With the number of existing blockchain networks, platforms like Ethereum face scalability problems. Ethereum, famous for initiating decentralized applications and smart contracts, currently performs 7 to 15 transactions per second.
This is quite striking compared to older conventional payment systems such as Visa, which can transact approximately forty-five thousand transactions per second.
The disparity highlights a fundamental issue: The issue of scalability remains the biggest problem because Ethereum was designed with the feature that every node must adopt the transaction.
This is a significant drawback because the need for Ethereum’s functionality increases, especially in organizational contexts where the majority of subsequent processes are powered by smart contracts, specifically automated, rule-based transfer of assets.
The transactions per second have gradually started stressing the Ethereum capacity of processing, which in turn increases the fees for the transaction and the time taken to process the transactions.
In response to this problem, Layer 2 solutions have become a significant innovation to help fulfil end-users’ desires. These Layer 2 solutions are constructed upon the base blockchains and aim to improve the transactions’ speed and number while preserving the base chain’s security.
They provide a solution for the blockchain’s scalability problem since they allow the shifting of transaction processing of the blockchain to off-chain networks, hence increasing transaction speed, reducing costs and enhancing the adoption of blockchain technology.
Understanding Layer 2 Solutions
Layer 2 (L2) solutions are enhanced implementations of new features and procedures built on top of the underlying Layer 1 blockchain, mainly to deal with scalability issues and transaction sluggishness.
By operating as secondary layers, these solutions tackle the problems with traffic without altering the core structure of the blockchain.
How Does Layer 2 Solutions Work
The Layer 2 solutions work in various ways, and they are highlighted below:
- Offloading Transactions: The Layer 2 solutions are a way of helping Layer 1 by eliminating the need for main chain involvement for certain transactions. This has the overall effect of easing congestion and increasing the transaction rates. They undergo transaction processing on the secondary layer before being grouped together as a single transaction before being processed on the Layer 1 chain. It also helps reduce the number of transactions that are vying for an available slot on the parent chain, hence making it efficient in terms of the time and cost affording each transaction.
- Maintaining Security: Although Layer 2 solutions function off-chain (work in conjunction with the Layer 1 blockchain but handle specific processes off the main chain to enhance scalability and efficiency), they are safe from attacks affecting Layer 1. In this case, they rely on the fact that specific security characteristics of the main chain can be used to resolve the final results of transactions. For example, assets can be collateralized to the initial blockchain using a bridging smart contract, guaranteeing the relational L2 transactions’ soundness and accuracy.
- Improving Scalability: Because transactions are shifted to another chain linked to the main chain, Layer 2 solutions improve the scalability efficiency of the blockchain environment. This increases the velocity of the blockchain, and in turn, it has brought down the fee so that it becomes paramount to many people.
Key Features of Layer 2 Solutions
- Increased Throughput: Layer 2 solutions are designed to process the transaction quicker than Layer 1 blockchain, hence improving the throughput.
- Reduced Fees: These solutions also assist in reducing the fees engaged with the blockchain interaction so that the main chain congestion can be addressed
- Preserved Security: While Layer 2 solutions are off-chain, they aim to maintain the security of the underlying blockchain network and, hence, the transactions.
- Unmodified Protocol: Layer 2 solutions improve scalability while maintaining the basic structure of the chain to avoid modifying the principal chain.
Notable Layer 2 Solutions
- Plasma: The plasma “child” chain executes transactions and sends a summary back to the main chain. This helps in managing congestion on the main blockchain of the ledger while at the same time enhancing the levels of security.
- Lightning Network: Being an application specially created for the Bitcoin blockchain, the Lightning Network is built to quickly and cheaply perform transactions by creating off-chain payment channels.
- Arbitrum: Designed and constructed on Ethereum, it applies optimistic rollups to increase efficiency while preserving the security and compatibility of Ethereum.
Conclusion
Overall, Layer 2 solutions are quite persuasive when it comes to growing blockchain networks. There are several advantages associated with their use including increased transaction throughput rates, reduced costs and improved extensibility and the base blockchain.
Layer 2 solutions are critically important to solve the problems connected with the scalability of Ethereum and other blockchains. They also increase the transaction rate and decrease costs by offloading processing from the main chain while preserving security.
The mentioned technologies, such as Plasma and Arbitrum, show the ability of these solutions to solve scalability issues on different blockchains.
With the development of these blockchain technologies, Layer 2 solutions will raise the utilization rate and capability with enhanced ease and performance, hence facilitating wider uptake and contributing to a more optimized and functional near future.
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