Beginner’s Guide to Layer 2 Blockchain Scaling

This article is part 2 of 3 in our blockchain scalability series. You can check out part 1 here.

One of the big problems facing the blockchain community is the question of how to scale blockchains to a large or even global level.

This challenge was predicted from the early days of the technology, and experts have been grappling with how to solve it ever since. In one of our recent articles, we introduced this problem and some of the existing solutions.

In this article, we’re going to build on that and discuss some of the more advanced solutions that are starting to take shape.

What are Layer 2 (L2) solutions?

In our last article, we introduced some of the problems we’ve faced with trying to make public blockchains more scalable.

To recap, the main problem is that as blockchains grow in popularity and start to handle more transactions, prices can rise to unsustainable levels. Right now, a single transaction on Bitcoin can cost more than the actual Bitcoin you’re trying to buy, and playing around with dapps on Ethereum— for example with CryptoKitties — can cost upwards of $1000 per transaction.

We have to make blockchains more equipped to handle higher volumes of transactions without slowing down or becoming so expensive that ordinary people can’t use them. Two early solutions were:

  • Allow people to put more transactions on one blockchain
  • Increase the speed at which transactions are confirmed

For a number of reasons, neither of these solutions — also referred to as Layer 1 (L1) solutions — worked very well. This brings us to the next set of possible solutions to the scalability problem. Since these solutions rely on building on top of the Ethereum blockchain, we call them Layer 2 solutions.

Let’s start with state channels.

State channels

State channels are a way for two people interacting with each other on blockchain to consolidate their transactions.

For example, if you and I were planning to do 100 transactions this month, we could agree to keep track of all the separate transactions ourselves and then simply make one transaction combining all of them at the end of the month.

This effectively reduces the number of transactions on the blockchain by 100x, vastly reducing the load and allowing for more volume and scalability.

Side chains

The idea behind side chains is pretty simple — when a blockchain is starting to feel the strain of too many transactions, you create a new one.

This new blockchain lives next to the old one. You could have a side chain next to the Ethereum blockchain, or the Bitcoin blockchain, or the Dogecoin blockchain. There is a bridge between the original chain and the new one, and a designated person is in charge of watching the transfer from the main blockchain to the side chain.

Side chains have some advantages, but there’s one major problem — you’ll inevitably just keep making endless new chains. You can solve that problem by restricting a side chain so it’s only used by certain people. But that creates yet another problem — you have to trust whoever is running the bridges between the main chain and the side chain.

The result is a good solution to the scalability problem but at the cost of a security model that isn’t nearly as safe as Bitcoin or Ethereum.

Plasma and Optimistic Rollups

The Plasma solution is similar to side chains. You move transactions from the main blockchain onto a Plasma chain, and a designated individual is in charge of making sure the information being stored on the chain is accurate.

Optimistic rollups are very similar to Plasma, but apply to smart contracts instead of token transactions.

Both of these work well as a scalability solution, but the main drawback is that the withdrawal time takes a while. You can be waiting up to a week to get your assets confirmed on the new chain, and that’s an unacceptable waiting time for many of us.

Zero Knowledge Rollups

Zero knowledge rollups (ZK-Rollups) are a way around the long waiting times of Plasma and optimistic rollups. ZK-Rollups use zero-knowledge proofs to prove information on the new chain without requiring any oversight.

Where side chains, Plasma, and optimistic rollups are only as secure as the people operating them, ZK-rollups are more secure.

Instead of storing all the data on chain, ZK-Rollups store a proof of the actions you took off-chain.

With ZK-Rollups, you publish information to the main chain (for example, Ethereum). That information contains everything you need in order to identify who owns what. So if the operators go down on your state channel, you can take their last signature, publish it, and get your money.

Summary Of L2 Solutions

Layer 2 solutions are the most promising answers we have to the question of how to scale blockchains to a global scale and start building a truly decentralized web that can rival the traditional internet.

There is still some way to go. Even the best solutions aren’t quite ready to scale enough to serve the billions of users that represent the global community. However, progress is being made. All the different solutions mentioned in this article will have some role to play, including new ideas that haven’t even been developed.

To learn more about blockchain, crypto, decentralized technology, and everything related to them, tune into The Unstoppable Podcast.

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Diana Chen

Diana Chen

Content marketing at Unstoppable Domains | Podcast host at Startup Happy Hour and The Unstoppable Podcast | Advisor at Content Allies

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