Introduction
When it comes to Layer-2 Blockchain solutions, there are many different options and it is becoming obvious that each solution has its own place. Similar to how there are many different options for vehicles as they different vehicles have different purposes. But what is the Layer-2 solution trying to solve? Essentially, these major blockchains can only do seven transactions a second or fifteen transactions a second. Now, it is very small and slow compared to Visa which can do like a hundred thousand transactions a second.
To compete with these centralized methods, we need to find a way to process more transactions per second. Now, there are two ways to scale, we can either scale the base layer or we can outsource some of the work to a new layer.
Here’s why we can’t scale the base layer, “The Blockchain Trilemma”. There are three big important areas when it comes to a blockchain i.e., decentralization, security, and scalability. Without going too in-depth, developers haven’t found a way to maximize all three. If they try to improve one, the other two start to lose their benefits. Because of this, developers have to be really creative to find out how to scale a blockchain.
We call Layer-2 solutions because usually they are not code written to affect the actual true blockchain. But instead, outside factors or tools allow the network to scale through them. Each of these layer-2 scaling solutions has a place in scaling a blockchain. It is not so much as which one is the best but which one is the best for the situation that you are working with.
Rollups
Ethereum mainnet features smart contracts that are most commonly referred to as rollups. The existing relay between the Layer 2 and the main chain is facilitated by these rollups where the necessary computation usually takes place.
They are further classified into two major categories:
- ZK-rollups
- Optimistic rollups
Sidechains
Sidechains act probably exactly how you think they would act. They are literally secondary blockchains that run parallel to the side of the main chain and use the resources they have to offload the work. They can steal or borrow information from the main blockchain and then use their virtual machine to execute smart contracts or validate transactions.
They further send the data that they have back to the main blockchain for security reasons. A sidechain cannot operate without its parent chain but a parent chain does not need a sidechain. In the case of Ethereum, the matic or the polygon network is actually a sidechain.
Plasma
Plasma uses child chains, sometimes also called Plasma chains which have their own child chains that they can then broadcast important operations to the main chain. Think of how the United States is divided into a federal system and the local system. There might be federal news that is super-important such as when the president signs an executive order or there might be local news such as when your cousin wins valedictorian. Well, both of these are important pieces of information that should be recorded. However, one of these might warrant a 10,000 photoshoot and 50 new articles about it.
Thinking about child chains like this and the plasma idea is probably the best way to understand how this layer-2 scaling solution actually works.
Channels
Channels are a way to lock up your funds and then trade a virtual version of your funds on a network that is much faster. For example: when it comes to Visa, whenever we swipe our credit card or debit card, we are not really sending true dollar bills from us to the vendor, instead, we are sending a virtual number representation of how many dollars that we actually own to that vendor. And since everyone agrees that a virtual dollar is equal to a real dollar, there are no issues.
In a channel system, we simply use code to make sure that you can only send what you have actually locked up. The Lightning Network is an example of a Layer-2 scaling solution using channels for the bitcoin blockchain. Essentially, you lock up some of your bitcoins with someone else, and then you can send your virtual bitcoins back and forth. You can do this until you decide to settle up and push one transaction to the blockchain instead of a whole bunch of them that you would have done otherwise. Click this image below to start your bitcoin journey.