Layer 2 protocols explained — which ones should you look out for

Everyone that has been around Crypto has undoubtedly come across the term “Layer 2” more than once, but what does it mean?

Before we jump into it, we’ll start by explaining the meaning of Layer 1 solutions. Bitcoin and Ethereum are examples of Layer 1 protocols, as every transaction is settled on their network.

With the exponential rise of cryptocurrency adoption, however, Layer 1 solutions come short when met with the challenge of scalability, and therefore, Layer 2 solutions need to come into play.

What is Layer 2?

Layer 2 refers to secondary structures/protocols built on top of existing blockchains with the primary objective of reducing transaction speeds and enhancing the blockchain’s scalability capacity.

Layer 2 protocols offer several solutions, but mostly, they move the workload off-chain to prevent the network from being obstructed. In short, Layer 2 solutions devise a secondary framework where transactions and processes occur autonomously from the main chain, hence being referred to as off-chain scaling solutions.

Some Layer 2 solutions that are making blockchains more efficient

Plasma

These solutions create an additional chain to the main chain, facilitating faster transactions at lower costs since blocks don’t settle on the blockchain, and there is no need to save transaction data on the ledger.

It is a very useful and practical solution, but it has some limitations. This framework does not support all kinds of transactions, like some more complex DeFi activities.

Some Examples of Plasma solutions are OMG or Polygon.

Sidechains

As the name suggests, sidechains run parallel to the blockchain, separately and independently, using their consensus algorithms. Connectable to Ethereum via “two-way bridges” and compatible with Ethereum Virtual Machine (EVM), they are somewhat limited, less decentralized, and have a bigger degree of vulnerability to malicious attacks.

Some examples of sidechains are xDAI and Skale.

Channels

Channels enable two-way communication between blockchain users. This causes an immediate reduction of waiting time, as there is no need for validation from a third party.

The most notorious limitation is that the users need to be known in advance and are required to deposit funds into a multisig contract. Setting up channels between users is also a lengthy operation.

Some examples of channels are Connext and Raiden.

Rollups

Rollups execute transactions outside of the Layer 1 blockchain and post the data from the transactions on it, keeping it secure.

There are two different Rollup security models:

• Optimistic Rollups: In this model, rollups assume transactions are valid by default and only conduct computation to detect fraud if there is a challenge.
• Zero-Knowledge (ZK) Rollups: Run all computations off-chain and submit the validity proof to the base layer or mainchain.

Like most Layer 2 solutions, rollups increase transaction output and reduce gas fees.

Some examples of ZK rollup solutions are Loopring or StarkWare. Optimistic rollups are currently being developed by Optimism.

Hydra, Cardano’s native layer-2 scalability solution

Cardano’s Layer 2 solution was designed alongside the blockchain as a preemptive solution for the blockchain’s eventual scalability issues.

Hydra provides the network with greater efficiency by enabling most of the transactions to be processed off-chain, using the main-chain ledger as the secure settlement layer.

Hydra proposes the concept of “isomorphic state channels or, in simpler terms, off-chain ledger siblings connected between each other and the main chain. Each of these chains is called a Head.

The Hydra Head protocol is still in testing phase and, when fully operational, will enable a more efficient network with much better transaction times and friendlier fees.

About KICK.IO

Founded by a team of DeFi and traditional finance professionals,KICK.IO is the first Initial Decentralized Offering (IDO) launchpad and project accelerator to take full advantage of the Cardano (ADA) ecosystem. $KICK supports projects launched on the Cardano blockchain and offers full support for Cardano native tokens.

We focus heavily on the decentralization ethos that is so tightly upheld by the majority of the cryptocurrency community, ensuring that the funds raised on our platform are directly sent to the project founders and that the tokens generated are distributed to holders in the same fashion.

KICK.IO ensures you have access to the best projects with the best timing, allowing for higher potential returns.

To learn more about KICK.IO visit our Website and be sure to follow us on Twitter, Telegram, Announcement channel, and Medium. The project is currently in the private sale stage, and inquiries can be sent here.