What is Layer 2 Blockchain? All you need to know

Layer 2 Blockchain is a solution to help increase scalability for Layer 1. It can be said that, in recent times, Layer 2 projects have grown at a remarkable rate. So what is Layer 2 Blockchain? Let's find out with Market247.io in this article.

What is Layer 2 Blockchain?

First, let's find out an overview of what is Layer 2 Blockchain.

Layer 2 Blockchain are solutions developed based on Layer 1 Blockchain. They inherit the characteristics of Layer 1 such as security and data availability, thereby serving the purpose of increasing scalability.

Although Layer 2 can be developed on any blockchain, at the moment, Layer 2 of the Ethereum Blockchain is still receiving the greatest attention from the community. This makes it easy for many people to think that layer 2 solutions are only for the Ethereum ecosystem.

You can read this article to get more information about Blockchain Layer: What are Blockchain Layers?

What is Layer 2 Blockchain Solution?

It is no coincidence that the community considers layer 2 to be Ethereum's blockchain-specific solution. With its attractiveness, Ethereum attracts a large number of users to join the network. However, this also makes the limitations of the network obvious. High transaction fees, frequent congestion are problems that users often face when transacting at peak times on Ethereum's system.

The cause of this problem comes from the fact that every transaction on the blockchain needs verification by the new miner nodes to pass. However, when the platform has grown large, the number of users is large, the number of nodes is limited, the network will often have a slow processing speed and the fee per transaction is also higher. This is also the common problem of Layer 1 Blockchain.

From the above problems, what is the solution of Layer 2 Blockchain:

Increase transaction processing capacity and speed, reduce network congestion, and improve user experience. Besides, Layer 2 can still maintain the decentralization of the Ethereum blockchain.
Move transactions that must be handled on Layer 1 to Layer 2, thereby reducing the pressure on transaction volume on Layer 1.
Consolidate many different transactions into one transaction for processing to reduce transaction fees.
Develop a dedicated network that fits the network's purpose and can operate at scale as the ecosystem grows.

What are the limitations of Layer 2 Blockchain?

After understanding about What is Layer 2 Blockchain deeply, let’s find out 2 limitations of Layer 2. Although Layer 2 was born to solve the current limitations of Layer 1, it still has certain disadvantages. Here are the limitations of Layer 2 Blockchain.

Not fully resolved on scalability

As mentioned above, Layer 2 has the ability to improve throughput, transaction fees, and security, thereby increasing scalability for Layer 1. However, Layer 2 still has certain limitations. Therefore, there is no Layer 2 solution that can satisfy all the disadvantages of Layer 1 mentioned above.

Transporting assets between Layer 2 is still difficult

At the present time, transferring tokens between Layer 2 is quite laborious. For example, in many Layer 2 of the Ethereum Blockchain without the support of the 3rd protocol, users have to transfer tokens from Layer 2 to Layer 1 and continue to switch to another Layer 2. This costs a relatively large amount of transaction fees as well as the time for each transaction can be up to 7-14 days. This causes the liquidity of Layer 2 to be fragmented, greatly affecting the DeFi market. At the same time, this also negatively affects the user experience

Layer 2 Blockchain Solutions trending of 2022

After understanding what is Layer 2 Blockchain so clearly and the role of Layer 2 Blockchain. Currently, in the market there are 4 main Layer 2 Blockchain solutions including:

Optimistic Rollups

This is a very potential solution for the purposes of expanding smart contracts on the Ethereum ecosystem in a short period of time. The Optimistic Rollups solution has an Optimistic Virtual Machine (OVM) feature that allows all the operations that can be done on the Ethereum network to be done on the OVM.

Key features of this solution include:

Optimistic Rollups is EVM and Solidity compliant, so it provides developers with the same functionality as Layer 1 Ethereum.
The role of Layer 1 is to store all data about the system's transaction information, making it a highly secure and decentralized solution.

ZK-Rollups

With ZK-Rollups, this solution can generate hundreds of Off-chain transactions and SNKRK cryptographic proofs.

ZK-Rollups has the following characteristics:

Reduces the amount of data required to validate on the block, allowing validation to be completed in a faster time at a lower cost.
Limit the delay in transferring money from Layer 2 to Layer 1.
ZK-Rollups are safe from attacks.
Since data is stored on Layer 1, the network remains decentralized and secure.

Plasma

Plasma is a Layer 2 solution of the Ethereum ecosystem proposed by Vitalik and Joseph Poon. The structure of this solution allows for the creation of an infinite number of smaller sub-Blockchains. These Blockchains are capable of operating independently but they are still capable of communicating with the main chain. Through the combination of smart contracts and verification of Merkle-Tree cryptography, it helps to reduce the transaction load on the Ethereum network via the sub-chain. In particular, Plasma is a solution that provides fast transaction speed with low transaction fees.

Channel

State Channel is a peer-to-peer protocol that allows 2 or more users to participate in the transaction process and post the final transaction results on the Blockchain system. In the process of making transactions, users will use Multisig Wallet or Multisig contract to manage. Those two transactions include:

The first transaction opens the connection between Layer 1 Blockchain and Layer 2 Channel
The next transaction acts as a connection between Layer 1 Blockchain and Layer 2 Blockchain. From there, Channel can help remove most of the unnecessary transaction data from the Layer 1 blockchain to increase storage space per block and save on gas fees.

Validium

Validium is a scaling solution that shares many similarities with ZK-Rollups but does not store transaction data on the Ethereum Mainnet. Validium is a solution that can provide transaction speeds of up to 9000 transactions per second.

Conclusion

Above is the overview information about Layer 2 Blockchain that you need to be sure to know when learning. Through this article, Market247.io believes that you have a lot of useful knowledge to answer the question of what is Layer 2 Blockchain and the role of Layer 2 Blockchain scalability. Don't forget to follow Market247 to keep up to date with the latest news and useful information from the crypto market.

Disclaimer: This article is only intended to provide information about what is Layer 2 Blockchain. This is not investment advice at all.

FAQ - What is Layer 2 Blockchain?

What is an example of a Layer 2 Blockchain?

Two major examples of Layer 2 Blockchain solutions are Bitcoin Lightning Network and Ethereum Plasma. Despite their own mechanism of action and characteristics, both solutions strive to provide increased throughput for blockchain systems.

Is Cardano a Layer 2?

Hydra, Cardano's Layer 2 solution, is making progress after decentralized exchange SundaeSwap (DEX) successfully launched a network demo.

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