Although commencing with cryptocurrencies, the use cases of blockchain technology have grown exponentially, and similar is the case with its users. Undoubtedly, Ethereum and its compatibility with smart contracts play a significant role.
While blockchain plays an integral role in the next technological revolution, there is still a question mark on its scalability. Scalability refers to a system’s ability to expand while serving an increasing number of users. As cited by the blockchain trilemma, a highly secure and decentralized public blockchain network frequently has trouble reaching high throughput.
However, an increasing number of crypto-enthusiasts are looking for solutions, finding their way through the blockchain trilemma. And layer 2 solutions are one such methodology to enhance the scalability of blockchain networks.
This blog will discuss in detail the layer 1 Vs layer 2 blockchain solutions, their working mechanisms, and types.
What is Layer 1 Vs Layer 2 Crypto?
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Layer-1 solutions signify the core blockchain architecture or the primary blockchain network. The overlying Layer-2 network, on the other hand, floats on the surface of the underlying primary blockchain.
For instance, take the case of Ethereum and Polygon. While Ethereum is a layer-1 solution or primary blockchain network, Polygon calls itself the Ethereum scalability solution, and it is a layer-2 solution that gives users faster transactions at reduced prices.
The difference can be further highlighted by the fact that Ethereum’s mainchain transaction speed is approximately 15 TPS, while with Polygon, it can be up to 72,000 TPS.
Why is There a Need for Blockchain Scalability?
Imagine a district encompassing a few villages, with only one district hospital taking care of primary, secondary, and tertiary healthcare needs. It will be crowded most times of the day due to resource congestion.
Now, the government wants to resolve the problem, but there is a financial and land crunch in the district. Although what if we can outsource facilities taking care of primary health care to health and wellness centers? This way, at least a portion of the crowd can be managed, leaving the scope to handle critical cases in the district hospital.
Similar is the case for the layer 2 solutions that are meant to handle the traffic on the main blockchain by diverting some of it to sidechains.
As blockchain adoption picks up steam, the importance of scaling within the blockchain ecosystem becomes more apparent.
Scalability is essential due to the following reasons:
- High throughput (higher transactions per second)
- Low transaction costs
- Reduced network congestion
- High-speed data transmission and minimum queuing
Layer 1 Solutions
The term “layer 1 blockchain network” describes the network’s fundamental protocol. Layer 1 scaling solution helps the blockchain protocol’s basic layer to enable scalability enhancements.
How Does the Layer 1 Blockchain Solution Work?
You can use an array of methods to enhance the scalability of the blockchain network using layer 1 solutions.
Take the case of Ethereum; Ethereum in its original form is based on the proof-of-work consensus mechanism. Although several layer 2 solutions are available for Ethereum, its founders have announced Ethereum’s switch to proof-of-stake for enhanced throughput and network capacity.
Scaling solutions in Layer1 blockchain require mutations often cited as forking, hard fork, and soft fork. More minor backward-compatible changes require soft forking, while more significant changes like EIP 1559 require hard forking, making the previous network redundant.
Another way of bringing in the required changes through L1 solutions requires sharding. Let’s discuss that below.
Additional Read: What is EIP 1559?
What is Sharding?
Sharding is a database parting method used to improve the scalability of the blockchain network, enabling a higher TPS.
The whole network of a blockchain corporation is split into smaller sections, or “shards,” by sharding. Each shard is separate and independent from other shards made up of its data.
Layer 2 Solutions
Unlike layer 1, which brings mutations to the fundamental blockchain network, the Layer 2 solution uses a parallel external network to facilitate transactions apart from the mainchain.
How Does the Layer 2 Blockchain Solution Work?
An independent secondary network, related to but separated from the mainchain, acts as a base for the layer 2 solutions. The following are different ways of utilizing L2 solutions for enhanced scalability.
- State channels
For the state channel, a part of the mainchain is sealed and connected to an off-chain transactional network, often via a pre-agreed smart contract or multi-signature.
Without immediately uploading transaction data to the underlying network, the entities carry out a transaction or a sequence of transactions off-chain. The final state of the channel is broadcast to the blockchain for verification after completing the set transactions. This method enables faster transaction processing and boosts the network’s total capacity.
- Nested blockchains
Here, the secondary chains, built on top of the primary chain, operate as per the rules set by the mainnet. Although the mainchain does not participate in the transactions on L2, its responsibility lies till dispute resolution. The daily task is outsourced to “child” chains, which upon completion, of the mainchain, return the completed transactions to the main chain.
They are Layer 1 compatible independent blockchains, having their consensus mechanism and block parameters. The interoperability signifies that you can deploy the smart contract to the sidechain, trusting the independent working of the sidechain.
It provides scaling by rolling up or bundling several sidechain transactions into one before pushing it to the mainchain. Here, the transaction state and execution take place on the sidechain, while the mainchain only stores transaction data (like a snapshot).
There are majorly two types of rollups:
- ZK rollups – Although faster and efficient, it does not support the same smart contracts deployed on the mainchain to migrate to L2.
- Optimistic rollups – In the case of the Ethereum L2 solution, optimistic rollups run an EVM-compatible virtual machine, OVM(Optimistic virtual machine), allowing execution of existing Ethereum smart contracts on L2.
Layer 2 solution does not require changes to the existing blockchain solution; it can be built on top of L1 using its existing elements. Layer 2 leverages the security of layer 1 by anchoring its state into layer 1.
The following can be a summarized version of the difference between the two solutions:
Content: Layer-1 solutions signify the core blockchain architecture or the primary blockchain network; Changes are made to the base protocol.
Layer 2 network floats on the surface of the underlying primary blockchain; Changes are made to the off-chain solutions.
More people are becoming curious about the rapidly growing blockchain ecosystem, which includes innovative products like DeFi and NFTs. Scaling is, therefore, essential for the long-term viability of blockchain networks.