Layer 2 technologies: the key to fulfilling Ethereum’s potential
By Ashley Ouyang, principal, Crypto.com Capital — @Aisashley
Layer 2 are technologies that work on top of existing layer 1 blockchains, which host decentralised apps (dapps).The main purpose of these (layer 2) technologies is to solve the scalability limitations of layer 1 blockchains and allow for more transactions and lower gas fees. Layer 2 solutions work by processing transactions separately from the layer 1 infrastructures they connect to, however, when combined together, they compose the entire network. What’s more, what makes a layer 2 different from other side chains is that it inherits the security from Ethereum mainnet directly, whereas other side chains don’t.
Assisting layer 1 blockchains with handling transactions has been critical to the crypto community for many years. Today, the most popular layer 2 technologies on Ethereum come with two variations: zero-knowledge rollups or optimistic rollups. This post will explore the differences between these two technologies and why they’re considered to be an essential part of the future of web3.
In summary: Optimistic rollups work without the generated validity proofs. That means that all transactions are processed on the blockchain. The optimistic system and the contestation period require a long withdrawal waiting period, which may lead to rejection due to potential inaccurate state and long withdrawal delay.
In contrast, zero-knowledge rollups have the advantage of a much shorter waiting period but on the flip side they consume greater computational power. In addition, zero-knowledge rollups can’t directly execute smart contracts on the underlying blockchain while some rollups still don’t offer Ethereum Virtual Machine (EVM) support which limits their potential application with dapps.
EVM compatibility is a big issue for ZK-rollups, while for optimistic rollups, the centralization of sequencers, and the development of fraud proof are some of the biggest challenges
But there’s much more to come. The development of the ZK rollups and optimistic rollups continues at a rapid pace. During the past two years we have seen an unprecedented growth in contribution, for example Polygon’s recently announced zkEVM, ZKSync and Optimism, and that has enabled transactions at high speed and low cost on blockchains.
Generally, the blockchain space is still in an early stage compared to the core technologies that power web2 services. We expect that Ethereum layer 2 solutions will optimize the cost, performance, throughput and capital efficiency of dapps . Solving these issues will go a long way to enabling the mainstream adoptions of decentralized blockchains and many of the new, user-centric models that web3 promises to bring to market.
Ultimately, layer 2s are highly meaningful for the future of web3. They’re potentially a scalable, low cost and high secure infrastructure that can be the foundation for running the web3 economy.
Scaling has two layers of meanings, first it can scale more transactions, increase the throughput, secondly, it can scale more functions to be developed on the chain, L2 provides the possibilities for more functions, smart contract templates to run on the chain, instead of off-chain. Web3 must aspire to being an economy, not just a bunch of isolated dapps. The web3 economy should empower individuals to live, learn, earn and be social in an entirely new way on the internet.
