author: Roman Aliev (Strategic Marketing Director)
L2 is a collective term for solutions that solve blockchain scalability and speed problems, primarily on the Ethereum network. We will discuss the most popular L2 protocols, their pros and cons, and what will happen to them now that Ethereum has switched to Proof of Stake.
Trilemma of L2 and Vitalik Buterin
In 2016, Ethereum creator Vitalik Buterin announced the so-called The blockchain trilemmaIt boils down to the idea that an ideal blockchain should have three characteristics: decentralization, scalability, and security. However, achieving all three at the same time is very difficult for several reasons.
Decentralization: The more nodes in the network, the more difficult it is for malicious actors to take over the network. However, increasing the number of nodes requires more resources to reach consensus and slows down the network.
Security: Again, if you have a large number of nodes, your network will still work even if some nodes fail or are attacked. However, scalability suffers. See point about decentralization.
Scalability: Delegating all transaction validation work to a small number of nodes can create a very fast network. However, such blockchains are centralized and vulnerable to attack.
Ethereum is a highly decentralized and secure chain. However, its scalability has long been an issue. Metaverse land sale on the other side Spring 2022.
Metaverse demo on the other side. Credit: Yuga Labs
A move to Ethereum 2.0 should help solve this problem, and Vitalik Buterin even believes the network will reach 100,000 TPS. However, this only happens after the introduction of sharding. That is, dividing the state of the blockchain into many shards that process transactions in parallel and connect to each other through a central beacon chain. Buterin said he needs 64 shards to reach the coveted 100,000 TPS.
Sharding is a type of L2 (Level 2) solution. They are called Level 2 because they sit above the underlying blockchain and inherit some of its transactions. Results are ultimately recorded on the main blockchain, but those transactions are processed and confirmed externally. This allows the system to be scalable. This means that performance does not degrade under heavy load.
Types of L2 and their drawbacks
Sharding
Coming back to sharding, it should be noted that there is no deadline set for implementation on Ethereum. Sometime in 2023 is the latest forecast. However, some blockchains already use sharding. shortly (so far at the level of blockchain state, not transaction processing) and Polka dot (under the name of Parachain).
Sharding is problematic, inter-shard communication and security being the biggest issue. It’s easier to break a shard than the main blockchain. In Polkadot and Kusama, this risk is partially offset by a central relay chain that provides shared security to all parachains.
side chain
A sidechain is an independent blockchain linked to the main L1 chain, but with its own security system. The best-known example is Polygon, which launched in 2017 as an Ethereum sidechain called Matic Network. Since then, Polygon has grown into an independent ecosystem. 37,000+ dAppsand nobody calls it a sidechain.
Here are some sidechain examples:
- Immutable X (Ethereum) – Centralized and zero fees. Primarily intended for game projects.
- Ronin (Ethereum) — A sidechain created for Axie Infinity, its NFT marketplace, and Katana DEX.
- WAX (EOS) — Another gaming sidechain that hosts Alien Worlds, Farmers World, and more.
Credit: DappRadar
state channel
This type of L2 solution means that two participants open a channel and exchange assets. This is useful if you have many transfers between two addresses. When you no longer need a channel, you can close it. At that point, all transactions are committed to the main chain.
The most popular solution in this category is Bitcoin’s Lightning Network. In particular, his BTC tip on Twitter uses this protocol.
roll up
Channels, sidechains and shards have been around for quite some time. The latest trends to spread like wildfire in 2021 are rollups like Arbitrum and Optimism. These are separate blockchains that process transactions outside of the main chain, batch them together, and send that data to the main blockchain.
The main difference between sidechains and rollups is that the latter provide cryptographic proof to the main chain that allows the rollup’s “honesty” (data correctness) to be verified without verifying the transaction itself.
Then there are two types of rollups: optimistic and ZK, or zero knowledge.
Optimistic: These rollups assume all transactions are valid and send them to the main blockchain with little additional processing. Rollup only performs verification if someone disputes the result. This approach allows for better scalability and significantly reduces gas costs, but it may take him a week or more to transfer funds from the rollup to Ethereum. The most popular optimistic rollups are Optimism and Arbitrum. MetisDAO When Boba.
Arbitrum and Optimism are among the top 10 largest blockchains. Credit: DeFiLlama
ZK Rollup: validate transactions using complex cryptographic proofs and send these proofs along with batches of transactions to Ethereum mainnet. ZK stands for “Zero Knowledge” and means that the main chain can verify that proofs and data are correct without knowing anything about their contents.
Such a system is more secure and takes less time to transfer assets to the main chain than in the optimistic rollup case. On the flip side, ZK Rollup may have trouble working with his DeFi smart contracts.
ZK rollup is Immutable X; also Polygon, Matter Labs, StarkWare Working on an EVM compatible ZK solution.
What is the importance of L2 for regular users?
We’ve talked about theory so far, but what about practice? How can or should regular users try the L2 solution?
Polygon, Arbitrum, and Optimism are cheaper alternatives to Ethereum that support the same large-scale dApps such as Uniswap, Aave, Curve, Balancer, and Sushi. If you want to trade tokens on DEXs, buy NFTs, or earn from yield farming, but don’t like paying up to $5 per transaction, give these L2 networks a try. You’ll be pleased with our low fees (less than $0.1) and fast processing.
On the other hand, if you decide to play Axie Infinity, Alien Worlds, etc., you will definitely encounter Ronin, Immutable X, WAX, and other games L2.
All Ethereum-based L2s discussed in this article can be added to MetaMask using the Add Network feature. Just google the correct parameters for each network.
Vitalik Buterin I believe The next few years will be dominated by optimistic rollups, but in the long term ZK rollups will play an important role in the ecosystem. For now, Polygon, Arbitrum, Optimism 6th, 7th, 8th It is on the list of the largest blockchains, with a total TVL of $3.7 billion, and is definitely worth your attention.
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