Wisdom Oparaocha On Benefits of Layer 2 Technology in the Current Decentralised Ecosystem

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Published in
4 min readMar 12, 2022

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Recently, several industries have seen numerous attempts to employ blockchain technology as a technical solution to their business problem. The majority of these implementations have been successful, while others have faced some of blockchain’s native difficulties.

In the current decentralised ecosystem, Scalability is a challenging issue with base blockchains such as Ethereum processing a paltry of 15 to 20 transactions per second. Other difficulties like the high cost of gas fees and a questionable level of privacy in the ecosystem without sacrificing the concept of decentralisation led to the development of Layer 2 Technology as an efficient solution.

Photo by Ilya Pavlov on Unsplash

“Layer 2” is a term that refers to a service that is created on top of the layer “1” public blockchain. Layer 2 Technology, often termed as the off-chain solution, majorly scales blockchain transaction capacity and reduces gas fees while ensuring that the decentralisation effects of the distributed protocol are kept intact. Here, we discuss the benefits of the Layer 2 technology to the decentralised ecosystem.

  1. The minimum amount of data storage: The basic advantage of layer 2 technology is that it reduces the quantity of data stored on the base layer. Taking transactions off the base layer while keeping them tied would free up processing resources for other tasks while maintaining security and decentralisation.
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2. Higher Transaction throughput: Blockchain networks can act as the decentralised web ecosystem’s layer 1 (or base layer). Layer 1 is the security layer that ensures data transactions are immutable and cryptographically secure without the need for a central authority. Data processing on the blockchain is drastically reduced thanks to layer 2 technology, which runs computations off-chain, lessening the load on the base layer. As a result, transaction throughput will increase, leading to hundreds and even thousands of transactions being processed per second compared to the initial 15.

3. Predictability of transaction cost: With the layer 2 technology, an operator may charge a fixed/guaranteed price per transaction due to certain Layer 2 technology implementations. For varying lengths of chain operation, sidechain operators may provide flat-rate pricing. The chain’s transactions would be mostly gasless. Even with changeable market-based pricing, Layer 2 technology lowers transaction costs significantly. Depending on Layer 2 technology, Layer 2 transaction costs may vary linearly as Layer 1 gas prices change (rollups), or they may be somewhat decoupled because Layer 1 data storage is limited (valium, plasma, etc.). Variability’s effects may be decreased due to the lower total cost.

4. Reduced Gas Fees: The cost of transactions on Layer 2 technology is substantially cheaper since anchoring Layer 2 transactions on Layer 1 uses far less gas than executing transactions directly on Layer 1. The particular Layer 2 technology determines the amount of money saved. The most cost-effective Layer 2 technologies include state channels, plasma validium, and sidechains, while Layer 2 technologies that store transaction data on Layer 1, such as rollups, give smaller (but still significant) savings.

5. Data Security: Eighty per cent of our information is classified as sensitive, confidential, or personally identifiable information about clients, customers, or users. Encryption alone is insufficient. Given enough time, any data may be deanonymised and decrypted. Certain Layer 2 technologies, such as validium and side chains, keep all Layer 2 data off of Layer 1 and within the Layer 2 instance. For example, suppose several organisations write data to the same shared Layer 2 instance. In that case, they will see each other’s data (similar to a consortium), but if each company has its instance, the data can be kept private.

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6. Ease of Cryptocurrency payment: Those who deal in cryptocurrencies as a business has to hold crypto, make purchases in crypto, and pay for business deals in crypto. All of which is quite difficult depending on who the business partners are. With layer 2 technology, if a third-party operator runs the Layer 2 instance, the operator can accept payment for any Layer 2 transactions in any currency they like, including traditional fiat. Thus, making payments completion an easy one.

In conclusion, the off-chain solutions developed in the layer 2 technology will aid in overcoming most of the scaling issues faced by Ethereum, resulting in decentralised systems with Internet-level Scalability.

By Wisdom Oparaocha

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