockchain platform that enables developers to build and deploy decentralised applications and smart contracts.

Proposed by Vitalik Buterin in late 2013, Ethereum officially launched in 2015.

At its core, Ethereum is a decentralised network of nodes that collectively maintains a shared database called the Ethereum Virtual Machine.

These nodes are capable of executing smart contracts, which include the terms of the contract directly written into code.

Ethereum's scaling challenges are well-documented, with the network currently handling only about 27 transactions per second (TPS), a far cry from alternative networks like Avalanche at 4,500 TPS or Solana at 50,000 TPS.

As the total number of active users and applications on the Ethereum network has grown, so have the costs associated with routine network transactions, making it difficult for average users to make financially prudent on-chain transactions.

Ethereum's base layer is currently maxed out, with over one million transactions per day, causing gas prices to skyrocket.

The concept of the blockchain trilemma states that a typical blockchain can only focus on two out of three elements: security, decentralization, and scalability. Ethereum has prioritized security and decentralization, sacrificing a level of scalability in the process.

This tradeoff has led to occasional instances where users can't make transactions due to prohibitive costs, making it essential for Ethereum to address its scalability challenges and defend itself against competitors.

On-chain scaling solutions are being developed to improve Ethereum's transaction throughput capacity, such as sharding, which separates the Ethereum database into smaller individual chains, increasing transaction validation in a given period.

The complexity of sharding has led developers to explore alternative solutions, like "danksharding", which keeps the base layer simple while outsourcing most execution to layer 2 platforms.

EIP-4844, a planned upgrade for the second half of 2023, introduces "proto-danksharding", a new type of transaction that doesn't compete with gas usage of typical transactions, allowing batches of transactions from layer 2 networks to settle far cheaper.

Off-chain solutions, like layer 2 networks, allow transactions to occur in a separate environment from the main chain, increasing transaction speed and reducing base layer network congestion.

Layer 2 networks inherit their security from the underlying Ethereum consensus and have a primary goal of increasing transaction speed, reducing base layer network congestion, and inheriting decentralization and security from the underlying layer 1 blockchain.

Rollups, a popular type of layer 2 network, allow transactions to take place in a separate environment from the layer 1 chain, but still rely on Ethereum's security by batching, compressing, and relaying transaction data back to mainnet.

Optimistic rollups group a large number of off-chain transactions together before submitting them to the Ethereum mainnet, using compression techniques to lower the amount of data posted on Ethereum, resulting in lower transaction fees.

Zero-Knowledge rollups also bundle transactions together to be executed off-chain, producing validity proofs to prove that their proposed changes to Ethereum's state are correct, leading to several benefits, such as having no delays when transferring funds from a ZK rollup to Ethereum.

Other layer 2 solutions include plasma, validium, and sidechains, which offer different approaches to scaling Ethereum, each with its own trade-offs and benefits.

Layer 2 solutions can achieve lower transaction fees, making the blockchain more feasible for dapps that require frequent transactions, such as games and decentralized social networks.

Some layer 2 solutions, like Loopring and zkSync, have already achieved transaction fees of under 5 cents per transaction, aligning with Vitalik Buterin's vision for the internet of money.

Layer 2 solutions are designed to scale the Ethereum network by handling some of the transaction load from the base-layer blockchain. This helps reduce congestion and lowers gas fees for users.

The most popular Layer 2 technologies are optimistic rollups and Zero-Knowledge rollups (ZK rollups), although other solutions like sidechains, state/payment channels, plasma chains, and validiums exist.

Optimistic rollups group a large number of off-chain transactions together before submitting them to the Ethereum mainnet, using compression techniques to lower the amount of data posted on Ethereum. This results in lower transaction fees for users.

Notable examples of optimistic rollups include Arbitrum, Optimism, and Boba Network. These solutions have been successful in reducing transaction costs, with some even achieving the goal of $0.05 per transaction, as envisioned by Vitalik Buterin.

Zero-Knowledge rollups (ZK rollups) also bundle transactions together to be executed off-chain, reducing the amount of data to be posted on-chain. They produce validity proofs to prove that their proposed changes to Ethereum's state are correct.

There are two main types of validity proofs: ZK-SNARK and ZK-STARK. ZK rollups are considered highly secure, inheriting the security of the Ethereum mainnet and promoting security, censorship resistance, and decentralization.

Rollups are currently the preferred Layer 2 solution for scaling Ethereum, according to the Ethereum official website. However, other Layer 2 technologies like plasma chains and validiums also exist.

Here are the two main types of Layer 2 solutions:

Both optimistic rollups and ZK rollups offer significant scalability improvements, with some solutions able to process up to 9,000 transactions per second (tps) or more.

Polygon is a scaling solution that aims to make Ethereum more efficient.

It has a long-term vision of scaling every possible use-case according to its needs.

Polygon 2.0 is a protocol that currently lives on Ethereum and includes Polygon PoS, Polygon zkEVM, and Polygon CDK, with Polygon Miden coming soon.

These chains will be interoperable, allowing users to execute near-instant cross-chain transactions without bridging back to Ethereum.

ZK proofs make this possible.

Polygon CDK is an open-source chain development kit that allows anyone to deploy their own ZK-powered L2s.

These are appchains, meaning they're deployed to fit a particular use-case.

Polygon CDK is modular and configurable for performance and cost.

Chains built with Polygon CDK are interoperable with all other Polygon CDK chains.

They benefit from massive liquidity across all networks while maintaining scalability, security, and sovereignty.

Layer-2 solutions like Polygon can significantly lower gas fees for users by combining multiple transactions into a single one.

This is a major benefit for use-cases like games and decentralized social networks.

Some Layer-2 solutions, like Loopring and zkSync, have already achieved transaction costs as low as $0.03 and $0.04.

Layer-2 solutions also inherit the security of the underlying Ethereum consensus.

This makes them highly secure and suitable for use in a variety of applications.

Plasma is a Layer-2 scaling solution that uses a combination of smart contracts and cryptographic verification to offload transactions from the Ethereum mainnet to plasma chains, which periodically report back to the main Ethereum blockchain and use it to settle any disputes.

It was first proposed by Joseph Poon and Buterin in August 2017, but the Ethereum community has generally moved on from Plasma in favor of rollups.

Validium is another scaling solution that uses validity proofs, similar to ZK rollups, to maintain the integrity of transactions without storing transaction data on the Ethereum mainnet.

This approach introduces trade-offs, but it also offers significant scalability improvements, potentially reaching around 9,000 transactions per second (tps) or more.

Sidechains, such as Polygon (formerly Matic Network) and Gnosis (previously xDAI), are Ethereum-compatible independent blockchains that use their own consensus models and block parameters to process transactions.

They are considered by some to be Layer-2 solutions, but they are actually independent blockchains that use a two-way peg to move assets between the L1 and the sidechain.

Here is a brief overview of other Layer-2 solutions:

These Layer-2 solutions offer different approaches to scaling the Ethereum network, and they are all worth exploring in more detail.

Ethereum Layer 2 solutions are designed to scale the Ethereum network, increasing its transaction capacity and reducing fees.

To start using Ethereum Layer 2, you'll need to understand the different types of solutions available, such as Optimism, Arbitrum, and Polygon.

Optimism is a popular Layer 2 solution that uses optimistic rollups to process transactions off the main Ethereum chain.

Arbitrum is another well-known solution that uses a two-phase verification process to validate transactions.

Polygon is a Layer 2 solution that uses a sidechain architecture to increase scalability.

You can start by choosing a wallet that supports Ethereum Layer 2, such as MetaMask or Trust Wallet.

These wallets allow you to interact with Layer 2 solutions and send transactions.

It's essential to research and understand the fees associated with each Layer 2 solution, as they can vary significantly.

By following these steps, you'll be well on your way to getting started with Ethereum Layer 2.

Ethereum Layer 2 solutions are making a huge difference in the world of crypto. They're not just small fixes, but crucial for more people to start using blockchain technology.

These solutions are tackling scalability issues, making blockchain networks faster and cheaper. This is a game-changer for the digital economy.

As Ethereum Layer 2 solutions improve, they'll open up blockchain to more people worldwide. This progress is about creating a digital economy that includes everyone.

The future of blockchain is looking bright, and it's all thanks to the hard work being done on Ethereum Layer 2 solutions.