Scalability is one of the largest problems of blockchain technology today the capability of processing a large amount of transactions at low-cost and with no compromise to security or decentralization. The two biggest blockchains (Bitcoin and Ethereum) have been battling this issue over the years. The transactions are also slower and more costly as more users get into the network.
As a fix, developers came up with what is today known as Layer 2 scaling solutions. The purpose of such systems is to execute transactions off the primary blockchain (so-called Layer 1) and provide similar security. However, a big question is will a big solution to the scalability issue of blockchain be Layer 2 solutions or can they be considered a band-aid solution until another solution is developed?
Before we can know this we must find out what Layer 2 really is. The primary blockchain can be viewed as a congested road. All cars (transactions) have to pass one lane and this leads to delays and traffic. Layer 2 is an analogy of an additional lanes constructed over that highway - stealing a bit of traffic, thus making the rest go faster. The deals which occur on these side lanes are then closed on the main road to final confirmation. Such a design ensures that the base blockchain is not compromised and increases its ability to support additional users.
Various forms of Layer 2 solutions exist, the most popular ones being state channels, sidechains, and rollups.
State channels enable more than two users to make numerous transactions off-chain and only document the result at the final stage onto the blockchain. This is very fast and inexpensive, but is often only used in particular applications such as payments or in gaming.
Sidechains are individual blockchains which operate in parallel with the main one. They possess their rules and correctors yet they are capable of communicating with the primary network. Such a sidechain as Polygon is also among the most popular Ethereum sidechains.
Optimistic and zero knowledge (ZK) rollups are today the most promising Layer 2 technologies. They combine numerous transactions into a single one and subsequently broadcast such information into the primary blockchain. This minimizes the levels of congestion and yet maintains high security since the transactions can be checked on Layer 1.
This is because Layer 2 solutions have transformed the game in the past few years. Arbitrum and Optimism and zkSync among others have drawn in millions of users and billions of dollars in valuation. These sites have enabled individuals to trade, lend, borrow and even play blockchain games at very minimal charges- below a cent in some cases. To numerous individuals particularly in developing economies such as Nigeria where the high transaction charges used to render such participation impossible, Layer 2 has created new opportunities. I myself believe that it is incredible that a young individual in Lagos or Kaduna can now use decentralized finance (DeFi) applications and not have to think about gas costs that could previously be more expensive than the transaction itself.
Nonetheless, even with their success, the big question still remains to be; Are Layer 2 solutions the long-term solution to blockchain scalability, or are they a short-term action? Other professionals consider Layer 2 to be only a delay until blockchain developers can discover a more effective method to scale Layer 1 itself. They argue that the further we construct something one more layer above, the more complex and disjointed the ecosystem will get. Assets across networks may need to be bridged by the users, and this adds to the security and confusion. In reality, bridges the systems connecting the Layer 2s and Layer 1s have been the victims of some of the largest hacks in crypto history.
Conversely, a lot of developers say that Layer 2 solutions are not only a short term fix but also a long term design philosophy. They are of the opinion that no matter how well we enhance the main blockchain, it will never be unlimited. The scalability of blockchain will therefore never be a question of the multiple-layers to operate collectively, just as the internet itself operates on many (TCP/IP, HTTP, and DNS) layers, each with different functions to perform. With this perspective, Layer 2 does not represent a drawback, and it is a logical transition towards the development of blockchain technology.
A powerful trend towards Layer 3 - networks based on Layer 2 - may also exist, and these may focus on privacy, gaming or cross-chain communication. This concept demonstrates that scalability is turning out to be a multilayered ecosystem as opposed to a single chain that performs everything.
Based on the advances that have been achieved to date, it is apparent that the value of Layer 2 solutions has already been realized. The example of Ethereum shows that due to these scaling systems, Ethereum will cease to be an expensive, crammed network to become a more efficient one. Even its co-founder, Vitalik Buterin, has indicated that, in the future, rollups are likely to process most Ethereum transactions.
However, there are also certain issues. The transfer of funds between Layer 1 and Layer 2 is difficult to many users. The interfaces remain user-unfriendly and the gas costs, despite being lower, may vary. Then again there is the problem of decentralization. Certain Layer 2 networks remain very reliant on centralized operators or sequencers and that is contrary to the ethos of blockchain. These issues will be solved to show whether Layer 2s can be a genuine long-term solution.
To me, Layer 2 solutions are not just band-aid as I have witnessed the crypto space in Nigeria and the entire world develop at a very high rate. They are a requisite linking point between where we are and where we are going. The vision of the blockchain is in the global accessibility, equity, and speed, and Layer 2s are making the dream a reality now. Although there is still a possibility of having further advanced technologies in the future, it is difficult to refute that Layer 2 is already one of the building blocks of blockchain.
To summarize, Layer 2 scaling solutions, regardless of their permanence, have been and will be very important in the development of blockchain. They are innovation, adaptation, and progress. With the development of technologies, these systems can evolve or transform, although there is something definite: these systems have already changed the world of blockchain and this change is indelible.
Comments