What are Ethereum Layer-2 solutions?
In Ethereum, every transaction needs to use a certain amount of gas so that miners can include it in a block. This limit on the number of transactions that can be processed per second has led to scalability issues for Ethereum. To solve these issues, Ethereum developers are researching and have been building various Layer-2 solutions. In this article we will discuss Ethereum gas and transaction problems, as well as Ethereum Layer 2 protocols and Ethereum Scalability.
What is a Layer 1 (L1)?
Layer 1 is the base blockchain. Ethereum is a Layer-1 blockchain because it can process transactions and smart contracts natively. Ethereum’s L1 network currently processes about 15 transactions per second (TPS). Both Ethereum and Bitcoin are L1s, and there are some protocols built on top of them such as rollups in the case of Ethereum and Lightning Network in the case of Bitcoin.
Ethereum Scalability Problem
Ethereum had scalability problems due to its design. Ethereum’s base layer can only process about 15 transactions per second. Compare that to Visa, which can handle around 24,000 TPS. The Ethereum scalability problem was due to the following reasons:
- Ethereum required all nodes to validate and execute all smart contracts
- Ethereum had a limited block size
- Fees went extremely high
Ethereum developers realized that they needed to find a way to scale Ethereum if it was going to be used by more people. They started researching and building different Layer-2 solutions.
What is a Layer-2 (L2) solution?
A Layer-2 solution is an additional protocol that sits on top of the L1 base layer in order to increase its scalability. The main goal of the L2 solutions is to increase the transaction output and speed without losing decentralization.
There are three main types of Ethereum Layer-two solutions:
- State channels
- Sidechains
- Plasma chains
- Optimistic rollups
- ZK-rollups
- Validium
State Channels
State channels are the most common type of Ethereum Layer-2 solution. They are off-chain channels between two or more parties where they can transact without going through the Ethereum network.
The most popular state channel is the Lightning Network, which is a Layer-two solution for Bitcoin. Ethereum also has its own version of the Lightning Network called Raiden Network. Other state channel solutions include Connext, Counterfactual, and Machinomy.
Sidechains
Sidechains are separate blockchain protocols that are connected to the Ethereum mainnet through a two-way peg. This allows for assets to be moved from the Ethereum mainnet to the sidechain and vice versa.
Plasma chains
Plasma chains are Ethereum sidechains that use plasma architecture. Plasma is a framework for building decentralized applications that can scale to billions of users.
Optimistic Rollups
Optimistic rollups are Ethereum Layer-two solutions that use optimistic concurrency to increase the number of transactions per second. Optimistic rollups allow for multiple transactions to be bundled together and processed in a single Ethereum transaction.
ZK-Rollups
ZK-rollups is a type of Ethereum Layer-two solution that uses Zero-knowledge proofs to increase scalability. ZK-rollups allow for multiple transactions to be bundled together and processed in a single Ethereum transaction.
Validium
Validium is an Ethereum scaling solution that uses sharding. Validium shards the Ethereum network into multiple pieces so that each shard can process its own transactions.
What next?
Ethereum Layer-two solutions are still being developed and researched. Some of them are already live on the Ethereum mainnet, while others are still in development. Ethereum developers are working hard to scale Ethereum so that it can be used by more people. Stay tuned for developments.
