What is Layer2?

Before understanding the definition of Layer2, we can take a look at the following Ethereum mind map provided by BitKeep to gain a clear picture of Layer2’s position in the whole Ethereum ecosystem, as well as its categories and pilot projects.Even if you can’t quite understand the detailed concepts on this map, you can still try to grasp a general framework of the Ethereum ecosystem from various perspectives, which will be convenient for you to systematically dive into the world of Layer2 later.

Kindly take a close look at the mind map above before we proceed.

The definition of Layer2

Layer2, also known as L2, refers to the second-layer scaling solutions of the public chain. Such kinds of solutions generally refer to those methods built on the public chains without necessarily modifying the public chains themselves. Layer1 scaling solution is a different story, given that it changes the public chains themselves, such as “sharding”.

Let’s take a look at one vivid example: a company has a huge business volume, so the leader decides to open a subsidiary and hand over some business to the sub-company. The parent company is like Layer1 and the subsidiary is equivalent to Layer2. In this way, the burden on the parent company is reduced.

Here comes an intriguing question: why is Layer2 only correlated to Ethereum?

Theoretically, all public chains are able to adopt Layer2 scaling solutions, but the fact is that other major new public chains basically have advanced performance, and their Layer1 structure can already satisfy the needs of current applications. Therefore, Layer2 is not an urgent need for these new public chains, nor is it the main focus of the market. So when we talk about Layer2, it is generally referred to as Ethereum’s Layer2 by default.

Layer2 is literally translated as the second layer network in Chinese. This is actually a relative concept when we talk about Layer1. So what exactly is Layer1? Layer1 is the underlying protocol of blockchain technology. As for Ethereum, Layer1 refers to the Ethereum network itself.

In addition to the Ethereum network, other independent networks built to provide extra computing or storage and transaction services are considered as Layer2. Ethereum’s own resources can be used on Layer2. Through some nodes and methods that don’t require permission, the Layer2 and the Layer1 network can expand the capacity of the Ethereum network by performing specific data exchanges.

The following diagram will help you tell Layer2 apart from Layer1:

Why is Layer2 important?

The fundamental reason for the birth of Layer2 is that the capacity of the Ethereum network itself is limited, the number of transactions per second is less than 30, and frequent network activities often lead to data congestion, which in turn leads to higher gas fees (transaction fees) and slows down the performance of the application.

In order to tackle these issues, Layer2 expands the Ethereum network by building a single blockchain on the first layer. As mentioned above, it helps to lighten the workload of mainnet transactions by integrating smart contracts of Ethereum’s powerful decentralization security model.

As a matter of fact, the Ethereum network is compatible with multiple Layer2 networks and every single team can develop its own Layer2 network. We can tell that the Ethereum network allows the co-existence of a single Layer1 network and multiple Layer2 networks.

The main advantages of Layer2

Lower the cost: Layer2 facilitates multiple off-chain transactions into a single Layer1 transaction, which considerably lightens data workload. In addition, security and decentralization are guaranteed via settling transactions on main chains.

More practical: Layer2 focuses on improving user experiences and widening the range of applications by higher trading volume per second with lower cost.

What are the scaling solutions brought by layer2?

If you are starting to understand Layer2 from scratch, you will go through Layer2 solutions represented by various obscure terms and you probably can’t tell the differences. Let’s review the mind map at the very beginning of this article and you might find out that Layer2 has evolved over several years, from the earliest state channels to sidechains and Plasma, then from sidechains and Plasma to Validium, Rollup, and from Rollup to ZK Rollup…

The timeline is as follows:

In fact, in the early days of the development of Ethereum, even Vitalik once believed that sidechains and Plasma technology were the best solutions to solve the scaling issues of blockchain technology. However, in the context of the major DeFi outbreak, the fact is that sidechains along with state channels, and Layer2 solutions like Plasma could not satisfy the appetite of the crypto market, and as a result, Rollup has become the most promising solution at present.

To summarize, there are 5 scaling solutions provided by Layer2: sidechains, state channels, Plasma, Validium and Rollup. Validium is the least mentioned, given its limited range of applications and therefore we don’t need to focus on this one. As of this writing, Rollup has proved to be the dominant solution for Layer2.

Following is a brief summary and comparison of the 4 major solutions:

We will share with you the detailed status quo of these 4 solutions in the next article.

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