Ethereum, as a blockchain, has had a massive impact on the industry. It hosts key dApps and has sufficient scope for future developments. Although scalability problems have been problematic, the ETH price forecasts are still positive since Layer 2 technologies will solve these constraints and increase transaction efficiency.
Layer-2 technologies, for instance, are built on L1 solutions, which are committed to strengthening the ecosystem and adding to the network’s existing beneficial working mechanism. L2 solutions are advanced versions of L1 solutions with a futuristic approach.
Enhancing Ethereum Scalability with Layer 2 Technologies
Technologies that essentially back Ethereum make up for Layer 2 technologies. Their primary aim is to boost adaptability worldwide by enhancing blockchain scalability. The focus of L2 technologies is on bringing down transaction costs so that more developers can afford them.
From a fundamental perspective, L2 solutions operate above Layer 1. These are also referred to as base blockchains. They don’t compromise on security while enhancing scalability and faster transaction speeds. A larger focus of Layer 2 technologies is to assist Web3 in successfully reaching the general world. Web3 constantly faces issues like efficiency for further growth.
There are different types of Layer 2 scaling solutions: zk-Rollups, Optimistic Rollups, Plasma, and Bitcoin Lightning Network. Zk-Rollups use cryptographic proofs, while Optimistic Rollups work to increase the network’s transaction throughput. Plasma is a series of smart contracts that operate on the mainnet of Ethereum and Bitcoin Lightning Network and instant and high-volume micro-payments.
Scaling Ethereum: The Role of Layer 2 Solutions
Layer 2 solutions are essential to tackling Ethereum’s limitations. These include high gas fees and more time to execute peak-hour transactions. Ethereum scalability solutions are known to be transformative for projects and businesses committed to unparalleled scalability. They make operations more cost-effective by bringing down gas fees.
Layer 2 solutions contribute to the experience by ensuring satisfaction via swift transactions. It goes on to retain them in larger numbers within the competitive space. Four key elements that come into play here are decentralization, security, flexibility, and innovation.
Layer 2 solutions maintain the core idea of decentralization and enhance the security and flexibility within the Ethereum Virtual Machine (EVM), allowing for privacy-focused and scalable smart contract functionality. Innovation for L2 solutions involves introducing new efficiencies without altering the fundamental blockchain concepts.
How Layer 2 Solutions Scale Ethereum
Various mechanics, such as rollups, state channels, plasma, and Validium, are implicated in Layer 2 solutions’ operation.
- Plasma, to begin with, is a suite of smart contracts on the Ethereum mainnet. It is tasked with creating a child blockchain to handle transactions. Plasma provides the ability to withdraw assets from child chains and assures that data is accessible and security is maintained. Lastly, it provides thousands of transactions to increase scalability.
- Zk-Rollups uses cryptographic proofs to process transactions off-chain. They validate transactions using zk-proofs to power scalability and data privacy. Optimistic Rollups are almost identical, except they aim to increase transaction throughput.
- State Channels involve off-chain transactions to reduce network congestion, enhance efficiency, and keep gas fees under control.
At the core of it, Layer 2 scaling Ethereum solutions leverage the security aspects of Ethereum to ensure global growth and adoption.
Key Players in the Layer 2 Space
There are three key players in the Layer 2 space: Arbitrum, Optimism, and Polygon.
- Arbitrum is another variation of Optimistic Roll Ups that reduces costs and enhances transaction speed. Its unique offering is the any-trust model, which requires s to trust at least one validator for the system to operate correctly.
- Optimism is an Optimistic Rollup-based concept that provides instant transaction confirmations and executions of smart contracts. Optimism eases developer adoption and is largely compatible with Ethereum tools.
- Previously known as MATIC, Polygon is a multi-chain scaling solution for building Ethereum-compatible blockchains. It offers many tools and features for architecting interconnected blockchain networks, boosting security and decentralization while providing scalability.
When writing this article, the Total Value Locked (TVL) of the top Layer 2 chains is approximately $9,036,374,701. Arbitrum has the largest share right now.
The Future of Ethereum with Layer 2 Technologies
Layer 2 technologies are expected to impact Ethereum’s future greatly. This stems from the fact that L2 solutions are working to enhance the scalability and speed of transactions. These factors have held it back despite global adoption at a decent pace. dApps, DeFi, and NFTs based on Ethereum will be able to leverage all the integrated offerings into the network.
Moreover, it will impact the price of Ether. Ethereum price predictions expect the token to rise to $4,097 by the end of 2024. Most of it will be ed by factors other than L2 solutions; however, they will remain at the center of it all along.
An increase in transaction speed and a gas reduction will also boost transactions. The anticipated dank sharding upgrade and efforts to decentralized L2 solutions will also decide the impact.
Closing Thoughts
L2 solutions have challenges associated with them that they need to tackle. For instance, there are interoperability issues with Layer 1, even though Layer 2 solutions are upgraded based on the same ground as that of Layer 1. Other challenges and considerations are:
- adoption and education since they are well versed with the current mechanism of L1 solutions. Transition to L2 could pose a threat since there is little to no understanding of it.
- Long-term sustainability and security concerns are prevalent because methods to attack an ecosystem evolve accordingly. This means that Layer-2 solutions may still have to change frequently.
That said, the key will be to innovate and develop Layer 2 solutions continuously. Challenges are widespread even with layer 1 solutions but are being dealt with by bringing L2 solutions.
