Layer 2 Solutions — The Future Of Ethereum
There’s layers to this shit? Yes, but it’s not as complicated as you’d think.
Introduction
Alright, before diving in to the deep end with Layer 2 (L2), lets ground our ourselves with some commonalities.
L2’s are built upon Layer 1’s (L1)s where L1 means the original blockchain such as Ethereum, Bitcoin or Litecoin.
I’m sure you’ve all heard of Ethereum and Bitcoin before, right?
Layer 1’s such as Bitcoin and Ethereum provide the underlying structure that L2s are built upon.
Easy:
L1 = Original blockchain.
L2 = Built on top of blockchain.
The Problem
At this point you’re probably thinking:
I’ve heard so many amazing things about blockchains, why do we need L2 solutions to improve them?
Well, as it turns out, we need L2 solutions in order to scale a network. By scale I mean increase the amount of workload the network can handle.
As for right now, Ethereum has major scalability issues:
- Soaring gas fees | higher barriers to entry = less adoption
- Throughput |TPS (Transactions Per Second) is too slow.
If you’ve ever bought an NFT from OpenSea or used the Ethereum network in general then you’ve likely ran in to these gas fees.
I’m talking hundreds of dollars just to complete a transaction.
People pay these fees because they have no other option but if you compare it to a mass-market product like PayPal then you can begin to picture the problem.
Imagine buying a print from an independent artist through PayPal for $200, but when you go to complete the transaction, PayPal inform you that it’s going to cost more ($250) in transaction fees than the actual purchase itself.
If this was the case, then no-one would use PayPal, ever.
Furthermore, the speed of the Ethereum network is disgustingly slow.
Primarily caused by an archaic structure (Proof of Work — PoW), the Ethereum mainnet can only handle 13 Transactions Per Second. This means you could be waiting for hours just to validate a transaction; leaving you in a sea of ambiguity.
To put that in comparison, Visa handles 20000 TPS and thus solves transactions quickly and efficiently.
The Solution
Layer 2s are the antidote to Ethereums scalability poison.
There’s a plethora of companies developing L2s including: Immutable X (IMX), Polygon, LoopRing & PolkaDot.
These are additional protocols that solve scaling issues without sacrificing the inherent decentralisation or security of the blockchain.
Imagine a faster, more efficient and less costly version of the network that doesn’t sacrifice any of the fundamentals (decentralisation and security).
They’re quickly gaining traction & popularity within the Web3 community and many notable figureheads back L2s as the future. For example, Vitalik Buterin — the creator of Ethereum — claimed:
“The near and mid-term future will be dominated by L2 solutions”
Pretty high praise from the creator of the entire network.
The How
L2 solutions is a broad term used to describe a variety of protocols that interact with the Ethereum network. The most popular are:
- Zero Knowledge Rollups (ZK Rollups)
These are packages of data that have been stacked together and transported off-chain (off the main Ethereum network) in order to be processed. Their TPS sits at around 2000 which is a hell of a lot faster than the current speed of Ethereum’s 13 TPS. While the data is being processed off-chain, the proof of transaction still resides on the Ethereum mainnet.
2. Optimistic rollups
Unlike ZK rollups, they’re not required to perform any computations. They run on Ethereums base layer so that they can execute a large number of smart contracts without overloading the network. It’s difficult to understand how they really work without getting too technical but basically optimistic rollups are slower, and thus less scalable, than ZK rollups.
Why Do They Matter? (Macro Effects)
L2’s increase the speed and efficiency of the network; thus the network has smaller barriers to entry and users are more inclined to interact. This means more attractive product offerings can be produced and offered to the public — NFT’s with minimal fees, instant cash transactions & more.
Ultimately, with the adoption of L2’s, and subsequent reduction in entry barriers, we’ll see an influx of new users in the crypto space.
It might even be that first step in mass adoption that we’ve been waiting for — provided Web3 UI becomes effortless & wallet dApps demystify public and private keys.
So, there we are, that’s L2’s in a nutshell.
What’s your thoughts?
Do you see L2’s as the future, or are you more interested in entirely new blockchains such as AVAX or SOL?
As Always,
Yours Honestly,
Liam Lawson.
