Emergence of Layer 2 🦄

Today we will talk about the emergence of Layer 2, Was Layer 1 Blockchain not enough?

Ethereum is not scalable 🚲

Last time we talked about the cryptokitties craze 😸, and how Ethereum can not hold much traffic in its transactions. As engagement of the network increased, gas prices became higher and higher, and now for small payment transactions, the user has to pay transaction fees compared to the value, which is a lot. Ethereum had a hard time and its major drawback highlighted: SCALABILITY.

Restaurant Analogy 🍴

[More engagements on Ethereum due to the NFTs craze skyrocketed the transaction fees] 🗿

Think of yourself as the owner of a Chinese restaurant 🧑‍🍳 or anything you like 😉. Now your noodles 🍜 are getting popular day by day. Even customers from other towns are lining up in front of your shop. Initially, it was great, you are earning more, and your job is stable. But as more and more people are coming to your place, the limited capacity of a single restaurant + long wait times made the customers anxious, you raised the prices keeping under a valid price range, but still not able to satisfy the crowd.

[A solution: Layer 2 to move traffic off the main network, with Ethereum’s network security]

To resolve the crisis, you opened more branches of your restaurant and offered home delivery to distribute the crowd efficiently while ensuring the engagement of your restaurant. 🍥

Tell more about Layer 2s 🤑

We will take the example of Ethereum as Layer 1.

We saw the need for Layer 2 but:

• How do they operate? 😕

• What about transaction fees and speed? 😶‍🌫️

• Any extra perks? 🥳

Let’s answer these one by one.

How do they operate? ⚙️

Layer 2 operates by two major rollups:

1. Optimistic rollups 🎺

   • They assume all transactions are valid.

   • Fraud-proof mechanism

   • Layer 2 validates the transactions using a sequencer (no validation by a network of nodes), thus not fully decentralized.

   • Then layer 2 makes the summary of its work and packages the blocks to send it to Ethereum in a rollup block. Layer 1 must know everything happening in Layer 2 just like the “HeadQuarter must know every highlight of its branches.”

   • 7-day challenge window: Anyone on the Ethereum network can validate the correctness of the roll-up block in this period. If they find any faulty transaction, the layer 2 protocol re-executes the transactions to verify the correctness. If no fraud proof is found, then the block is finalized on Ethereum.

   • Ex. Celo (about to be), Optimism, Arbitrum, Base, etc.

2. ZK proofs (zero-knowledge proofs) ♟

   • Layer 2 validates the transactions and provides the proof before sending it out to Ethereum, so no 7-day challenge period in zk rollups.

   • However as it uses cryptographic computations for proof, it is more costly as compared to optimistic rollups, but they are more secure and faster in finalizing on the Ethereum network.

   • Ex. Polygon, Scroll, Linea

What about the transaction fees and speed? 💨

As we no longer require approval of the majority from the Ethereum network to validate a transaction rather sequences do the validation, so the transactions are fast.

Any extra perks? 🔮

• Other than reduced transaction fees and faster transactions, Layer 2 inherits the network security, and decentralization of the Layer 1 it is anchored on, as the native blockchain finalizes transaction.

• Enhanced scalability on the main blockchain.

• Sending tokens from Layer 2 to Ethereum, the tokens are locked in the Ethereum side of the bridge 🌉, thus more secure and safe as the Ethereum network is robust in security with many validators.

Last Note

If you made it here, congratulations!! Have a nice day, stay healthy, and stay curious.

Thanks to #SheFi for their amazing sessions and for spreading the word about web3 and blockchain and getting me so excited about what new technologies could bring.

Until next time!