Notably, the total value locked (TVL) on the network surpassed $300 million by November. Polygon, Arbitrum, Loopring and Optimism are among the most popular L2 networks. Layer 2 solutions like Polygon, Arbitrum, Loopring and Optimism currently exist on Ethereum to mitigate some of these scalability challenges. See how cross-chain solutions enable a new frontier of dApp functionality. 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.
Blockchain Gaming
Arbitrum and Optimism support general purpose smart contracts, similar to Ethereum. Lighting Network is predominately used for simple payments, although Lightning channels could also, in principle, be leveraged for some more limited smart-contract-like functionality. Eventually the users settle only their final balances back on the underlying L1, a bit like closing out a bar tab at the end of a night out (as opposed to swiping one’s card how do you calculate long term assets for each individual drink and waiting for the receipt each time). If a user tries to “close out” with an improper balance, then once again, the other user can rectify this with a fraud proof on L1, preventing this attempted theft. Users compete for space on the blockchain by bidding against each other via transaction fees. A user paying higher fees will get his or her transaction confirmed sooner than someone who paid a lower fee.
Why Are Layer 2 Blockchains So Important?
Moreover, transaction finality, when a transaction is added to the blockchain and becomes irreversible, takes roughly 15 minutes on Ethereum. Furthermore, the network is often overwhelmed and congested during periods of high demand, which causes abrupt surges in gas fees. ZK-Rollups that offer general purpose smart contracts are more complex, and thus have taken longer to develop. But recently, developers have made progress on this front with the release of L2s like Polygon’s zkEVM and zkSync Era.
Scaling Blockchains
L2s utilize the underlying blockchain, but only minimally, which translates to L2 users paying lower fees. Withdrawals from layer 2 networks to the Ethereum mainnet can sometimes take several hours to 7 days to complete. Optimistic rollups experience the longest withdrawal times because it takes a while for verifiers to determine if there is any fraud in the transactions submitted to the network.
- These trusted third parties, however, effectively have custody and control over users’ funds.
- More sophisticated error detection and correction algorithms are designed to reduce the risk that multiple transmission errors in the data would cancel each other out and go undetected.
- The initial batch of ZK-Rollups that launched were all “application specific,” meaning they supported more limited functionality than general purpose smart contracts.
- So, the assistant sends the processed paperwork back to the boss, who adds it to the final ledger upon approval.
State Channels
Both scale similarly to layer 2s – they offer lower transaction fees and higher transaction throughput – but have different trust assumptions. The main goal of layer 2 is to increase transaction throughput (higher transactions per second) without sacrificing decentralization or security. In the Internet Protocol Suite (TCP/IP), OSI’s data link layer functionality is contained within its lowest layer, the link layer. The link-layer functionality was described in RFC 1122 and is defined differently than the data link layer of OSI, and encompasses all methods that affect the local link. Layer 2 blockchains are so-called because they sit as a second layer on top of a base mainnet.
It will be a slow process for major crypto blockchain networks to improve their scalability. “The most likely option is for Layer 1s to focus on security, and allow Layer 2 networks to tailor their services to specific use cases,” according to Binance Academy, a crypto literacy platform run by the exchange of the same name. State channels are similar to a side chain, as transactions are recorded off chain, but these transactions are recorded in bulk off chain, then the state of the channel is set at complete. The transactions are then recorded in bulk on the main blockchain network by broadcasting a completed “state” to the main network. Some layer 1 blockchains report higher throughput and lower transaction fees than Ethereum, but generally with trade-offs elsewhere, for example greater hardware requirements for running nodes. Layer 2 blockchains settle their transactions on Ethereum Mainnet, allowing users to benefit from the security of the Ethereum network.
The Bitcoin blockchain can process a maximum of 7 transactions per second, which might seem pretty fast. But by comparison, the Visa network can process an enormous 24,000 transactions per second – this is why it is able to function as a global payments system. Looking at these two networks side by side, it is clear that Bitcoin (and similar layer 1 blockchains like Ethereum and Binance Smart Chain) is simply not capable of being used universally – it doesn’t have the capacity.
The primary difference is what data is posted to the layer 1 and how the data is verified. Validity proofs (used by zero-knowledge rollups) run the computations off-chain and post a proof, whereas fault proofs (used by optimistic rollups) only run the computations on-chain when fault is suspected and must be checked. Both optimistic and zero-knowledge rollups bundle (or ’roll up’) hundreds of transactions into a single transaction on layer 1. Rollup transactions get executed outside of layer 1 but transaction data gets posted to layer 1. Boba is an Optimistic Rollup originally forked from Optimism which is a scaling solution that aims to reduce gas fees, improve transaction throughput, and extend the capabilities of smart contracts. Rollups bundle (or ’roll up’) hundreds of transactions into a single transaction on layer 1.
In this way, the data link layer is analogous to a neighborhood traffic cop; it endeavors to arbitrate between parties contending for access to a medium, without concern for their ultimate destination. When devices attempt to use a medium simultaneously, frame collisions occur. https://cryptolisting.org/ Data-link protocols specify how devices detect and recover from such collisions, and may provide mechanisms to reduce or prevent them. With developers constantly seeking solutions to the big issue of scalability, broader application for blockchain technology seems inevitable.
