Layer 2 has become a key area of interest for investors in the crypto market over the past period and in the foreseeable future. This is evidenced by the significant growth of Layer 2 projects, which have seen increases of at least 200%. So, what is Layer 2? Let’s explore Layer 2 with Tonraffles in the article below!
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What is Layer 2?
Layer 2 refers to solutions developed on top of Layer 1 blockchains to enhance scalability without altering the core features of the underlying Layer 1 blockchain.
To better understand Layer 2, we need to grasp what Layer 1 is. Layer 1 blockchain serves as the foundational system for verifying and finalizing transactions independently of other blockchains.
Examples: Ethereum and Bitcoin are prime examples of Layer 1 blockchains because they meet the following criteria:
- Security and validation through a network of nodes.
- Block producers.
- Transaction history storage.
- Consensus mechanisms.
While Layer 2 technology can be applied to any blockchain, the primary focus from the investment community and individual users has been on Ethereum’s Layer 2 solutions. This attention underscores the robust development and significant trend of Layer 2 within the blockchain community.
Why is Layer 2 primarily developing on Ethereum rather than other blockchains like Solana and Avalanche?
The reason lies in the sheer size and active user base of the Ethereum ecosystem compared to other Layer 1 blockchains like Avalanche and Solana. This large ecosystem causes issues such as high gas fees and slower transaction speeds.
To address these issues, Ethereum’s Layer 2 solutions aim to alleviate the burden on the Ethereum network, providing faster transactions at lower costs while retaining Ethereum’s security and decentralization benefits.
How Layer 2 solves Layer 1 problems
Layer 2 refers to solutions developed on top of Layer 1 blockchains to enhance scalability while retaining the beneficial properties of the underlying Layer 1 blockchain.
Common Issues with Layer 1
Layer 1 blockchains play a crucial role in the development of decentralized applications (Dapps) and ensure the decentralization of the blockchain. However, scaling remains a significant challenge for Ethereum.
The primary issue arises from the transaction validation mechanism on the blockchain. Each transaction requires validation from nodes, and only when consensus is reached, is the transaction added to the blockchain. With a surge in users and node limitations, the blockchain can become overloaded, leading to congestion and increased transaction fees.
To overcome these challenges, developing network scaling solutions is essential, including integrating Layer 2 solutions to reduce the load on Layer 1. These improvements help address scalability issues and meet the increasing user demand.
How Layer 2 Solutions Address Layer 1 Issues
Layer 2 solutions are developed with the following common goals:
- Enhanced Transaction Processing: Layer 2 increases transaction processing capacity, reduces network congestion, and expands bandwidth, addressing transaction bottlenecks.
- Reduced Costs: Layer 2 lowers costs for users through various measures, making transactions more economical.
- Security and Decentralization: Layer 2 maintains the security and decentralization of Layer 1 while enhancing network scalability.
Although Layer 2 solutions are expected to meet these needs, some issues remain unresolved. For instance, the security mechanism of Optimistic Rollups like Optimism faces challenges, and the transaction speed of ZK-Rollups is still slower than desired. Nevertheless, these solutions continue to attract significant investor attention.
Additionally, moving assets between Layer 2 solutions (specifically Layer 2 on Ethereum) is still quite limited, particularly in terms of asset transfer time and transaction fees. Without third-party bridges, users must use Ethereum as an intermediary, which incurs significant time and costs despite Ethereum’s reduced transaction fees.
Using third-party tools like bridges (Orbiter Finance, Stargate Finance, etc.) or similar products can reduce time and costs, but these expenses are still relatively high compared to a standard transaction.
Despite these weaknesses, the continuous technological advancements and efforts to improve Layer 2 solutions cannot be denied.
Moreover, Ethereum’s EIP-4844 update is expected to reduce gas fees within the Ethereum ecosystem, particularly benefiting Rollup solutions. ZK-Rollups, for example, can achieve gas fees that are 40-100 times lower than Ethereum’s Layer 1.
In January 2024, Vitalik Buterin proposed increasing Ethereum’s gas limit by 33%, raising the maximum gas limit from 30 million to 40 million gas to expand block size and enhance transaction processing capacity. While he cautioned about the risks of spam transactions affecting fee stability, representatives from prominent Layer 2 solutions positively view this proposal as a crucial step for the community.
Layer 2 is an area of significant interest for crypto investors in recent and upcoming times. This is evidenced by the notable growth of Layer 2 projects, achieving at least 200% increases. So, what exactly is Layer 2? Let’s explore Layer 2 through the following detailed article.
Some notable Layer 2 projects in 2024
Optimism
Optimism is a Layer 2 solution aimed at scaling Ethereum, reducing transaction fees, and increasing transaction speed to improve user experience. Optimism utilizes Optimistic Rollups technology, a technique that allows for many off-chain transactions to be processed and only updates the main chain when necessary. This enhances efficiency and reduces costs. Optimism has garnered significant attention from developers and investors alike due to its potential to substantially enhance Ethereum’s performance.
Arbitrum
Arbitrum is another Layer 2 solution designed to enhance smart contracts on Ethereum, with the primary goal of increasing speed and scalability. Arbitrum employs a mechanism similar to Optimistic Rollups to ensure that transactions are processed quickly and at lower costs. Additionally, Arbitrum also incorporates additional security features to protect users and their assets.
Other notable Layer 2 projects
zkSync
zkSync is a Layer 2 solution utilizing Zero-Knowledge Rollups (ZK-Rollups) technology. This technology enables fast and secure transactions by proving that transactions are valid without revealing detailed information about them. This not only enhances security but also helps reduce transaction fees.
Polygon (Matic)
Polygon is a Layer 2 scaling solution for Ethereum, providing a comprehensive solution to address scalability issues and high costs. Polygon employs various scaling technologies such as Plasma, Rollups, and sidechains, offering developers multiple options to improve their applications.
StarkWare
StarkWare develops Layer 2 solutions using STARK (Scalable Transparent Argument of Knowledge) technology. StarkWare’s products, such as StarkEx and StarkNet, help scale Ethereum by enabling the processing of thousands of transactions per second with lower costs and higher security.
Conclusion
Layer 2 solutions are rapidly developing and attracting significant interest from the blockchain community and investors. Projects like Optimism, Arbitrum, zkSync, Polygon, and StarkWare all contribute to improving Ethereum’s performance and scalability, promising to bring many benefits to users in the future.
