In technology , the term “scaling” refers to an increase in throughput rate, as measured by the number of transactions executed per second (TPS). Now, when More and more commonly used in daily life, creating layers becomes necessary for network security, better record keeping, etc.

blockchain

in the decentralized ecosystem is . On the other hand, layer 2 is a third-party integration with to increase the number of nodes and then the system throughput. Currently, many layer 2 blockchain solutions are being implemented. These solutions use smart contracts to automate transactions.

Blockchain Layer 1 and Layer 2

Blockchain technology offers many benefits such as increased security, allowing simpler transactions and helping to keep records. However, as usage became more widespread, a number of problems gradually arose. One of such problems is scalability.

With blockchain, every transaction in a decentralized system has to go through several steps. This process requires considerable amount of time and processing power. To improve the processing capacity of the blockchain, the developers introduce a layer 2 scaling solution into the structure.

Blockchain scalability

Experts have many ways to define "scalability" depending on each person's point of view. In essence, however, blockchain scalability is the ability of a system to provide a rich experience to every user, regardless of the total number of users at any given time.

The term “throughput” refers to the number of transactions the system processes per second (TPS). While payment companies/channels like Visa process nearly 20,000 TPS with the VisaNet electronic payment network, the main chain of can only do 3 to 7 TPS.

The huge disparity between the aforementioned levels may surprise many, but there's a reason for it all. uses a decentralized system, while VisaNet runs on a centralized system. use more power and processing time to protect user privacy. Each data transaction has to go through many steps, including acceptance, mining, distribution, and validation by the node network.

With expected to become a must-have force in the business world, blockchain developers are trying to increase the reach of processing. By creating multiple blockchain layers and optimizing layer 2 scaling, they wanted to speed up processing times and increase TPS counts.

Bitcoin blockchain platform processing speed is too slow

Initial, Bitcoin is a simple blockchain for users to send and receive digital currency. However, it faced many scalability difficulties from its inception, leaving everyone wondering: What if more and more people started using it? Bitcoin?

This question points to a pressing network problem. Every system has a specific amount of bandwidth and can only handle up to a certain number of transactions per second. In addition, every transaction in a decentralized system must be audited and therefore requires a large amount of storage space.

By 2021, when Bitcoin becomes ubiquitous, that question is answered by the fact that transactions flood the protocol, resulting in reduced processing speeds.

Why does the current blockchain need layer 2 technology?

The answer is simple: increased demand and higher transaction costs.

Read more  Cardano is the most active development project on GitHub 2021

For example, because has a consensus mechanism so it allows a variety of decentralized applications. In blockchain technology, the consensus mechanism is a fault-tolerant system that leads to agreements on a single network state among many distributed nodes. These protocols ensure that all nodes agree on transactions and are synchronized. This makes the string extremely difficult to overwrite or attack.

Thanks to the stability and security of Ethereum, the ICO craze emerged as a phenomenon, leading to the status of new coin projects "sprouting like mushrooms" on this blockchain. Therefore, the large number of users and the number of transactions made on Ethereum increase. When the system is congested, transaction fees — or the “gas” fees paid to the parties processing transactions on the Ethereum network — increase.

When the blockchain network is congested, pending transactions stop at the memory pool and take longer. To solve the problem, miners started prioritizing transactions with higher gas prices for confirmation. This further increases the minimum cost required to execute a transaction.

The price cycle that pushes gas prices up dramatically makes the situation worse for everyone. Layer 2 scaling is designed to solve this problem and reduce transaction costs.

Problem with blockchain layer 1

A layer 1 network is a blockchain in a decentralized system, typically Bitcoin and Ethereum.

With a layer 1 scaling solution, the underlying blockchain protocol is changed to make scalability possible. Accordingly, the protocol's rules are adjusted to increase transaction capacity and speed. As a result, the blockchain handles more data and attracts more users.

Scaling through a layer 1 blockchain can be understood as:

– Increased block confirmation speed.

– Increase the data storage capacity of a block.

Taken together, these scaling solutions increase the throughput of the network. However, layer 1 seems to be falling short of the desired goal given the growing number of blockchain users. Here are some inadequacies of the system:

Ineffective consensus protocol

Blockchain layer 1 still uses the old and inconvenient PoW consensus mechanism.

Although this mechanism is more secure than others, its speed slows down the system. The mechanism requires miners to use computing power to solve cryptographic algorithms. Therefore, in general, it needs more computing power and time.

Solution: Consensus can be used for replacement. This is also the consensus Ethereum 2.0 will use. This consensus mechanism validates new blocks of transaction data according to the staking of the participants in the network, making the process more efficient.

Overloaded workload

As the number of users increases, so does the workload on the layer 1 blockchain. Therefore, the processing speed and capacity decrease gradually.

Solution: The scalable solution to this problem is sharding. Simply put, sharding breaks down the transaction validation and validation work into Small, manageable. As a result, the workload is spread across the network to leverage computing power through more nodes.

Since the network processes shards in parallel, the sequential processing of multiple transactions can happen at the same time.

Layer 2 blockchain scaling solution

Blockchain layer 2 works on top of the original layer to improve efficiency. By offloading transactions, layer 2 takes some of the burden of layer 1 blockchain and injects transactions into a different system architecture.

Read more  BSC launches BNB Auto-Burn to create a new fee burning mechanism

Then, blockchain layer 2 processes the transaction and reports to layer 1 to finalize the results. Since most of the data processing load is given to this contiguous backend architecture, network congestion is minimized: not only does the layer 1 blockchain become less congested, but it is also more scalable.

An example of a layer 1 blockchain is Bitcoin, a layer 2 scaling solution is the Lightning Network. Lightning Network processes transactions on Bitcoin and reports to it. As a result, Lighting Network increases processing speed on the Bitcoin blockchain. Additionally, Lightning Network brings smart contracts to the Bitcoin layer 1 blockchain.

Here are some other layer 2 scaling solutions:

Interlocking Blockchain (Plasma)

The interlocking blockchain is a layer 2 blockchain that works on top of a layer 1 blockchain. Basically, the layer 1 blockchain sets the parameters while the layer 2 nests the process execution.

There can be several levels of blockchain on the main chain, like a typical enterprise structure. Instead of letting one person (for example, a manager) do all the work, a manager assigns tasks to a subordinate, who reports back to the manager when they complete the respective task. That way, the burden on the manager is reduced while scalability is improved.

The Plasma Project, for example, acts as a layer 2 blockchain for the Ethereum layer 1 protocol to ensure cheaper and faster transactions.

Status channels

State channels allow for two-way communication between blockchain participants. In doing so, they are able to reduce wait times because there are no third parties (e.g. miners) involved in the process.

State channels work as follows:

– According to the smart contract, the participants agree in advance to lock a part of the base layer.

– They can then interact directly with each other, eliminating the need for miners.

– After conducting the entire transaction, they send the final channel state back.

Both the Raiden Network on Ethereum and the Lightning Network on Bitcoin are good examples of state channels. Lightning Network allows participants to perform a number of microtransactions within a specific time period. Meanwhile, Raiden allows participants to run smart contracts through a private channel.

State channels like Lightning Network are also completely secure, as only the participants know about the transaction. On the other hand, the Ethereum layer 1 blockchain records all transactions in a publicly auditable ledger.

Sidechain

Similar to state channels like Lightning Network and smart contracts, is also a scaling solution for layer 2 blockchain technology. One is a tradable chain that facilitates large numbers of transactions. It has a consensus mechanism independent of the original layer. The mechanism is optimized to improve scalability and processing speed. In this situation, the main chain must confirm transaction records, maintain security, and handle disputes.

Sidechains differ from state channels in that they publicly record all transactions in the ledger. Additionally, if one sidechain experiences a security breach, it does not affect other sidechains or the base layer main chain.

Read more  Walmart Ready to Enter Crypto, Metaverse and NFT

Rollups

Rollups are layer 2 blockchain scaling solutions that execute transactions outside of the layer 1 blockchain and send back data from transactions into it. Since the data resides on the base layer, it helps layer 1 maintain rollups security.

Rollups have 2 different security models:

– Optimistic Rollups: These rollups assume valid trades by default. Therefore, they only perform fraud detection computations if required.

Zero-Knowledge Rollups: These rollups run computations off-chain, then send a valid proof to the base layer or main chain.

Rollups help increase transaction throughput, expand participation, and reduce gas fees for users.

Limitations of layer 1 and layer 2

Blockchain layering offers a number of benefits. For example, the main advantage of layer 1 solutions is that the developer does not have to add anything to the existing architecture, since the base layer has been changed.

Meanwhile, layer 2 scaling solutions do not interfere with the base layer protocol. In addition, this solution allows for multiple microtransactions without requiring users to pay outrageously high transaction fees or waste time waiting for miners to verify.

However, both of these blockchain layers have limitations that need to be considered.

Additions to existing protocols

The main problem with blockchain layers is adding them to the existing protocol. Both Bitcoin and Etherium have a market capitalization of billions of dollars and users trade millions of dollars every day. Therefore, it doesn't make sense to complicate the process through unnecessary coding and testing, as this is very expensive.

The important trio of scalability issues

Vitalik Buterin, the founder of Ethereum, coined the term “scalability trinity” to refer to the combination of three inherent properties of a blockchain: Security, scalability, decentralization. .

This term indicates that any blockchain technology can only have at most two properties, never all three at once. Therefore, current blockchain technology will always have to compromise one of its fundamental properties. For example, while the Bitcoin blockchain optimizes for decentralization and security, it has had to compromise on scalability despite being faultless.

Future after this of What is layer 1 and layer 2?

Scalability is one of the reasons why mass adoption of cryptocurrencies in the blockchain industry is not possible at the moment. As demand for cryptocurrencies increases, the pressure to scale blockchain protocols will also increase. Since both blockchain layers have certain limitations, the solution in the future will be to build a protocol that can solve the scalability dilemmas.

summary

To solve this “bottleneck”, there are two options available: 1) mitigate the scaling problem or 2) look for viable alternatives. Blockchain developers are opting for the former, moving to a layer 2 scaling solution during the Ethereum 2.0 implementation.

At the time of writing, blockchain systems are still under development. The pressing question for the future is whether blockchain layers and layer 2 scaling will be temporary or permanent? Up to this point, no one really knows what the answer is.

Join our channel to get the latest investment signals!