CryptoWise
Published in

CryptoWise

What is Layer 2 Scaling Solutions & Why It Is Required?

Understanding various layer 2 scaling solutions like Sidechain, Parachain, Sharding, etc

Blockchain has really transformed the Crypto and traditional financial world by leveraging the concept of

  • Decentralization (Defi, DEXes, DApps)
  • Secure & Permissionless/Trustless transactions via Smart Contract rules.
  • Smart Contracts.

Bitcoin, Ethereum, Cardano, Solana, PolkaDot, ChainLink, Polygon(Matic), and many more, crypto has seen tremendous growth and acceptance amongst the investors, retailer, and traders community, due to their true nature of distributing the power amongst one and all. The larger adoption has to lead to many technical level challenges which need to be addressed by the developer community, especially when it comes to Ethereum which is the main underlying blockchain technology serving hundreds of Decentralized apps working on top of it.

“I feel that the success & the rise of Defi ecosystem has been the true catalyst for ETH 2.0 birth”

The Problem Statement:

Why Scaling is Required After All?

Our traditional cryptocurrency projects especially Bitcoin & Ethereum 1.0 have faced a lot of issues regarding speed and scalability. Bitcoin has mainly been designed to handle around 3–7 TPS, and Ethereum 1.0 has been designed to handle 10–15 TPS, which is subpar when it comes to Visa which can process about 20,000 TPS using its electronics payment network.

Blockchain Trillema

Bitcoin blockchain network has chosen to honor decentralization and security over speed to ensure every transaction is mined, distributed, and validated by a vast network of mining nodes. This process takes its own course of time and can be difficult to scale. The typical blockchain trilemma has bugged blockchain networks like Bitcoin and Ethereum 1.0, big time. But not to worry now there are multiple Layer 2 solutions in the blockchain system which has been designed to overcome the limitations of speed and scalability.

What Are Some Of The Popular Blockchain Scaling Solutions?

Scaling solutions main objective

Is to increase transaction speed (for faster finality), and transaction throughput (high TPS), without sacrificing decentralization or security

These blockchain scaling solutions are generally called the second layer protocols that are built on top of the main chain, these Layer 2 scaling solutions increase throughput without tampering with any of the original decentralization or security characteristics that are integral to the original blockchain.

There are multiple Second layer scaling solutions available some of them are :

  • State Channels
  • Rollups
  • Side Chains
  • Parachains
  • Sharding

Let’s discuss them briefly one by one :

State Channels:

src

State channels help in enhancing the network efficiency and outcome when it comes to managing payment transactions. It does so by allowing multiple user accounts interested to transact their crypto, using a direct communication channel.

Bitcoins’ lightning network is one of the prime example of State channel implementation.

These channels handle multiple transactions, but only the initialization and closing transaction states are imprinted on the main chain of the given blockchain network.

Trinity is one more example of state channel implementations that support Ethereum, Bitcoin, and Neo blockchain network

Rollups:

Source

It is another scaling solution that performs transaction execution outside the main chain (layer 1), but once the transaction is through, transaction data is imprinted on layer 1. As transaction data lies on layer 1, this allows rollups to be secured by layer 1.

Three key attributes of rollups are:

  1. Transaction execution happens outside layer 1
  2. Data or proof of transactions resides on layer 1
  3. A rollup smart contract (lying on layer 1 ) can enforce correct transaction execution on layer 2 by using the transaction data lying on layer 1

These rollups help blockchain to achieve

  • Low transaction fees
  • Open participation
  • Fast transaction throughput

Types of Rollups :(Based on security models )

  • Zero-knowledge rollups: runs computation off-chain and submits a validity proof to the chain
  • Optimistic rollups: assumes transactions are valid by default and only runs computation, via a fraud-proof, in the event of a challenge

SideChains:

A sidechain is an independent blockchain which runs in parallel to the mainchain (Mainnet of Ethereum, Bitcoin, etc) and is free to operate as a decoupled entity with their own behavior and attributes.

source

Sidechains have their own:

  • Consensus algorithms like Proof of Authority, Delegated proof-of-stake, Byzantine fault tolerance
  • They connect to the mainchain(mainnet ) of the given blockchain network via a two-way bridge or 2-way peg(TWP).
  • Sidechain’s TWP protocol allows for the open transfer of crypto assets from the main chain to a layer 2 chain that requires a degree of third-party trust to operate.

Some prominent examples of SideChains are :

  • Plasma Sidechain: for Ethereum
  • Liquid Sidechain: for Bitcoin.

Plasma Chains:

src

Plasma chain is a decoupled blockchain that is bound to the main chain and mainly and it makes us of fraud proofs like Optimistic rollups to arbitrate disputes.

Liquid Sidechain Network:

It is attached to bitcoin’s main chain and its main objective is to tackle scalability issues by offloading some of the validation and transaction processing processes to another child blockchain.

This offloads the main chain to process more number of transactions and scales the main network

Parachain :

source

Parachains took their name from the concept of parallelized chains that run parallel to the Relay Chain.

Parachains are mainly used on & popularized by Polkadot system.

Due to their parallel nature, they are able to parallelize multiple transaction processing and achieve the desired scalability. It can handle transactions with greater efficiency due to distributed workloads.

Parachains share in the security of the entire network and can communicate with other parachains, through Cross-chain Message Passing (XCMP).

Cross-chain transactions are resolved using a simple queuing mechanism based around a Merkle tree to ensure fidelity(Trust).

Even though they share the security from the mainnet, they can also act independently to address their specific application use case, which is also the core idea behind the Polkadot system

Sharding:

Sharding is generally a layer 1 scaling solution, that involves splitting the network into different partitions called shards. These shards are given different sets of workloads to perform, which eventually helps in scaling the network's ability to perform transactions at scale.

Sharding helps in spreading the workload across the P2P network to bring in more computing power from more blockchain nodes, which helps to expedite the block creation process.

This layer 1 scaling solutions can help reduce the latency or slowness of a network since it splits a blockchain network into separate shards. However, there are some security vulnerabilities aroiund sharding in which shards can be prone to attack and which needs to be factored in .

Popular Blockchain Projects Using Layer 2 Scaling:

  • Ethereum 2.0
  • Polygon(Matic Network, Layer 2 scaling for Ethereum )
  • Loopring (A scalable zkRollup Exchange and Payment Protocol)
  • Harmony(Interoperable layer 2 scaling for Ethereum)
  • OMG network(Layer 2 scaling solution)
  • PolkaDot(Sharding & Parachain Based )

Why There Is A Need Of Multiple Scaling Solutions?

  • The multiple scaling solutions make the network more robust when it comes to handling failures in high traffic demand situations. It ensures speed, agility, and maximum availability.
  • Different solutions can co-exist and functions in harmony, allowing for an exponential effect on future transaction speed and network throughput.
  • Ethereum 2.0 is using a suite of such scaling solutions, no single solution is enough for its grander 2.0 vision.
  • Also, multiple scaling solutions do support multiple consensus mechanisms that can be used based on specific use cases.

What’s Next?

  • We will deep dive into Ethereum 2.0 and see how it is leveraging the layer 2 scaling solutions we discussed to help shape its most awaited ETH 2.0 rollout.
  • We will dig deeper into RollUps, Plasma, SideChains, etc and see how Ethereum is using them to its full advantage

Summary :

Bitcoin & Ethereum Network has seen massive adoption with the time passing by the also the pressure to serve millions of users is also increasing. Ethereum being the leader in Defi, Dapps, DEXes space, has been suffering largely due to high gas fees and slow network transactions due to the frequent congestion problems.

The need to scale itself is looming large on this legacy blockchain network, thanks to this layer 2 scaling innovation & user evergrowing demands, which has now forced Ethereum to upgrade itself big time. Also, many Defi projects are now leveraging other alternate platforms like polygon, Harmony, Solana, Cardano, etc to suffice the Defi solution needs”

Let the speed, decentralization, and security all coexist together to help our decentralized blockchan thrive and scale for good .

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
@pramodAIML

@pramodAIML

Passionate Blogger & Tech Entrepreneur | Founder of FinTech Startup | Write about AIML, DevOps, Product Mgmt & Crypto