Layer 1 vs Layer 2: The Difference Between Blockchain Scaling Solutions

Plus, that pile is constantly growing and becoming heavier, and there is also more demand than ever for new bricks to be added. On one hand, the sheer computational power required to complete this process is what keeps the network – and your crypto – secure. But on the other hand, it renders the system totally impractical for day-to-day use. If you’re ready to dive deeper into Ethereum Layer 2 networks it doesn’t need to be difficult.

These blockchains are base networks – they handle every aspect of every blockchain transaction on-chain and without assistance from any other network. We’re talking about humble old blockchain and its quest to keep up with the ever-increasing amount of activity on its network. Today, let’s take a look at layer 2 blockchains – and how they’re enabling existing blockchains to scale.

Starkware’s dydx supports derivative exchange functionality; Loopring LRC supports token payments and some simple swaps; Aztec Connect supports privacy preserving transactions for limited DeFI applications. The upsides to L2s offering this more restricted, “application specific” functionality are technical simplicity and potentially better performance (which means lower fees). Unlike fraud-proof systems — which temporarily “allow” invalid transactions with the guarantee that they can be disputed — ZK-Rollups use cryptographic proofs to directly ensure that transactions are valid to begin with. The mechanism of these cryptographic proofs involves some advanced applied mathematics; in effect, the validity proof lets the underlying blockchain ensure that the L2 transactions are valid without actually having to process them directly.

At any point, the proper owner of funds on L2 can use the bridge to “withdraw” their funds back to L1. An L2 user shouldn’t have to trust any designated parties to ensure that they have this withdrawal guarantee; in other words, fund security comes from the base layer blockchain itself. Ronin is an Ethereum sidechain launched by Sky Mavis, which created the popular NFT game Axie Infinity.

  1. Layer 2 scaling solutions instead use off-chain services or networks to make scalability better.
  2. So make sure you understand the different blockchains so you can stay ahead of the curve.
  3. Ethereum L2s are designed to do just that by solving the parent network’s scalability challenges.
  4. In general, direct or strict comparisons of the OSI and TCP/IP models should be avoided, because the layering in TCP/IP is not a principal design criterion and in general, considered to be “harmful” (RFC 3439).

This modular design enables the layer 1 network to prioritize decentralization and security, while the layer 2 can focus on speed and scalability. Thanks to Ledger Live, it’s never been easier to explore all that Bitcoin Layer 2 networks have to offer. As always, the industry-leading security of the Ledger ecosystem means that you can safely store your own private keys and have full access to both your Bitcoin and Layer 2 native tokens.

Instead of processing transactions individually, bundles of transactions can be “rolled up” into a single transaction, vastly increasing the number of transactions that can be processed at once. The transactions are outsourced to be recorded off chain, bundled, how to buy sell and trade cryptocurrencies and then brought onto the main chain to process as a single entity. 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.

To do this, the protocol uses microblocks for speed and a unique Proof-of-Transfer (PoX) mechanism to tie them to blocks on Layer 1. It provides an accessible, easy-to-use, plug-and-play method for running smart contracts and decentralized applications within the Bitcoin ecosystem. Rootstock  (RSK) is a sidechain that pioneered smart contracts on the Bitcoin blockchain. To explain, when a user sends Bitcoin to Rootsock, it becomes a locked-up, smart Bitcoin on Rootsock (RBTC) in the user’s RSK wallet. Sending RBTC in the other direction allows the user to withdraw their Bitcoin from the regular network.

Through the Ledger ecosystem, you can access Polygon, Arbitrum, Base, and many other L2s. If you’ve already got your ETH in your wallet, you’ll need to use a bridge to move it from Ethereum Mainnet to a layer 2. Base is a secure, low-cost, developer-friendly Ethereum L2 built the first release candidate of angular 2 material to bring the next billion users to web3. It is an Ethereum L2, incubated by Coinbase and built on the open-source OP Stack. It acts like a password that can help you get back into your wallet if you lose access, making sure you don’t lose your digital money or tokens.

Lightning Network​

Meaning, in the event of an exploit, users will always be able to recover their funds based on the most recent state of the L2 network that was validated on the Ethereum mainnet. ZK-Rollups enable faster settlement of L2 transactions on the Ethereum L1 using only proof of computation. The Ethereum network must verify proof of computation for batches of L2 transactions.

Enter Layer 2 Blockchain Scaling Solutions

When simply using L1 directly, every L1 node must do the work of processing every transaction. Alternatively, with an optimistic L2 solution, transactions only require the software to do a lot of transaction work if there’s a problem, as if it were an assistant submitting a complaint report to the L1. As blockchain technology becomes a pillar of global marketplaces, L2s are the only way those tools and solutions can scale to serve mass audiences. Ethereum also originally used PoW, but has since upgraded to a proof-of-stake (PoS) consensus mechanism, which requires node operators to lock up a large Ether (ETH) deposit to be allowed to process transactions. At the moment, most ZK-rollups are application specific, in contrast with optimistic rollups which have largely been generalizable.

Layer 2 solutions take all the revolutionary benefits of Bitcoin technology and build upon it, drastically improving the network’s transaction processing capabilities. Though they certainly aren’t a perfect solution, they do address the problem at hand while retaining the decentralized security that has been instrumental to Bitcoin’s proliferation. It’s important to note that there are two kinds of Blockchain rollups – Optimistic and ZK. In short, Optimistic rollups assume that all of the transactions bundled together are valid unless proven otherwise.

They ended up interacting with faulty nodes as a result, without being aware of the problem for a long time. Although most existing Layer 2s inherit a high degree of security and reliability, they are not as battle-tested as Bitcoin yet when it comes to robustness. As somewhat independent networks, they introduce a new set of risks and challenges. The Bitcoin network takes about 10 minutes to finalize a single set of transactions  –  only seven transactions per second (TPS) on average.

Whether you want to play Web3 games, exchange tokens, mint NFTs, or trade ETH, L2s help you do it faster and cheaper. So, the assistant sends the processed paperwork back to the boss, who adds it to the final ledger upon approval. In other words, when approved, the transactions processed on the L2 network are added to the main Ethereum blockchain.

The Problem With Layer 1 Blockchains

This way, the boss has to deal with a fraction of the paperwork, which occupies less space. Therefore, as a user, you pay less gas fees because your transaction is grouped with many others and occupies less data space on how to buy populous the block. To explain, smart contracts are essentially computer programs that execute automatically if certain conditions are met. This competent tech is what paved the way for dApps, and from there, Ethereum took off.

Validity Proofs

Layer 2 solutions don’t just benefit their users, but also the crypto ecosystem as a whole. With large segments of the network activity handled off-chain, congested mainnets are relieved of much of their traffic. This means a faster, more efficient system for transactions on the parent network.

They can include protocol updates or additional network solutions to help process more transactions. Sidechains are independent blockchains with native tokens and consensus mechanisms whose purpose is to help scale the parent network. They connect to the parent blockchain using a two-way bridge that enables users to move assets to and from Ethereum. Scaling a blockchain network is important to the overall adoption and increased capacity of a cryptocurrency network.

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