4 Types Of Layer 2 Scaling Solutions

January 18, 2022

Layer 2 is a secondary framework built on top of existing blockchain systems to make them faster and more efficient.

Image version
Text version

Startups are building for web3.
But Ethereum is really slow and expensive.
Gas fees can be $500+ at times!

Here is how “Layer 2” might be able to solve this.

First, the Blockchain Trilemma.
Vitalik Buterin (Ethereum’s co-founder) says that creators have to sacrifice one of these 3 elements: Security, Decentralization, Scalability.

For example, Ethereum’s strength is in security and decentralization. As a result, it’s not very scalable (slow and high fees).
Layer 2 is a secondary framework built on top of an existing blockchain system (AKA base layer, layer 1, or main chain).

These “layer 2 scaling solutions” can be built on Ethereum to make it faster and efficient. While also leveraging Ethereum’s security and decentralization capabilities.

There are 4 main types of layer 2 scaling solutions:

State Channels

You lock up your funds and use a virtual version to make transactions. But this method can only be used for transactions, not smart contracts or code.

Plasma

Uses a number of “child chains” (copies of the main chain) to offload transactions. But they have long waiting periods to withdraw funds and also can’t be used for smart contracts.

Sidechains

Secondary blockchains attached to the main chain. They use their resources to help offload the work for the main chain. But as it is a separate blockchain, security can be a concern.

Rollups

They basically roll up many transactions into a single transaction and then push that onto the main chain. There are 2 types of rollups.
ZKrollups are faster but they can’t use smart contracts.
Optimistic Rollups allow for work with smart contracts but are slower.

Companies to Watch:

Bitcoin Lightning Network: Designed to make Bitcoin transactions fast and cheap.

Polygon: Sidechain aggregating scalable solutions on Ethereum.

Gnosis Chain (formerly xDai Chain): Sidechain scaling solution for Ethereum

Arbitrum: Optimistic rollup to scale Ethereum

Optimism: Optimistic rollup to scale Ethereum

Immutable X: First Layer 2 for NFTs on Ethereum

loopring: ZKrollup protocol to scale Ethereum

starkware: ZKrollup protocol to scale Ethereum

aurora: NEAR’s Layer 2 scaling solution

Key takeaway:

Layer 2 solutions are bringing the scalability we need for Ethereum.
If this is how the market shifts, it can greatly accelerate web3 startups.

Sources

https://www.youtube.com/watch?v=9pJjtEeq-N4&ab_channel=WhiteboardCrypto

https://www.youtube.com/watch?v=BgCgauWVTs0&ab_channel=Finematics

https://www.youtube.com/watch?v=IijtdpAtOt0&ab_channel=Finematics

https://www.finextra.com/blogposting/21237/top-ethereum-layer-2-networks

https://coinmarketcap.com/alexandria/article/what-are-cryptocurrency-layer-2-scaling-solutions

https://academy.shrimpy.io/post/what-is-layer-2-scaling-for-ethereum-the-best-layer-2-protocols-explained

Community Highlight

Join the Smoothie Newsletter

This is a special newsletter. Every week, we deconstruct the best crypto trends and share those insights with you.

Thanks for subscribing

We will send you an email shortly
Oops! Something went wrong while submitting the form.