Blockchain: what are Layer 1 and Layer 2 solutions?

Today we’re looking into blockchain layer solutions - the issues they’re designed to solve, how they go about solving them and what the future looks like for them.

Before we begin, we need to understand the Blockchain Trilemma.

Coined by Vitalik Buterin, the Blockchain Trilemma describes the widely-held belief that developers must sacrifice one of the three main issues faced by blockchains in order to accommodate the other two. In other words, no blockchain can be secure, decentralised and scalable at the same time.

So, developers set out to try and solve the Trilemma. And this is where blockchain layer solutions come in.

What’s the difference between Layer 1 and Layer 2 solutions?

There are two main types of blockchain scaling solutions: Layer 1 and Layer 2. Layer 1 is the main, underlying blockchain architecture, whereas Layer 2 is an overlaying network that lies on top of it.

Scaling directly on a Layer 1 blockchain means that developers don’t need to add anything to its existing architecture. However, doing so generally involves increasing its block size, which unfortunately means sacrificing decentralisation.

Layer 2 solutions, on the other hand, are third-party protocols that integrate with the underlying Layer 1 blockchain to increase the number of nodes, and subsequently, transactional throughput.

Outsourcing computation to a second layer in this way helps to scale a blockchain by taking a portion of its transactional burden, without tampering with the base layer.

Let’s take a look at the different types of Layer 2 scaling solutions.

What are the two most common Layer 2 solutions?

The most common Layer 2 solutions are Rollups and State Channels.

Let’s look at Rollups first. Rollups are the most common form of scaling solution on Ethereum. They work by outsourcing transactions to a second layer outside of the Layer 1 blockchain, and only publishing the minimum necessary information on the chain. This makes them extremely scalable without sacrificing security or decentralisation.

There are two types of Rollups, which have two different security models: Zero-Knowledge Rollups (“ZK-Rollups”) and Optimistic Rollups. ZK-Rollups run off-chain, submitting the validity proof to the base layer, while Optimistic Rollups assume transactions to be valid by default, only conducting computation to detect fraud if there’s a challenge.

Optimistic Rollups, especially, can require up to a week for users to withdraw their assets back to the Ethereum mainchain, however. Luckily, there are other solutions on offer.

Enter State Channels. State Channels allow users to directly transact with off-chain users. This means that there are no third-parties, such as miners, involved in the process - this significantly reduces waiting times.

Raiden Network on Ethereum and Lightning Network on Bitcoin are both examples of State Channels. Raiden allows users to run smart contracts via personal channels, and Lightning Network lets participants conduct several microtransactions with each other in a limited period of time.

What does the future of blockchain scalability look like?

It’s been said that scalability limitations are to blame for crypto not yet achieving mass adoption. Since the existing solutions each come with various trade-offs - namely the lack of decentralisation that comes with Layer 1 solutions and the cost involved with building Layer 2 solutions - it’s believed that the future of scaling will see a hybrid version of the two.

So, had you come across the Blockchain Trilemma before? How about the various scaling solutions implemented by blockchains? Let us know your thoughts below!

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