In the universe of blockchain technology, the quest for scalability has been a constant goal. As first-layer blockchain networks, such as Bitcoin and Ethereum, gain popularity, they also face significant challenges in terms of capacity and transaction costs. This is where the innovation of layer 2 blockchains comes into play, a solution that promises to revolutionize the efficiency and capacity of these decentralized networks.
Understanding Blockchain: Essential Foundations
Before entering the world of layer 2 blockchains, it's crucial to understand the fundamental concepts of blockchain technology itself.
At its core, a blockchain is a decentralized, distributed database that immutably records a list of transactions. These transactions are grouped into blocks and linked together using cryptography, forming a continuous chain.
This technology has proven to be revolutionary in various fields, from finance to logistics, providing unprecedented transparency and security. However, it is no stranger to certain limitations, with scalability being one of the most notable.
What is Layer 2 (L2)?
To fully understand the importance of layer 2, it is essential to first consider the nature of layer 1 (L1) in a blockchain. Layer 1 is the fundamental layer of a blockchain network, which includes protocols such as Bitcoin And Ethereum. At this layer, transactions are validated and recorded directly on the main chain.
However, this approach, while valuable in terms of security and decentralization, poses significant challenges in terms of scalability. The processing speed and transaction capacity in layer 1 blockchains are often limited by the need for each node in the network to validate and record every transaction.
This is where layer 2 comes into play. In essence, layer 2 is an additional layer built on top of an existing layer 1 blockchain. Its main purpose is to provide a solution to scalability challenges, allowing a higher number of transactions per second (TPS) and reducing transaction fees.
How do L2 blockchains work?
Layer 2 blockchains work as additional layers built on top of first-layer blockchains, such as Ethereum Or Bitcoin. Its main objective is to improve the scalability and efficiency of these networks. They achieve this by taking part of the transaction process outside the main chain. Instead of each transaction being recorded directly on the main blockchain, in an L2, multiple transactions are grouped and processed independently of the main chain.
This approach significantly reduces the workload on the main chain, resulting in faster processing times and lower transaction fees. In addition, L2s allow users to move assets between the main chain and the secondary layer efficiently, providing flexibility and speed in transactions.
Together, these layer 2 solutions offer an effective way to address the scalability challenges faced by first-layer blockchains, paving the way for a faster, more efficient and accessible blockchain ecosystem.
Types of Layer 2 Blockchains
There are several operating approaches and typologies for implementing a layer 2, each with its own characteristics and advantages. Below we leave you with a list of the main ones.
Status Channels
'State channels' are a type of Layer 2 solution that allows two or more parties to carry out multiple transactions off-chain, without the need for each transaction to be disseminated to the entire network. This can significantly improve the scalability of a blockchain by reducing the number of transactions that must be processed on the network and also reducing fees.
An example of using status channels is the Lightning Network, which is a layer 2 protocol that operates on the Bitcoin blockchain. The Lightning Network allows users to carry out multiple off-chain transactions, without the need for each transaction to be disseminated to the entire network. This dramatically improves the scalability of the blockchain of Bitcoin, provides instant settlement and reduces transaction fees.
Side Chains
Sidechains are secondary blockchains that operate autonomously but are interconnected with a main chain. These side chains, although they have different rules and characteristics, allow the bidirectional transfer of assets and data with the main chain.
Its implementation mainly responds to the need to address scalability problems by redistributing certain transactions or specific functions to a secondary chain. This approach alleviates the burden on the main chain, facilitating improved performance and faster confirmation times.
Sidechains can be designed for particular use cases, such as micropayment transactions or specialized smart contracts, without affecting the integrity and security of the main chain. The transfer of assets between the main chain and the side chain is carried out through secure bridges, and cryptographic measures are implemented to ensure the security of these operations.
An example is the Liquid network, a side chain of the Bitcoin. The Liquid Network allows users to link BTC to the Liquid network as “Liquid Bitcoin (LBTC)”. This can lead to greater liquidity and allow for faster and cheaper transactions, while allowing other assets to be defined in the network.
Optimistic Roll-ups
Optimistic roll-ups are Layer 2 solutions for Ethereum that allow users to execute smart contracts off-chain, without the need for every transaction to be disseminated to the entire network. This improves the scalability of the Ethereum blockchain and reduces transaction fees.
Optimistic Roll-ups are secured by Layer 1 of Ethereum, since all transactions are eventually settled in Ethereum. However, the downside here is that these Roll-ups “optimistically” assume that the transactions are valid, and they impose a seven-day verification period before you can withdraw your funds to the Ethereum main chain.
Examples of Roll-ups are Arbitrum And Optimism. Both are compatible with the Ethereum Virtual Machine (EVM), which means that code written in Ethereum can be easily carried.
In late 2022, Optimism launched the OP Stack on Optimism to build blockchains and new experimental use cases from scratch. It allowed its users to build OP Craft (Minecraft on Optimism, a world completely on blockchain) and could also allow Roll-ups to settle in Bitcoin.
Arbitrum followed suit by launching a new blockchain called Arbitrum Nova, which offers even lower transaction costs and higher transaction volumes. As more Ethereum transactions are processed using roll-ups, users can expect fee reductions of 10 to 100 times.
Zero-Knowledge Roll-Ups (ZK-Rollups)
Zero-knowledge roll-ups use something called zero-knowledge proofs (ZK-proofs) to verify the validity of thousands of transactions in a batch and then publish minimum summary data to the main chain. A zero-knowledge test allows one party (the tester) to demonstrate to another party (the verifier) that a statement is true, without revealing any information about the statement itself.
This can be used to improve privacy in a blockchain, as it allows transactions to be verified without revealing sensitive information about the transaction. Zero-knowledge proof technology will likely be a key component for building business use cases so that users can show only the information they want to third parties while securely transmitting sensitive data.
Plasma is a framework for improving scalability in public blockchains such as Ethereum. As described in the original technical document, Plasma chains are built on top of another blockchain (called a “root chain”). Each “secondary chain” extends from the root chain and is generally managed by a smart contract deployed on the main chain.
The Plasma contract performs, among other things, the function of a bridge that allows users to move assets between the Ethereum Main Network and the plasma chain. Although this makes them similar to side chains, plasma chains benefit, at least to some extent, from the security of the Ethereum Main Network. This is different from side chains, which are fully responsible for their own safety.
To learn more about this type of blockchain, you can consult the whitepaper at This link.
Conclusions
Layers 2 in blockchain are destined to play a fundamental role in the evolution of this technology. By moving certain operations outside the main chain, these layers allow significant scalability, which translates into the ability to handle a greater volume of transactions. Not only does this advance reduce transaction costs, but it also speeds up confirmation times, making blockchains more efficient and accessible for a variety of use cases.
In addition, the adoption of decentralized applications (DApps) is expected to see a significant increase thanks to these improvements. In addition, layers 2 have the potential to strengthen interoperability between different blockchains and protocols, which would facilitate fluid interaction between assets and applications in multiple blockchain environments.
In this context, it is recommended to be aware of the new layers and novelties that are constantly being developed. L2 technology is evolving rapidly, and even more innovative and specialized solutions are likely to emerge in the near future. Being aware of these advances can provide a significant advantage in understanding and taking advantage of the capabilities offered by these improvements in blockchain technology.
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