Ethereum Scalability
What You Need To Know About Layer 2 Solutions on Ethereum
A Brief walkthrough of a Layer 2 on Ethereum
One day in April you did some research on a few tokens on CoinGecko and CoinMarketCap and you stumbled upon a token that you think would be the next 1000x opportunity for your portfolio. You realize that the ‘next 1000x token’ is available to swap on UniSwap. So you went onto UniSwap and logged onto your MetaMask wallet, and went on the Ethereum Mainnet to swap $50 worth of USDC for the ‘next 1000x token’.
But wait…
Before you could even confirm your swap; you realized that the ‘Average’ transaction fee was $30 and… you stalled. You then begin to look up “Why are Ethereum gas fees expensive today?” on ‘Uncle Google’. Your research tells you that the Ethereum blockchain is experiencing a high number of transactions in return creating on-chain congestion. Despite the higher than normal gas fees — you decide to agree with the gas fee and go ahead with only being able to purchase $20 worth of your newly researched ‘next 1000x token’.
In the next few hours, you come back to your desktop, and you open up your Twitter feed to read a bunch of ‘Crypto Twitter’ shenanigans (as many of us do). You come across a random tweet saying “I just swapped USDC on Quickswap for less than $1 on the Polygon Network’’. Your eyes go wide and you’re wondering how that is even possible. So you do what you do best — you do your own research.
Your research ends up taking you to this newfound terminology that you have never heard of before and people in the industry call it ‘Layer 2’. After a few hours at your desktop with all that research, you’re finally convinced that you should try it out. You decide to move your funds from Ethereum onto a Layer 2 protocol called Polygon Network. At first glance, you have no idea how this is going to work. So you search on ‘Uncle Google’ again, “How to move funds from Ethereum to Polygon” which turned out to be a lifesaver and saved you some time.
There’s a plethora of Layer 2 solutions on Ethereum, each and every one of which are different from one another. We will be taking a closer look at what Layer 2 solutions are and how the idea of it all came about.
But first, let’s dive into what Layer 1 is.
Let’s explore ‘what a Layer 1 is’
Layer 1’s are commonly used to describe the main architecture of a blockchain. The most common of Layer 1 blockchains are Bitcoin, Ethereum, Polkadot, and Solana (to name a few). Each one of these has different features and characteristics on what they can do. Today, our discussion will be around Ethereum’s Layer 1 protocol which acts as the settlement layer for all transactions that happen on the network.
One of the most used solutions to scale Ethereum’s Layer 1 is by increasing the block size which in return will also increase the number of transactions that can be verified per block called the Gas Limit when miners reach consensus to increase the limits. Although this may be good for Ethereum miners due to the sharing of rewards they get back — raising the Gas limit can be risky as larger blocks are required to use more energy to be finalized from miners and additionally increase the possibility of a chain split.
As more and more transactions are happening on the Ethereum blockchain, the more congested it will be hence, the higher the gas fees users will have to incur, and not to mention, there will also be delays in transaction times leading to bottlenecks causing users to look for alternative solutions.
Moving to Layer 2 solution
The success of Ethereum has changed the world’s financial systems unlike the world has seen before, and this has come a long way. Despite its incredible feats, Ethereum has been challenged by its ability to scale — its often congested network pushes gas prices off the charts. To offset this challenge, multiple developers and people in the Ethereum community have suggested Layer 2 solutions. A famous and well-known Layer 2 solution aggregator is Polygon Network, offering Plasma and PoS Chains at the moment with a suite of other solutions coming soon (more on this later). Vitalik Buterin and Joseph Poon have, in the past, proposed Layer 2 solutions such as plasma technology to be implemented onto the Ethereum network to be able to enhance Ethereum’s scalability.
Many people in the community had also hoped for Ethereum 2.0 to come sooner rather than later. However, the full release of Eth 2.0 won’t be a thing in the near future. With Ethereum’s daily transactions peaking at more than 1 million transactions, it has come to the realization of many that there needs to be another way.
This is what Layer 2 solutions are for.
Riding the L2 wave
Layer 2’s (L2’s) are built on top of Layer 1 blockchains, In this case, Ethereum. They’re built to improve the scalability of the main blockchain and direct some of the transactions away from the main chain and onto the ‘sidechain’ running parallel to one another.
In retrospect, looking at Ethereum’s challenges of high gas prices and delayed transaction speeds — Layer 2 solutions offer a way to increase transaction speeds and reduce gas prices while riding on the benefits from the security of Ethereum’s main chain. In many cases, L2’s has the ability to process more transactions per second than Ethereum is able to achieve. At the moment, Ethereum is only able to process between 15 to 30 transactions per second (TPS) while Layer 2 solutions such as Polygon Network claim to be able to do 7,000 TPS in a stress test on their testnet. However, at the moment in time, it processes over 80 TPS.
Here is a visual of the interaction between the Hybrid Plasma and PoS chain on Polygon Network.
So, how does the Polygon Network make Ethereum more scalable and secure?
For plasma technology, every 256 blocks it will get Merkle Root (Police officer characters) which simply means an encryption process for the transactions in that block; and direct it to the ‘checkpoint’ on the Ethereum blockchain (green blocks) this enhances the security and proof of the transaction.
The PoS part of this hybrid partnership provides a mid-point between high performance and security. As a Proof of Stake (PoS) chain, there needs to be 2/3 of the validators (blue blocks) needed to sign off on the transactions happening on the Polygon chain. One of the most interesting part of this is that when a transaction is directed to the Ethereum blockchain as proof— it can also be challenged by the Ethereum chains.
If a proof is found to be wrong, the validators who signed off on the proofs can lose their stake and can also be banned from the network. This is part of the high security that Polygon’s Layer 2 comes into play.
However, there are more Layer 2 scaling solutions apart from the plasma. We’ll have to dive into those another time. Meanwhile, these are two of the best resources that I have used to learn more on Layer 2 solutions:
Thanks for tuning in, Any expression of opinion (which may be subject to change without notice) is personal to me (the author) and I (the author) make no guarantee of any sort regarding accuracy or completeness of any information or analysis supplied.
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