What is layer-2 blockchain? Understanding its purpose and benefits

A blockchain consists of three primary layers: retaining safety as a prime precedence, ensuring every part works on a regular basis, and permitting everybody to take part in how a blockchain works.

Nevertheless, when many individuals use a blockchain on the identical time, it slows down. That is the place layer 2 is available in, which might be thought of an improve to layer 1 blockchains. Layer-2 makes blockchains scalable, sooner, and fewer crowded, whereas retaining every part managed and safe.

On this article, we’ll focus on what layer-2 blockchain is, the totally different layers of blockchain, and particularly what the important thing variations are between layer-1 and layer-2 blockchains.

What’s Layer 2 Blockchain?

Because the identify suggests, layer-2 in crypto got here after layer-1 and was constructed on prime of layer-1 to enhance its efficiency and scalability.

The core drawback with layer 1 protocols is excessive prices and sluggish transaction speeds, particularly throughout unstable markets and peak utilization. Layer-2 blockchains have provide you with sidechains, state channels, and rollups, amongst different options that enhance on the underlying layer-1 blockchain when it comes to sooner transaction occasions and decrease charges.

Understanding the layers of the blockchain

Layer-1 (L1), also called the bottom layer of a blockchain community, oversees elementary capabilities together with consensus mechanisms equivalent to Ethereum’s (ETH) proof-of-stake or Bitcoin’s proof-of-work and transaction settlements, amongst different key capabilities . Though decentralization and safety are a prime facet of L1s, they’re generally tormented by bottlenecks equivalent to poor transaction speeds and costly charges.

Layer-2 (L2) blockchains are constructed on prime of layer-1 blockchains to handle the underlying points. Layer-2 blockchains use strategies equivalent to rollups, sidechains and standing channels, which in flip scale back the transaction burden and allow sooner and cheaper transactions with out sacrificing safety.

L2 blockchains have come a great distance and solved many issues in L1 and the general blockchain ecosystem. Nevertheless, extra optimization is required to enhance interoperability, person expertise, and particular software options. That is the place layer-3 (L3) blockchains come into the image.

L3 blockchains specialise in creating particular protocols for functions in web3 sectors, together with however not restricted to NFTs, DeFi, and gaming. In easier phrases, L3 blockchains facilitate cross-chain performance throughout totally different blockchains, permitting every finish person to entry a number of blockchains concurrently, enhancing accessibility and interoperability.

These three blockchain layers described above collectively kind an entire stack that ensures the long run scalability, safety and accessibility of blockchain expertise.

Layer-1 versus layer-2 blockchain

Layer 1 and layer 2 blockchains differ primarily of their capabilities inside the blockchain ecosystem. Consensus mechanisms and autonomy are on the core of layer 1 blockchains. Bitcoin and Ethereum are two of the favored layer 1 blockchains which might be autonomous in the best way they function whereas recording and verifying transactions on the chain. As talked about earlier, when there may be important market volatility, layer 1 blockchains expertise essential scalability points which have a direct influence on peak charges and delaying transactions.

Layer-2 blockchains are developed on prime of layer-1 protocols with a selected mission: enhancing the scalability and efficiency of L1 blockchains over time. There are a lot of strategies that L2 blockchains use to make L1s environment friendly, however the most typical are combining a number of transactions into one and processing transactions off-chain, which immediately reduces the workload of the protocol with out a lot detrimental influence.

Rollups, state channels, and sidechains are among the many options L2 blockchains supply that collectively allow sooner and cheaper transactions and scale back congestion on the underlying L1 protocols.

In the long run, each layer 1 and layer 2 work collectively to provide an efficient system: layer 1 offers the safety and decentralized consensus that kind its basis, whereas layer 2 improves scalability and person expertise, making blockchain expertise higher . viable for widespread use instances equivalent to gaming and decentralized finance (DeFi).

Checklist of layer 2 blockchains

There are greater than 100 layer 2 blockchains with extra blockchains being developed now and again. Right here we’ll record the highest three layer 2 blockchains thus far:

Polygon (POL)

Polygon is a layer 2 blockchain, also called a sidechain, a scaling answer that runs on the Ethereum blockchain. Cryptocurrency initiatives use Polygon to enhance the scalability, flexibility and autonomy of their platform. POL (previously often called MATIC) is Polygon’s native token and is used for administration and community transaction charges on the Polygon blockchain.

Optimism (OP)

Optimism is a layer 2 blockchain that makes use of optimistic rollups to scale the Ethereum ecosystem. This layer 2 platform runs on a community-driven governance mannequin that advantages the ecosystem in the long run.

The Optimistic Rollup Protocol is on the coronary heart of Optimism, because it offloads Ethereum by executing transaction knowledge outdoors of Ethereum after which periodically posting it to the Ethereum blockchain. This complete course of helps scale back transaction prices and improves the efficiency of the Ethereum blockchain and extra initiatives can construct on Ethereum by utilizing the Optimisim L2 blockchain.

Arbitration (ARB)

Arbirtum is a layer 2 blockchain that additionally makes use of optimistic rollup to retailer off-chain knowledge, decreasing site visitors on the Ethereum blockchain. It gives web3 apps and sensible contracts that supply decrease and sooner transactions in comparison with utilizing Ethereum alone as a blockchain.

Advantages and challenges

By now you may have understood why layer 2 blockchains are a vital a part of your complete web3 ecosystem. Nevertheless, that doesn’t imply that they don’t face challenges. On this part, we’ll briefly focus on the advantages and challenges that layer 2 blockchains supply.

Benefits:

Scalability

Off-chain transaction processing is the important thing characteristic of L2 blockchains, which has a direct influence on rising scalability by considerably decreasing congestion on the underlying L1 blockchain.

Decrease transaction prices

New customers and initiatives are attracted to maneuver from web2 to web3 as a result of layer 2 blockchains dramatically scale back transaction prices due to the off-chain transaction processing characteristic described above.

Sooner transactions

When transactions are processed off-chain, not solely are prices diminished, but in addition the time it takes to get from level A to level B. L2 blockchain bundles a number of transactions collectively, making their velocity sooner and in flip guaranteeing an improved person expertise whereas sustaining safety as effectively.

Challenges:

Safety dependencies

L2 blockchains don’t share the autonomy and excessive stage of safety in comparison with the layer 1 blockchains. There are nonetheless vulnerabilities and flaws related to L2 blockchains which might be being fastened by blockchain builders.

Complexity and adoption

Not everybody can combine their layer-2 challenge into the layer-1 protocols, as this may increasingly require particular infrastructure data of each L1 and L2 blockchains. Which means that many customers and new initiatives might should face a steep studying curve to undertake this layer-2 expertise.

Interoperability points

Efficiency and quick transactions are a serious benefit of layer 2 blockchains, however interoperability points nonetheless stay. This drawback is solved by the introduction of L3 blockchains that enhance cross-chain performance between totally different blockchains, as defined in part 2 of this text.

The way forward for layer 2 blockchains

Layer 2 blockchains in crypto will proceed to resolve the scalability points that layer 1 blockchains, equivalent to Bitcoin and Ethereum, at present face. With the rising use of decentralized expertise, cost-efficient blockchain expertise would be the prime requirement and that is the place layer 2 blockchains can handle this incoming site visitors with out sacrificing decentralization or safety.

Additionally it is anticipated that interoperability between layer-1 and layer-2 blockchain shall be additional improved. This can assist create a unified ecosystem that may present higher accessibility to property and knowledge throughout all blockchains. In easier phrases, person experiences equivalent to blockchain pockets integrations, transaction throughput, and different key metrics that decide blockchain efficiency shall be improved, which in flip will drive mass adoption.

Different key expectations from layer 2 blockchains are that the innovation sector, which incorporates rollups, zk-proofs, and so forth., will proceed to progress as new cryptocurrency startups proceed to construct on this blockchain expertise. Additionally it is potential that the second layer blockchain answer will overshadow different blockchain layers and change into the way forward for a decentralized economic system.