A Developer’s Guide To Ethereum Scaling Solutions

Rollups are a type of Layer 2 scaling solution that bundles or “rolls up” sidechain transactions into a single rollup block and posts to the Ethereum chain. This allows layer 2 transaction data to be available on Layer 1 any time it is needed for validating a state transition. Layer 2 scaling solutions for Ethereum Mainnet have been under development for the last few years, and are now becoming ready to take on real applications. Building your application on a Layer 2 will help you achieve much higher throughput than running all your operations directly on Layer 1.

XDAI Chain utilizes a Proof-of-Stake consensus mechanism for helping users to place native xDAI tokens as stakes on the network for becoming validators. If you’ve been following the buzz in the Ethereum ecosystem recently, you’ve probably heard about high transaction fees and the limited processing capacity of Mainnet. Layer 2 scaling solutions are secured by Layer 1, but they enable blockchain applications to handle many more users or actions or data than Layer 1 could accommodate. Layer 2 scaling solutions must inherit the underlying security of the main chain.

Disadvantages of Layer-2 Solutions

Nonetheless, those who wish to avoid Ethereum’s expensive transaction fees can look forward to drastically lower gas fees. L2 networks rely on the underlying L1 for security, meaning that all transactions that occur on the L2 network must eventually settle on the larger, more decentralized L1. While side chains are not required to submit state data to the mainchain, many still choose to do so in order to leverage the larger, more decentralized chain’s security.

As more dApps and DeFi protocols deploy on L2 chains to take advantage of their scalability, usage of Ethereum’s L2 ecosystem continues to steadily increase. Running your applications on L2 can provide a degree of isolation from the public L1 blockchain. Most L2 solutions are centered around a server or cluster of servers, each of which may be referred to as a node, validator, operator, sequencer, block producer, or similar term. Depending on the implementation, these L2 nodes may be run by the businesses or entities that use them, or by a 3rd party operator, or by a large group of individuals .

The 5 Best Ethereum Layer 2 Solutions

With that said, ethereum layer 2 scaling solutions is not yet suitable for investors who prefer to withdraw their crypto assets. Due to its confirmation protocol, it takes two weeks to withdraw funds, while it takes only three hours to do the same with Polygon. Because of this, hardly a week goes by without Polygon partnering up with another web3 company. Two of the most popular NFT marketplaces, OpenSea and Rarible, have already extended their blockchain support to Polygon, which is great news for NFT traders. Layer 2 solutions handle transactions off the Ethereum Mainnet to achieve scalability.

Scaling improvements can reduce network congestion and lead to significant drops in transaction costs. Also, the proposed collation must be added to the main chain before achieving finality. Scaling solutions can be broadly divided into two categories, “on-chain,” and “off-chain,” solutions that are differentiated based on their point of execution. Ethereum limits how much data a mined block can hold because capping the block size improves decentralization by enabling nodes to more effectively store the blockchain history. Bigger block sizes make it difficult for people to run full nodes, harming decentralization. Other fundamentals of blockchain technology include being immutable and distributed.

#3 OMG Network (OMG) – $256M Market Cap

Sidechains are unique blockchains that are attached to a “main-chain” using a two-way peg. They allow tokens and digital assets from one blockchain to be used in a separate one and then be moved back to the original if needed. Sidechains are independent from the main-chain and are responsible for their own security, meaning they implement their own mechanism for achieving consensus. However, layer 1 solutions aren’t the only avenue available to scale blockchains. Layer 2 solutions to scaling establish an additional protocol that is built on top of blockchains like those of Ethereum and Bitcoin. Remember, Ethereum is Layer 1, so you can visualize an Ethereum-connected Layer 2 sitting to either side of the main chain.

It also runs Illuvium, Planet Quest, Guild of Guardians, Gods Unchained, Highrise, GreenPark Sports, and ESL Gaming in the blockchain gaming sphere. As a proof-of-stake network—to which Ethereum is transitioning soon—Polygon relies on MATIC tokens to verify transactions. Therefore, those who hold MATIC tokens can become the network’s validators, earning a cut whenever a transaction occurs.

Since layer 2 chains inherit security from Ethereum, in an ideal world, they are as safe as L1 Ethereum. After years of research and development, many of the L2 technologies that will scale Ethereum launched in 2021. Many projects still have additional trust assumptions as they work to decentralize their networks. Always do your own research to decide if you’re comfortable with any risks involved. With higher transactions per second, lower fees, and new technology, projects will expand into new applications with improved user experience. By combining multiple off-chain transactions into a single layer 1 transaction, transaction fees are massively reduced, making Ethereum more accessible for all.

Layer 2 solutions have peculiar qualities that make them a compelling scaling solution. Instead, they use existing features of layer 1 chains, such as smart contracts, which enables scaling without compromising decentralization or security. Another distinct property of certain layer 2s is that unlike layer 1 blockchains, their fees don’t necessarily increase with more transaction demand; in fact, they can even get cheaper. Optimistic rollups run on Ethereum’s base layer so that a huge number of smart contracts can be run without overburdening the network. They still benefit from the exact same levels of security as the Ethereum main chain. Data aggregators will compute merkle roots to achieve increased transaction speeds.

xDai Chain

These child s use a combination of smart contracts and cryptographic verification to offload transactions from the parent chain. The Layer 2 scaling solutions are decentralized protocols that increase the processing capacity of a blockchain and as a result, relieve congestion on the network. A layer 2 solution is built on top of an existing layer 1, like Ethereum, and its aim is to increase the capabilities of layer 1. A layer 2 offloads computational work from layer 1 by processing transactions off-chain, increasing transaction speed and throughput. The sideroad can offload traffic from the main road , to increase the number of cars travelling at the same time . Mathematics and computer science research continue to improve consensus mechanisms and data architectures that increase throughput.

It was proposed in 2016 to solve the scalability issues on the Bitcoin network by processing transaction bundles at a lightning-fast speed. Validium uses validity proofs like ZK-rollups, but instead, data is not stored on Ethereum layer 1, allowing for scalability of up to 10,000 transactions per second XRP per Validium chain, of which multiple can run in parallel. OMG Network is a Plasma-based Layer 2 scaling solution, which scales the Ethereum blockchain to thousands of TPS.

A state channel allows parties to DOGE conduct secure off-chain transactions without having to experience long waiting times and high transaction fees. It also improves scalability because miners have fewer transactions to process and can work faster. Optimistic rollups assume transactions are valid by default and don’t generate validity proofs for every transaction bundle. However, the validity of transactions in optimistic rollup can be challenged via a fraud proof.

• The Lightning Network is Bitcoin’s most popular layer 2 scaling solution.
• However, the time and cost to set up and settle channels are not ideal for one-off payments, liveliness is required, and funds have to be locked up in open payment channels.
• Its comprehensive capabilities make it a highly accessible virtual computer, which is probably why Ethereum does over 1 million transactions per day.

These solutions communicate with Mainnet, but derive their security differently to obtain a variety of goals. A layer 2 scaling solution can be designed as a payment or state channel for processing transactions between 2 participants using smart contracts, or as an entirely separate network with its own set of validator nodes. Side chains run as secondary blockchains in parallel to the main blockchain. They take the information from the main blockchain, process transactions, execute smart contracts and then send the information back to the main network. Side chains such as Polygon for example, would run the same code as Ethereum but would have their own consensus mechanism. The smaller the side chain, the higher the security risk (i.e. risk of the blockchain being hacked).

DApps then run via these smaller mini blockchains, greatly lowering the strain on the main network. Use a validity proof, meaning the smart contract can verify all of the transfers from the bundling hundreds of transfers off-chain. This can be useful as you don’t need all the transaction data to verify it, just the proof.

This is significantly higher than the 14 https://www.beaxy.com/ per second Ethereum mainnet itself can achieve. Therefore, it’s the first entry in our top 5 Ethereum layer 2 projects list. ZK-rollups currently lag optimistic rollups, being limited to application-specific uses like DYDX, Loopring, and DeversiFi due to the complexity of the underlying tech.

The main difference between Layer 2 solutions and sidechains lies in their security guarantees. While L2 networks enjoy Ethereum’s security assurances, sidechains do not. Scalability refers to the ability of a system to handle exponential increases in usage without sacrificing functionality. In the context of blockchain technology, scalability means a blockchain’s capacity to support increased transactions without any effects on functionality. Ethereum layer 2 solutions have some serious potential to change the blockchain landscape for the better. Layer 2 solutions ensure that users are able to maintain all the safety measures used on the Ethereum Mainnet while still being able to transact quickly and at little to no cost for users.