Complete Guide to Ethereum Layer 2 Solutions Updated 2023

Optimistic rollup transactions are written into the main Ethereum blockchain, further optimizing transactions by reducing the cost of gas. Ultimately, rollups require users like you and me to stake a bond in the rollup smart contract, which encourages users to verify and execute transactions correctly. Below you can find a list of projects working on protocols and implementations for different scaling solutions.

If an invalid transaction is suspected, a fault proof is ran to see if this has taken place. Three desirable properties of a blockchain are that it is decentralized, secure, and scalable. The blockchain trilemma states that a simple blockchain architecture can only achieve two out of three.

What Are Cryptocurrency Layer 2 Scaling Solutions?

In off-chain techniques, most of the transactions occur off of the blockchainState channels let participants securely modify locked portions of blockchain state known as state deposits. Parties update the state channel by exchanging off-chain messages describing an update to the state deposit. When they choose to close the channel, the most recent state update is sent to the on-chain multisig or smart contract as a single transaction, and the state deposit is withdrawn to the participants according to the final state.

For example, Solana (SOL-USD) uses an innovative https://www.beaxy.com/ of history consensus, which, paired with a reduced group of network validators using high-end hardware enables Solana to process up to a theoretical 50,000 TPS. However, the specialized hardware and low number of validators, means that Solana is more centralized than other chains. Centralization is a common tradeoff among the blockchains that can scale more than Bitcoin and Ethereum. Shard chains, an initiative on Ethereum’s agenda, are also a method of scaling layer 1s, but is highly complex and the complexity can introduce new risks and potential vulnerabilities, so thorough testing is required. In this report, we discuss why blockchains need to scale, the existing scaling solutions, the different types of layer 2 solutions, and how they may shape the crypto landscape. Best Ethereum layer 2 solutions have evolved as the answers for scalability and high transaction fees on the Ethereum network.

Scaling Layer 2:

However, they are structured differently in a hierarchy to take transactions from the main chain to free up work and improve salability. Layer 2 is a scaling solution that sits on top of a layer 1 like Bitcoin or Ethereum. There are a number of different L2 options for scaling, including state channels, side chains and rollups. Each of XRP these solutions attempt to achieve the same result, but by compromising varying degrees of either decentralization, security or scalability.

However, they can all also act independently to address their specific applications. Parachains allow for very fast transactions as the distribution is efficiently spread to handle workloads. Layer 2 solutions are designed to increase the speed and efficiency of blockchains. Past performance does not guarantee future results and the likelihood of investment outcomes are hypothetical in nature.

While layer 2 blockchains inherit Ethereum’s security guarantees for transaction settlement, their native dApps inherently introduce their own novel trust assumptions and smart contract risks. In other words, while users can be guaranteed their funds cannot be double spent or compromised as long as their private keys are secure, vulnerabilities inherent to dApps on layer 2s can still be exploited. Always use trustworthy services and proceed with caution on layer 2 blockchains. CVI, the decentralized volatility index for the crypto space powered by the COTI network, has also followed that lead in integrating with Polygon. CVI users can open positions and provide liquidity and stake while processing transactions out of the main ETH blockchain. Layer 1 blockchains such as Bitcoin and Ethereum focus on decentralization and security while sacrificing scalability – the ability to handle many transactions.

• A rollup is a technique used to transfer value between L2 networks and the Ethereum mainnet.
• Blockchain bridges, which facilitate asset transfers to layer 2, are in their early stages of development and it is likely that the optimal bridge design has not been discovered yet.
• The zkRollup scales Ethereum 1000x over its nominal capacity by transferring most processing on another chain.

Layer 2 scaling solutions make using Ethereum cheaper and faster for everyone. Understanding how they work is easy when you define the Ethereum blockchain as Layer 1. Layer 2 solutions basically give away a lot about them from their name itself. Layer 2 is a different network running on the top of the main Ethereum network or layer 1. The Ethereum layer 2 solutions stay on the Ethereum network in the form of smart contracts. The layer 2 solutions don’t need any modifications in the base level protocol for interacting with the main network.

Will Layer 2 Solutions Stay Relevant After ETH 2.0 Upgrade?

I believe blockchain can build a better world – I’m here to report on how we get there. Finally, cross-chain atomic swaps can occur off-chain as long as the chains support the same cryptographic hash function. Right now, it’s only available to app developers building on Ethereum but will see a full public release soon. The project’s mainnet, Optimistic Ethereum (OΞ), is already live and hosting Uniswap V3. The Uniswap Optimism market has racked up $6.5 billion in total value locked — a good sum pointing to the early success of Ethereum L2s. In the end, everyone splits the transaction fee for the rollup block, which is why the microtransactions composing the rollup block are very cheap.

Cross-ethereum layer 2 scaling solutions bridges are necessary for connecting sidechains to the Ethereum smart contract platform. Just like the name suggests, a blockchain bridge provides a gateway for users to move between the main chain and sidechain. As a developer, you can integrate rollups into your dApp to improve transaction finality and scalability. This way, your users don’t have to experience high gas fees, dropped transactions, and slow processing speeds—which happen frequently on Ethereum.

Most ethereum layer 2 scaling solutions 2 solutions are centered around a server or cluster of servers, each of which may be referred to as a node, validator, operator, sequencer, block producer, or similar term. Depending on the implementation, these layer 2 nodes may be run by the individuals, businesses or entities that use them, or by a 3rd party BNB operator, or by a large group of individuals . Generally speaking, transactions are submitted to these layer 2 nodes instead of being submitted directly to layer 1 . For some solutions the layer 2 instance then batches them into groups before anchoring them to layer 1, after which they are secured by layer 1 and cannot be altered. The details of how this is done vary significantly between different layer 2 technologies and implementations. Lastly, for Ethereum traders wondering how to minimize simple transactions, such as token transfers, there is xDai, currently also known as the Gnosis chain due to an ongoing merger.

Layer 2 networks, also commonly referred to as “L2s”, are scaling solutions in the blockchain ecosystem. The Ethereum blockchain, due to its design and transaction demand, has become slow and expensive for everyday users transacting on the blockchain. To ensure Ethereum can scale, many core developers have been working rigourly on the (fast-approaching) Merge to Proof of Stake and several L2 solutions have emerged for faster and cheaper transactions. Ethereum layer 2 scaling solutions solve these problems by offering almost instantaneous transactions and extremely low fees while retaining the integrity of the main chain. And with ETH 2.0 around the corner, layer 2 solutions will see Ethereum achieving a very high transaction speed compared to other networks.

Both scale similarly to layer 2s – they offer lower transaction fees and higher transaction throughput – but have different trust assumptions. Sidechains and validiums are blockchains that allow assets from Ethereum to be bridged over and used on another blockchain. Sidechains and validiums run in parallel with Ethereum, and interact with Ethereum through bridges, but they do not derive their security or data availability from Ethereum.

The protocol has settled over $250 billion worth of transactions in the past six months. Also, Starkware is developing an ecosystem of Ethereum layer 2 applications known as StarkNet. One of the main advantages of layer 2 solutions is that the main chain doesn’t have to go through any structural change that may lead to a contentious hard fork. Instead, layer 2 solutions are extra layers that boost the main chain while utilizing its security. State Channels allow users to transact an arbitrary number of times off-chain, while only sending two transactions to the Ethereum mainnet. The gaps existing in the Ethereum network in today’s date is the need for Ethereum to be able to incorporate more transactions per second without increasing the size of the nodes in the network.

This simply means they process transactions on this additional layer, instead of Ethereum’s main chain. They offer speed/functionality without compromising security or decentralization. It can support thousand of thousands of independent blockchains of all subtypes. The layer 2 landscape today is practically exclusive to Ethereum, where Optimism and Arbitrum which are optimistic rollups are the current leaders. Their Ethereum Virtual Machine compatibility means popular DeFi dapps like Uniswap (UNI-USD), AAVE (AAVE-USD), and Curve Finance have been able to deploy in the Optimism and Arbitrum networks with minimum coding work. Optimism launched their highly anticipated token “OP” via airdrop on the 30th of May 2022.

Whether this will be enough to guarantee long-term scale remains to be seen, though. After this opening transaction, Alice and Bob can execute transactions off-chain for as long as they want. The only caveat is that both must sign transactions, which means Alice and Bob must approve each payment for coffee. Polygon is working on a zero-knowledge EVM to increase the functionality of zero-knowledge rollups to the Ethereum network with their plans for Hermez 2.0.

• As a result, it can encourage node operators for honest and transparent engagement with the network.
• This proof, also called a validity proof, is the only record required on the main blockchain; hence, reducing the gas fee that users would have incurred from processing the entire data.
• L2BEAT is an analytics and research website about Ethereum layer two scaling.
• Layer 2 solutions to scaling establish an additional protocol that is built on top of blockchains like those of Ethereum and Bitcoin.
• Layer 2 blockchains such as Optimism and Arbitrum roll up user transactions into bundles that are sent to Ethereum for security checks and settlement.