Making sense of L2: the logic of sidechains
If you’ve been following blockchain development lately you may have come across discussions of layers. In fact, there are just two layers, popularly known as L1 and L2.
So what are these blockchain layers and how is L2 revolutionising blockchain tech?
Sit back while I help you make sense of L2.
What is a Layer 1 blockchain?
A layer 1 blockchain, or L1, is a traditional blockchain network. By that, I mean a chain which provides the full infrastructure required to run an independent decentralised ledger. Layer-1 blockchains can validate and finalise transactions without the need for another network. Examples include major names like Bitcoin and Ethereum.
Until very recently L1s were the only type of blockchain network available.
Scalability: the major challenge with L1
L1 has always had its challenges, and these are becoming even more noticeable as blockchain technology becomes fundamental to world-changing projects, notably metaverse building.
The most significant issue with L1 is scalability. Blockchains are always fighting to balance the big three functions: decentralisation, security, and scalability. Sometimes called the Blockchain Trilemma, L1 networks struggle to provide all three benefits and scalability always loses.
The pattern goes like this:
1.Blockchain gets popular = more computers on the network & more transactions to process.
- Security gets better: More computers are great for security as there are more copies of the ledger in play so the network is more decentralised.
- Speed gets worse: More computers do not increase the transaction processing speed, while more transactions mean network congestion.
2. Low-speed & high network demand = gas wars
The result is a slow, expensive blockchain network that is hard for people to use and build on.
Sounds pretty familiar, right?
So the big question is if scalability is such an inevitable and major problem with L1, why has no one fixed it yet? To understand this we need to consider the core function of a blockchain.
Making blockchain faster: the transaction ordering machine
A simple way to see a blockchain is to consider it as a transaction ordering machine.
Transactions arrive at the network at any time, from anyone and in any order. The blockchain’s job is to solve the double-spend problem and make sure that no one is spending money they don’t have. They do this by organising the transaction requests into a single valid order.
So in a lot of ways a blockchain works like a transaction ordering funnel:
- Transactions come into the funnel.
- The consensus protocol determines how wide the funnel is.
- Out of the other end comes a set order of transactions, organised into blocks of information that the whole network has agreed on.
In L1 the funnel simply isn’t big enough to process all these transactions at a fast enough pace. This results in gas wars, as people fight to have their transactions included in the funnel.
The real challenge for scalability is working out how to make the funnel bigger.
How to make the funnel bigger (and go faster)?
So what solutions have we come up with to increase the transaction funnel and get transactions processing faster?
- Make the L1 funnel bigger: This involves redesigning and optimising the structure of blockchain so it can handle more transactions. It’s something that most newer blockchains, including CENNZnet, are trying to achieve. But this will likely take time and experimentation.
- Shrink the transactions: What if we didn’t have to make the funnel bigger, we could just make the transactions smaller, so more could fit? This is the idea behind rollups.
- Make more funnels: Layer 2 sidechains offer a multichain future, where the functions of an existing L1 are preserved and transactions can be run on another chain to increase processing speed.
The future lies in layer 2 sidechains
So what is a layer 2 blockchain? L2s are third-party integrations that can be used in conjunction with an L1 blockchain. In this system, L1s are used as a base network. An L2 links to the base network and operates as a sidechain, processing transactions for the L1 and providing additional features. This creates a faster and more dynamic decentralised system overall.
The link between an L1 and L2 is usually built using a bridge protocol which allows tokens and events to move between chains.
L2 sidechain solutions create the best of both worlds. On the one hand, the superior security, decentralisation and liquidity of L1s like Ethereum, combined with the faster speeds, lower gas fees and unique features offered by a sidechain.
The CENNZnet L2 Sidechain
CENNZnet is both an L1 and L2 sidechain — we run our own blockchain as well as provide an optimised sidechain solution for Ethereum users. We are working with future thinking decentralised projects who need faster transaction speeds to put the best experience possible in the hands of the user.
CENNZnet’s side chain offers:
Ethereum Bridge
What connects CENNZnet to Ethereum is our bridge protocol Emery. This gives us the best of L1 and L2:
- We can anchor high-value asset security on Ethereum, while
- Providing fast and affordable operations on CENNZnet.
For example, we can:
- Act in response to a DAO vote on Ethereum
- Check that an address owns an NFT on Ethereum, take action on CENNZnet e.g. equip/unequip items, swap burrows for Fluf
EVM Compatability
The Ethereum smart contract system is now standard for the blockchain world. CENNZnet’s EVM module adopts this standard and makes it super easy for developers to onboard. There are no new languages required to start building and devs can simply bring existing DApps, contracts and mature tools from Ethereum and deploy them on CENNZnet.
EVM compatibility also creates a familiar experience for DApp users. For example, Metamask and other features will work just as well on CENNZnet.
Dual token model
We are committed to low gas fees now and forever. Our L1 network operates on a dual token system — it’s our way of trying to optimise the transaction funnel. The system works by separating our governance token from the fee token.
In this system, our governance token price (CENNZ) can be speculative, while the fee token price (CPAY) is auto-balanced with network demand so it stays low and stable. You can learn more about the dual token system here.
Native DAO
CENNZnet runs on a native DAO. If you hold CENNZnet, this year you will be able to vote directly on what happens to the protocol. The protocol is governed on-chain by CENNZ token holders (validators, holders, devs) — the community can vote on what happens in the protocol. For example:
- Adjusting fees
- Create protocol work bounties — if we want a new feature then the DAO can allocate some funds towards that, see it get built and then pay it out.
- Deploy new features
All of the voting is run on-chain. This means we are not relying on counting votes in Discord messages and forcing the community to trust that the update will be deployed. Instead, the whole process, update and voting, is coded in and the network will update itself as a result of the voting. This all happens automatically.
And if that wasn’t good enough, CENNZnet is also a Proof of Stake network that is certifiably carbon negative.
