What are the Drawbacks of Layer-Two (Off-Chain) Blockchain Solutions?
What are “Layer One” and “Layer Two” in Blockchain?
In short, “Layer one” refers to the blockchain itself. Transactions on the first layer are secured immutably, in a way programmed to be permanent, irreversible, and cryptographically protected without the involvement of a central authority.
“Layer two” is a supplementary framework or protocol created on top of an existing blockchain system, independent of existing blockchain infrastructure. Layer-two projects are supported by their own nodes, separate from the primary blockchain. This means layer-two projects can sidestep a network’s slow transaction speeds or address scaling issues, and certain concepts can be simpler to implement off-chain. Scaling solutions such as the Lightning Network for Bitcoin, the Loom Network for Ethereum and Polygon are layer-two scaling solutions. Layer two relies on the immutability of layer one for security, and does not require changes on the primary blockchain. These advantages, however, come at a cost.
What are the Issues with Layer-Two Solutions?
There are several issues with relying on layer-two solutions as opposed to building on the first layer:
1. It Diminishes Ethereum’s Composability
“Composability” refers to the interoperability and creative freedom of Ethereum, which was a keystone of the project’s initial conception. The term “Money Legos” was coined to allude to how easily different decentralized financial options could be fitted together, particularly using Ethereum.
When creating an effectively isolated space on layer two, however, transactions become restricted to that separate protocol. Interconnectivity may be impeded or lost altogether because one layer-two dApp may have no way of interacting with another layer-two dApp on a different protocol, or with a dApp on layer one.
2. It Can Remove Liquidity from the Primary Blockchain
The importance of liquidity in any financial market is enormous, creating a healthy market wherein more transactions can be facilitated in a timely manner thanks to numerous traders opening and filling positions. When dApps create an additional, separate layer, it becomes likely that liquidity will be spread more thinly.
Ethereum needs to maintain a robust, liquid market for all financial goods and tokens on the platform, so it would be detrimental if too much potential liquidity is sent to separate layers.
3. There is Additional On-Boarding Friction (and Time)
When multiple additional layers rest on top of Ethereum, the layer-one chain and different dApps will require a great many bridges for the transfer of data and information. Additional accounts will often need to be made. From a user experience viewpoint, if funds have been sent to numerous different layer-two protocols, the difficulty of keeping track of them all and keeping them secure rises exponentially.
4. There are More Potential Security and Privacy Vulnerabilities
Additional layers necessarily lead to the need for additional trust. Users will need to do due diligence on each new layer-two protocol to ensure safety, privacy and control. Compared with the security of a mature blockchain with numerous nodes around the world, layer-two applications can be operated on much smaller numbers of nodes, which could be controlled or manipulated by a centralized authority — potentially a government. This relative lack of maturity is also likely linked to reduced fault tolerance, and the scenario in which states are not preserved and funds are lost should at least be considered, as should the relative ease of a hack.
How Does RAILGUN Privacy Fix This?
Operating from the security of layer one and all its associated fault tolerance, RAILGUN Privacy does not diminish Ethereum’s composability or liquidity, and does not create friction. Instead, using zk-SNARKs, it focuses on keeping Ethereum, ERC-20 tokens, stablecoins, and DeFi transactions private in a secure environment. As this is done directly on-chain, privacy of transactions and balances is maintained without the security vulnerabilities of external nodes, and without compromised composability, liquidity, or ease of use.
In Conclusion
The RAILGUN Privacy system sacrifices none of the highly-regarded qualities of Ethereum while at last offering on-chain privacy that will not sacrifice utility or require the multiple steps necessary for removing traceability with a mixer. The unique appeal of RAILGUN is how elegantly it works, with tokens never needing to be sent off-chain and retaining their utility within a privacy system, all while avoiding the complexity and potential pitfalls of an additional layer. RAILGUN gives the one-step privacy the Ethereum community has not only been waiting for since launch — but which it so deeply deserves.
