How Layer 1 and layer 2 solutions are crucial to scale projects in the decentralized ecosystem

What Is Blockchain Scalability?

While blockchain technology is establishing itself as a new pillar of the global economy, its underlying structure of decentralized networks encounters a unique challenge known as the Blockchain Trilemma: the balancing act between decentralization, security, and scalability within a blockchain infrastructure.

Blockchain decentralization refers to the meaningful distribution of computing power and consensus throughout a network, while security reflects a blockchain protocol’s defenses against malicious actors and network attacks. Both are considered non-negotiable to the function of a blockchain network.

Also essential is scalability, which refers to a blockchain network’s ability to support high transactional throughput and future growth. Scalability is crucial because it represents the only way for blockchain networks to reasonably compete with legacy, centralized platforms with rapid settlement times. A commonly used comparison to indicate the gulf in scalability is that Bitcoin Processes between 4–7 transactions per second. Visa, on the other hand, processes thousands of transactions per second. To compete with these existing systems, blockchain technology must match or exceed these high levels of scalability. There now exists an entire sub-sector of the blockchain industry that’s working towards improving scalability.

Thankfully, a whole new generation of blockchains and scaling solutions built specifically to solve this transaction-capacity problem exponentially increases the scaling limits of blockchain and makes meaningful progress. These projects address scalability in two ways: Layer-1 and Layer-2 scaling solutions.

Layer-1 Scaling Solutions

In the decentralized ecosystem, a Layer-1 network refers to a blockchain, while a Layer-2 protocol is a third-party integration that can be used in conjunction with a Layer-1 blockchain. Bitcoin, Litecoin, and Ethereum, for example, are Layer-1 blockchains. Layer-1 scaling solutions increase the base layer of the blockchain protocol itself to improve scalability. Several methodologies are currently being created and practiced that directly enhance the scalability of blockchain networks.

Here’s how it works: Layer-1 solutions change the rules of the protocol directly to increase transaction capacity and speed while accommodating more users and data. Layer-1 scaling solutions can entail, for example, increasing the amount of data contained in each block or accelerating the rate at which blocks are confirmed to improve overall network throughput.

Consensus protocol improvements

Some consensus mechanisms are more efficient than others. Proof of Work (PoW) is the consensus protocol currently used on popular blockchain networks like Bitcoin. Although PoW is secure, it can be slow. Many newer blockchain networks prefer the Proof-of-Stake (PoS) consensus mechanism. Instead of requiring miners to solve cryptographic algorithms using significant computing power, PoS systems process and validate new blocks of transaction data based on participants staking collateral in the network.

With Ethereum 2.0, Ethereum will transition to a PoS consensus algorithm, which is expected to dramatically and fundamentally increase the capacity of the Ethereum network while increasing decentralization and preserving network security.

Sharding

Sharding is a mechanism adapted from distributed databases that have become one of the most popular Layer-1 scaling solutions, despite its somewhat experimental nature within the blockchain sector. Sharding entails breaking the state of the entire blockchain network into distinct datasets called “shards” — a more manageable task than requiring all nodes to maintain the whole network. These network shards are simultaneously processed parallelly, allowing for sequential work on multiple transactions.

Further, each network node is assigned to a particular shard instead of maintaining a copy of the blockchain in its entirety. Individual shards provide proofs to the mainchain and interact with one another to share addresses, balances, and general states using cross-shard communication protocols. Ethereum 2.0 is one high-profile blockchain protocol exploring shards, along with Zilliqa, Tezos, and Qtum.

Layer-2 Scaling Solutions

Layer-2 refers to a network of technology that operates on top of an underlying blockchain protocol to improve its scalability and efficiency. This scaling solution category entails shifting a portion of a blockchain protocol’s transactional burden to an adjacent system architecture, which then handles the brunt of the network’s processing and only subsequently reports back to the main blockchain to finalize its results. By abstracting most data processing to auxiliary architecture, the base layer blockchain becomes less congested — and ultimately more scalable.

For instance, Bitcoin is a Layer-1 network, and the Lightning Network is a Layer-2 solution built to improve transaction speeds in this fashion on the Bitcoin network. Other examples of Layer-2 solutions include: zero-knowledge rollups and optimistic rollups.

Nested Blockchain

A nested blockchain is essentially a blockchain within — or, instead, atop — another blockchain. The nested blockchain architecture typically involves the main blockchain that sets parameters for a broader network, while executions are undertaken on an interconnected web of secondary chains. Multiple blockchain levels can be built upon a mainchain, with each group using a parent-child connection. The parent chain delegates work to child chains that process and return it to the parent after completion. The underlying base blockchain does not take part in the network functions of secondary chains unless dispute resolution is necessary.

The distribution of work under this model reduces the processing burden on the main chain to exponentially enhance scalability. The OMG Plasma project is an example of Layer-2 nested blockchain infrastructure utilized atop the Layer-1 Ethereum protocol to facilitate faster and cheaper transactions.

State channels

A state channel facilitates two-way communication between a blockchain and off-chain transactional channels and improves overall transaction capacity and speed. A state channel does not require validation by nodes of the Layer-1 network. Instead, it is a network-adjacent resource sealed off by using a multi-signature or smart contract mechanism. When a transaction or batch of transactions is completed on a state channel, the final “state” of the “channel” and all its inherent transitions are recorded to the underlying blockchain. The Liquid Network, Celer, Bitcoin Lightning, and Ethereum’s Raiden Network are examples of state channels. In the Blockchain Trilemma tradeoff, state channels sacrifice some degree of decentralization to achieve greater scalability.

Sidechains

A sidechain is a blockchain-adjacent transactional chain that’s typically used for large batch transactions. Sidechains use an independent consensus mechanism — i.e., separate from the original chain — which can be optimized for speed and scalability. With a sidechain architecture, the primary role of the mainchain is to maintain overall security, confirm batched transaction records, and resolve disputes. Sidechains are differentiated from state channels in many integral ways. Firstly, sidechain transactions aren’t private between participants — they are publicly recorded to the ledger. Further, sidechain security breaches do not impact the mainchain or other sidechains. Establishing a sidechain might require substantial effort, as the infrastructure is usually built from the ground up.

Boosting Blockchain Network Scalability

Layer-1 and Layer-2 scaling solutions are strategies designed to make blockchain networks faster and more accommodating to a rapidly growing user base. These strategies are not mutually exclusive either, and many blockchain networks are exploring combinations of Layer-1 and Layer-2 scaling solutions to achieve increased scalability without sacrificing adequate security or decentralization.

Conclusion

Scalability is the biggest reason inhibiting the mainstream adoption of cryptocurrencies. To make sure that cryptocurrencies are scalable and fast enough for day-to-day transactions, we need protocols that have been built specifically to solve this problem. This is why projects like Algorand are critical, and we can only hope that other projects follow suit and provide a viable solution.

Hope you had a fantastic reading

Blockchain Technology: Layer-1 and Layer-2 Networks — Gemini. https://www.gemini.com/cryptopedia/blockchain-layer-2-network-layer-1-network

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DigiEx by Shondy Sainthea

DigiEx by Shondy Sainthea

I'm Shondy Sainthea and I welcome anyone to come learn with me about Blockchain,Digital assets and technology.(educational purposes only)