Due to the ever-growing number of Ethereum users and blockchain technology's capacity limitations, numerous Layer 2 solutions have been set up. These technologies eliminate the previous limitations and make Ethereum the most reliable smart contracts blockchain.
In this article, we review together the most important of the projects that increase the scalability of Ethereum so that the network reaches higher transaction rates as well as transactions per second.
What are the Types of Layer 2 Solutions?
1. The most popular are optimistic rollups and zero-knowledge rollups.
- Optimistic rollups optimistically assume that all Layer 2 transactions are valid until they are disputed and proven otherwise by a network validator. Examples are Optimism and Arbitrum. These are both Generalized L2s.
- Zero-knowledge rollups assume that all transaction calculation data are invalid until proven true through zero-knowledge evidence or validity proofs. Examples are Immutable, Polygon, and Loopring.
2. Another solution is Sidechains.
- Sidechains are, as the name says, separate blockchains with an independent consensus algorithm, often lacking Ethereum's blockchain security. They can however be EVM-compatible. Examples are SKALE and XDAI.
- Channels use multi-sig smart contract-managed peer-to-peer protocols. Two parties can conduct multiple transactions and the result is placed on the blockchain.
- Payment channels help with micropayments. An example is Volition.
- State channels help with general computation. Examples are OMG Network and GLUON.
Should you even bother using them?
Similar to Bitcoin's Lightning Network, these solutions aim to make Ethereum available for the masses and accessible to pay for a cup of coffee. I guess if you bought Ethereum to buy coffee, they make sense. But if you're an investor you might want to prefer to use the Ethereum blockchain directly due to safety issues. Every transaction 'off' the Ethereum blockchain is being handled by another protocol, which might impose security risks. I would argue that, yes, if you want to make micropayments, feel free to use a layer 2 solution. But if you want to make a substantial payment or sizeable transaction, stay directly on the main Ethereum blockchain.
How to take a look at the Layer 2 landscape?
It's pretty easy. Just go to Coingecko and select Categories.