Best Ethereum Layer 2 Solutions A Comprehensive Guide

Users are responsible for the creation and execution of their own exit strategies/plans and if they have questions regarding investments in crypto assets, they should consult with a financial professional. Shrimpy and its partners are not financial advisors and do not own or guarantee the success or failure of ANY exit strategy/plan displayed or developed on the Shrimpy app. Long before Polygon Network caught on, Optimism was rumored to be the best Ethereum scaling solution in production. However, development delays cost Optimism the opportunity to hit the market before Polygon. Transactions fees on Polygon are nearly free, a welcome change from the days of $100 gas fees on Ethereum. To sweeten the deal, Polygon even gives you free MATIC tokens when you bridge your assets — enough to pay for several transactions.

Ethereum’s performance ceiling is why transactions become expensive and delayed when too many people use the network. Just like a freeway, too much traffic makes Ethereum congested and an overall pain to use. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any crypto assets.

The Layer 2 Landscape Is Evolving, and Adoption Is Rising:

When the network was congested during previous cycles, transaction costs exceeded $20, resulting in a disappointing user experience. As a result, a lot of research and development by the core team is focused towards introducing a ZK-rollup into the Polygon ecosystem. Nevertheless, Polygon is recognized as a positive addition to the Ethereum ecosystem even as a side chain because of the immediate scalability it offers to users and dApps who leverage it’s EVM compatible blockchain. The primary objectives of scalability for the Ethereum network refer to improvement in transaction speed alongside transaction throughputs. At the same time, the scaling solutions should not compromise the security or decentralization of the Ethereum network.

While many L2 and L1 https://www.beaxy.com/ solutions rely on Ethereum for security, they cannot be as secure as the former. Even though these L2s are separate chains, their security is tightly linked to the Ethereum blockchain. This means users can safely interact with these projects, enjoying the benefits of scalability, without risking their assets. For example, rollups can batch thousands of off-chain transactions into a single on-chain transaction. Similarly, sharding increases throughout by encouraging parallel processing of transactions.

Layer 2 vs. Sidechains

It has been deployed in various use cases, and notable customers are DeversiFi, Immutable and dYdX. The main benefits of StarkEx is trustless scalability using ZK-STARK technology, ability to design self-custodial dApps, and robust and secure scaling solution for a wide range of uses. Hashgraphs leave the realm of blockchain and are considered a different technology altogether. However, they are very similar insofar as they are also a distributed ledger technology . Moreover, unlike blockchain, hashgraph has been patented, and the only ledger out there that uses it is Hedera Hashgraph.

Thereafter, the batch is uploaded to the rollup smart contract on the layer 1 to update the state. The intricate step is proving that the new state is correct and that a malicious participant didn’t change it. The two major types of rollups, optimistic and zero-knowledge , tackle this proving problem differently. Channels are a peer-to-peer passage where parties can exchange multiple transactions off-chain while only submitting two transactions to layer 1, for the opening of the channel and its closure. Channels enable fast, almost feeless transactions, but they have limited use cases because they are application-specific and cannot run general-purpose smart contracts.

In turn, this traffic overload results in high ethereum layer 2 scaling solutions fees, especially when it comes to the largest smart contract platform—Ethereum. This technology has many advantages not only in protecting users’ sensitive data, but also in simplifying how nodes communicate to enable blockchain networks to confirm transactions with greater efficiency and become more scalable. A state channel, aka a payment channel, refers to a process where multiple transactions can take place between participants off-chain but only the opening and closing transactions will be recorded on the main chain. As layer 2 solutions continue to see increased growth, congestion on the main chain should decrease and ETH gas fees should come down. Node operators can challenge any transaction they suspect is invalid during a challenge period that can last up to seven days. An invalidation test is run by a smart contract on Ethereum to determine if a transaction is valid.

When he’s not writing, he’s usually busy making wine, tinkering with his android device, or hiking some mountains. However, Ethereum will undergo a major overhaul to become a fully proof-of-stake network in the upcoming months. According to the Ethereum Foundation, this alone will reduce its carbon footprint by 99%. Furthermore, importing DApps from AVM to EVM is an easy and automatic process.

However, one of the main problems with many blockchain networks is their scalability. Scaling problems are an issue when the amount of data passing through the blockchain hits a limitation due to the insufficient capacities of the blockchain. Off-chain Labs have developed Arbitrum with features for close interoperability with Ethereum, thereby enabling Solidity developersfor easier cross-compilation of their smart contracts. The three primary components of Arbitrum include validators, compiler, and the EthBridge. Interestingly, Cartesi does more than just addressing the issues of scalability and high transaction fees. The layer 2 solution of Cartesi also supports the resolution of compatibility issues with legacy technology and software stacks.

Rollups just mean that L2 networks scoop up Ethereum’s main chain data BTC and feed it back in a compacted format. Both Arbitrum and Optimism rely on optimistic rollups to accomplish this. However, as their name implies, optimistic rollups count on all network participants to act in good faith. Like with traditional computer networks, every blockchain protocol has a different capacity tolerance. There is only so much traffic they can take before they become congested.

Why Are Scaling Solutions Necessary?

With sharding, Ethereum can increase TPS without sacrificing decentralization or security. As shard chains process different transactions concurrently, the network’s overall processing capacity increases. Moreover, network participants can still prove the validity of shard collations through cryptographic proofs. Layer 1 serves as a security layer, enabling data transactions that are both immutable and cryptographically secured. Layer 2 cuts down data processing on the blockchain, contributing to the transaction capacity. The off-chain techniques developed in this layer will help address some of the challenges involved in scaling Ethereum, leading to decentralized systems with Internet-level scalability.

Considering that the Ethereum block space is the most expensive and the scaling demand is at all-time high. It means that L2 projects are going to have a field day ahead with the increasing integrations and maturity of infrastructure around them. This scaling solution is fast, trustless, oriented for borderless financial services, instantly settled, low fees, and enterprise-grade. Validiums store data off-chain with a data provider, making them custodial to some extent. However, some solutions like StarkWare use Data Availability Committees to ensure data providers behave honestly.

• The Ethereum community has taken a strong stance that it would not throw out decentralization or security in order to scale.
• You might miss out on juicy transaction fee rewards, so you’ll have to allocate liquidity wisely.
• High throughput, low transaction fees, fast finality, and EVM compatibility could mean that ZK-rollups become the standard framework for dapp deployment, merchant payments, and more.
• Account Monitoring Tools include reporting, alerts, analytics, and application monitoring.Transaction Monitoring Monitor transactions with request explorer, request sandbox, mempool visualizer.

Transactions from layer 2 networks are batched together every so often and transmitted back to their base layer 1 network, where they are validated by the layer 1 node as a single transaction. Layer 2’s exist to address the scalability challenges of L1 networks, particularly the issue of high gas fees during times of network congestion. The Merge is set to make the Arbitrum scaling solution much more efficient too. Given that it used to be faster than the PoW-powered Ethereum, it stands to scale in speed after the Merge and remain more high-performing than the PoS version. Furthermore, more and more crypto exchanges are integrating with layer 2 solutions to improve the user experience for ETH users. Starkware uses a Rollup known as zk-STARKS (zero-knowledge, scalable, transparent arguments of knowledge) for scaling the Ethereum Network.

• The comparison isn’t exactly fair since Visa is centralized and Ethereum is decentralized.
• After the Goerli testnet announcement, Ethereum developers have shifted the Shanghai upgrade to April.
• Given that it used to be faster than the PoW-powered Ethereum, it stands to scale in speed after the Merge and remain more high-performing than the PoS version.
• Additionally, as the ZK-rollup contract has already verified the transactions, there are no delays in moving from layer 2 to layer 1.

To put Ethereum’s scaling limits in perspective, consider that Visa handles around 2,000 transactions per second. The comparison isn’t exactly fair since Visa is centralized and Ethereum is decentralized. However, viewing Ethereum’s limitations versus centralized networks is important for understanding how scalable Ethereum needs to be for widespread use. Mass adoption of Ethereum is a win for blockchain but is problematic for the user experience. If you’ve used Ethereum at any point in 2021, you know it’s slow and expensive. Most popular Ethereum layer 2 solutions with the delay in Ethereum’s transition to ETH 2.0.