Layer2 and its Solution

Layer 1 is used for the main chain like Ethereum, Bitcoin. Layer 2 is the scaling solution provided to Layer1 with better transaction throughput and transaction fee . They depends on the consensus mechanism and security from the Layer1 but operate independently from Layer1. Since the transaction happens on another chain it periodically transfer these transactions to main chain. This connection is called bridge or channel.

Layer 2 Scaling Solution

Layer2 scaling solution can be based of two categories :

1. Transaction execution : It deals how the transactions are run and how they are handle (their decentralisation nature, environment they trust)
2. Data Availability : Whether layer 2 provide their transaction detail to the main chain or not.

Types of Layer2 Scaling Solution

1. State Channels

used when two or more user want to do something in the trusted environment without paying gas fee for each transaction.

So suppose you are playing a game of Tic-Tac-Toe with your friend on a Web3 app so if you add each move as a transaction on the chain then it would cost gas fee for each transaction and which would be very expensive.

Now you can use a state channel for cheaper option.

You and your friend have to stake certain amount of token to open the channel like $1 dollar each to open the channel and the end of the game you both can get back your money. You can normally play the game but each move will recorded to Layer2 instead and once the game is ended the result will only be added to main chain and thus reducing transaction cost.

There are other benefits as well like since all the transaction will not be added to the chain so it is provide more privacy but there are some concerns as well like trusted party issue if your friend is a sore loser and decided that he won’t complete the game and leave then the channel cannot be closed and stake money is lost.

The application channels will deals with the money and crypto tokens are called payment channels.

A real life example can be your employer can pay you for job by opening the payment channel and transfer your wages as the job progress and close the payment channel once the job is done.

2. Side Chain

They are the mini side chain which are compatible with EVM. They also open the channel to Layer1 and add transaction the difference with State Channels is that they don’t use the security of main blockchain and have their own consensus mechanism running parallel to EVM. They are often not considered as Layer2 as they don’t use the security of the main chain and have high chance of being centralised.

Few examples of side chains are:

1. Polygon POS
2. Skale
3. Gnosis chain(formerly xdai)
4. Loom network

3. Rollups

They perform transaction on Layer2 but add the transaction in a bundle to Layer1.

If you want to learn more you can checkout this article

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