<p dir="ltr">Decentralization, trustworthiness interactions, high levels of security, and immutable record-keeping are all advantages of blockchain technology. It has enabled the growth of a flourishing cryptocurrency ecosystem and continuous technological innovation. However, alongside the rapid development, blockchain also faces the problems of scalability, which appear when the amount of data passing through the blockchain reaches a limit due to the blockchain's insufficient capacity. Therefore, <strong>Layer 2 scaling solutions</strong> are designed to solve this typical problem which directly affects the speed and efficiency of the blockchain technology. In order to fully acknowledge this said-to-be optimal solution, <a href="https://www.builder.news/" alt="Builder.news" title="Builder.news" target="_blank" rel="" class="">Builder.news</a> will provide in-depth insights about layer 2 scaling solutions.</p><h2>Layer 2 - A necessary solution for blockchain?&nbsp;</h2><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed22c34c9d499fa8e6023f659fee92.jpg" alt="Layer 2 Scaling solutions" title="Layer 2 Scaling solutions" width="600" height="334"></p><h3>What is Layer 2?</h3><p dir="ltr">As we already mentioned in the <a href="https://www.builder.news/crypto-insights/5-facts-about-layer-2" alt="5 facts about Layer 2 - An optimal solution for Ethereum" title="5 facts about Layer 2 - An optimal solution for Ethereum" target="_blank" rel="" class="">article about Layer 2’s facts</a>, Layer 2 refers to a set of off-chain solutions (separate blockchains) built on top of layer 1 to help relieve scaling and data bottlenecks. Bitcoin and Ethereum, for example, are still unable to process thousands of transactions per second (TPS), which is clearly detrimental to their long-term growth. Higher throughput is required before these networks can be effectively adopted and used on a larger scale.&nbsp;</p><h3>What is the role of Layer 2</h3><h4>Increase transaction speed&nbsp;</h4><p dir="ltr">Transaction speed is a main factor which plays an important role in attracting users as well as advancing the effective platform. In Layer 1, Ethereum used <strong>proof-of-work (PoW)</strong> in its network, which led to a stagnation in transactions. In particular, while Visa can handle around 20,000 TPS using the centralized VisaNet electronic payment network, Ethereum processes about 15–18 TPS. The Ethereum network is currently transitioning to a <strong>proof-of-stake (PoS)</strong> consensus algorithm. This new mining method allows for faster transaction speeds and more efficient energy use during the mining process.</p><p dir="ltr"><em><strong>&gt;&gt;&gt; Read more:&nbsp;</strong></em></p><ul><li><p dir="ltr"><a href="https://www.builder.news/crypto-insights/optimistic-rollups-zkrollups-EzsWo" alt="Optimistic Rollups versus ZK-Rollups - What is more optimal for Layer 2?" title="Optimistic Rollups versus ZK-Rollups - What is more optimal for Layer 2?" target="_blank" rel="" class=""><em><strong>PoW compared with PoS - What solution is optimal?</strong></em></a></p></li><li><p dir="ltr"><a href="https://www.builder.news/crypto-insights/guide-to-evaluate-layer-1-platforms-dhANJ" alt="An Ultimate Guide To Evaluate Layer 1 Platforms" title="An Ultimate Guide To Evaluate Layer 1 Platforms" target="_blank" rel="" class=""><em><strong>An Ultimate Guide To Evaluate Layer 1 Platforms</strong></em></a></p></li></ul><h4>Reduce transaction fees</h4><p dir="ltr">Gas fees are the minimal amount of gas requested to include a transaction on the Ethereum blockchain and are dependent on transaction inclusion demand. As a result of the rising demand for the Ethereum blockchain, fees have continually climbed. Thanks to the PoS consensus algorithm, Layer 2 will significantly reduce gas fees with other market competitors by greatly boosting transaction-processing capacity and eliminating miners.</p><h4>Ensure the security</h4><p dir="ltr">Layer 2 is known as an extension of Layer 1, so it inherits completely the high security of Layer 1 to service users. In more detail, Layer 2 refers to a protocol or technology that is built on top of Layer 1. It operates independently of Layer 1 but remains a part of the overall network. That is, if any security problems appeared, users could simply return to Layer 1 and double-check the data.</p><h2>Types of Layer 2 scaling solutions</h2><h3>Sidechain</h3><p dir="ltr">A Layer 2 blockchain network that uses sidechain technology connects with the core blockchain (a mainnet like Ethereum). They are linked by a two-way peg (2WP), which is a system that permits open cryptocurrency transfers from the main chain to Layer 2 that requires some third-party trust.</p><p dir="ltr">It aims to address scalability issues, like other layer 2 scaling solutions, by outsourcing some of the validation and transaction processing procedures to another blockchain. This allows the main chain to handle a higher volume of transactions.</p><h3>Plasma</h3><p dir="ltr">The Plasma structure is developed by using smart contracts and Merkle trees, allowing for the production of an infinite number of child chains, which are basically smaller versions of the parent Ethereum blockchain. Each chain is designed to fulfill a certain purpose by coexisting and working independently, but can still communicate and interact with the Ethereum blockchain. More chains can be constructed on top of each child chain, resulting in a tree-like structure.</p><p dir="ltr">Fraud proofs enable deposits and withdrawals of Plasma chain money with state changes. This ensures that the state is enforceable and exchangeable. It also allows for more transactions to be processed with less data loading on the basic platform. Any user, including those from a different group of participants, can contribute payments to another. These financial transactions may be paid and withdrawn using the platform's own coin.</p><p dir="ltr">There are some Layer 2 applied plasma technology, such as OMG Network, Polygon (MATIC), LeapDAO, GLUON, and Gazelle.&nbsp;</p><h3>Rollups</h3><p dir="ltr">Rollups are designed to lower gas fees on Layer-1 blockchains by reducing the data footprint. The main notion behind Rollups is that they move the majority of a transaction's processing (and state storage) off the base chain and onto a second layer while submitting transaction data back to the underlying Layer-1 chain for storage.</p><p dir="ltr">Zero-Knowledge Rollups (ZK-Rollups) and Optimistic Rollups are the two most common types of Rollups in the crypto realm today.</p><p dir="ltr"><em><strong>Zero-Knowledge Rollups</strong></em></p><p dir="ltr">ZK-Rollups is one of the Layer 2 construction solutions being researched to boost scalability through high-volume transfer processing bundled into a single transaction. While Plasma only generates one transaction for each transfer, ZK-Rollups combine hundreds of transfers into a single transaction. All transfers contained in a single transaction will be deconstructed and verified by the smart contract.</p><p dir="ltr">A "zero knowledge proof" technique is utilized to show and publicly record the validity of the block on the Ethereum blockchain. By minimizing the amount of data retained in a transaction, ZK saves processing and storage resources for verifying the block; no knowledge of the whole contents is required.</p><p><em><strong>Optimistic Rollups</strong></em></p><p dir="ltr">Optimistic Rollups (ORs) are a sort of layer 2 structure that runs on top of the Ethereum base layer rather than on it. This allows smart contracts to be performed at scale while still being safeguarded by Ethereum. These structures are similar to Plasma but forego Plasma's almost limitless scalability in order to run an EVM-compatible Virtual Machine dubbed OVM (Optimistic Virtual Machine), which allows ORs to do whatever Ethereum can.</p><p dir="ltr">The solution's functionality inspired the moniker Optimistic Rollups. "Optimistic" is used since aggregators publish just the bare minimum of information required with no evidence, presuming the aggregators operate without committing fraud and only supply proof in the event of fraud. Because transactions are committed to the main chain in bundles, the term "rollups" is employed (that is, they are rolled up).</p><p dir="ltr"><em><strong>&gt;&gt;&gt; Check out: </strong></em><a href="https://www.builder.news/crypto-insights/optimistic-rollups-zkrollups-EzsWo" alt="Optimistic Rollups versus ZK-Rollups - What is more optimal for Layer 2?" title="Optimistic Rollups versus ZK-Rollups - What is more optimal for Layer 2?" target="_blank" rel="" class=""><em><strong>Optimistic Rollups versus ZK-Rollups - What is more optimal for Layer 2?</strong></em></a></p><h3>State channels</h3><p dir="ltr">State channel handles transactions off-chain and only sends two transactions to Ethereum for validation.<strong> </strong>This implies that the throughput will be determined by the capacity of the computer network that handles the transactions.</p><p dir="ltr">Off-chain transactions suffer from a major weakness that exposes the state channel to attack. It means that your money is delegated to someone who may have malevolent intent in off-chain transactions.</p><p dir="ltr">There are two types of channels, including State channel and Payment channel. Besides, several Layer 2 employ state channels, including Connext, Kchannels, Perun, Raiden, State Channels, and others.</p><h2>Layer 2 scaling solutions: Limitations</h2><p dir="ltr">Alongside many benefits, <strong>Layer 2 scaling solutions</strong> are also stopped by some limitations, which should be advanced to closer approach users in the future.&nbsp;</p><p dir="ltr"><em><strong>Withdrawal time</strong></em></p><p dir="ltr">The withdrawal time of crypto assets transferred from Ethereum to other Layer 2s is a disadvantage that negatively impacts the user experience. Bridges to chains utilizing Optimistic Rollups, for example, take around a week to bridge crypto assets. Consider how the pricing of crypto assets may change in a week. <strong>Layer 2 scaling solutions</strong>, on the other hand, enable the bridging procedure to be completed at a look.</p><p dir="ltr"><em><strong>Hack attacks</strong></em></p><p dir="ltr">This is also a disadvantage of Layer 2s that happens in the moving crypto asset process from Layer 1 to Layer 2 and vice versa. The world has witnessed a lot of exploits that have happened due to possible bridge vulnerabilities. For example, the Ronin sidechain bridge hack cost $650 million in April 2022. This caused the Ronin sidechain to sink, making recovery difficult.</p><p dir="ltr"><em><strong>&gt;&gt;&gt; Related article: </strong></em><a href="https://www.builder.news/crypto-insights/defi-hacks-and-heists-hsfBc" alt="10 Biggest DeFi Hacks and Heists" title="10 Biggest DeFi Hacks and Heists" target="_blank" rel="" class=""><em><strong>10 Biggest DeFi Hacks and Heists</strong></em></a></p><p dir="ltr"><em><strong>Liquidity fragmentation</strong></em></p><p dir="ltr">Having multiple Layer 2 is similar to liquidity fragmentation, while there are not many cross-chain bridge solutions available yet. This is significant because liquidity is the foundation of any trading market.&nbsp;</p><h2>The best Ethereum Layer 2 scaling solutions</h2><h3>Polygon - Best Layer 2 scaling solution of all time</h3><p dir="ltr">Polygon, which was launched in 2017 as the Matic network, can increase Ethereum's TPS to over 7000 TPS. Polygon has processed over a billion transactions and has over 2.7 million monthly active users, according to CNBC. Polygon has a cheaper gas fee than ETH due to its high TPS. Polygon has partnered with numerous initiatives to provide best services, including Graphlink, Umbrella Network, Kambria Open Innovation, and Mogul Productions. This layer-2 solution is used by popular applications such as Sushiswap, Chain Games, Quickswap, and Aavegotchi.</p><p dir="ltr">Matic, the network's native coin, is a great long-term investment opportunity. It was worth roughly $0.0035 in 2019 and is expected to be around $2.7 in 2021. The coin is now worth $0.8, but analysts anticipate that it will be worth $10 by 2025.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed22c34c9d5aeaa8e6023f659fee92.jpg" alt="Polygon price" title="Polygon price" width="600" height="379"></p><p dir="ltr"><em><strong>&gt;&gt;&gt; Check out: </strong></em><a href="https://www.builder.news/crypto-insights/polygon-nft-marketplace-i2yK3" alt="A complete guide on Polygon NFT marketplace" title="A complete guide on Polygon NFT marketplace" target="_blank" rel="" class=""><em><strong>A complete guide on Polygon NFT marketplace</strong></em></a></p><h3>Optimism - Rising Layer 2 scaling solution</h3><p dir="ltr">Another Optimistic Rollup, <a href="https://www.builder.news/project-review/optimism-op-a-layer2-scaling-solution-for-ethereum-applications" alt="Optimism (OP) - A Layer-2 scaling solution for Ethereum applications" title="Optimism (OP) - A Layer-2 scaling solution for Ethereum applications" target="_blank" rel="" class="">Optimism</a>, is one of the greatest Layer-2 scaling solutions for Ethereum applications. Optimism's Alpha mainnet went operational in January 2021, and it has already garnered a ton of traffic. According to reports, Optimism can handle over 2,000 transactions per second while conserving enormous amounts of gas.</p><p dir="ltr">Optimism debuted a native token called Op on June 1st, 2022, with a currency worth of $1.36. The all-time high for the token was roughly $4.6 shortly after its debut on June 1st. However, it has subsequently fallen because of the general bearishness in the cryptocurrency markets. However, investors should anticipate future price increases since Optimism will persist even after the ETH 2.0 merger.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed22c34c9d6c08a8e6023f659fee92.jpg" alt="Optimism price" title="Optimism price" width="600" height="377"></p><p><em><strong>&gt;&gt;&gt; Related:&nbsp;</strong></em><a href="https://www.builder.news/crypto-insights/optimism-price-surge-everything-happens-for-a-reason-vRZix" alt="Optimism price surge reasons" title="Optimism price surge: Everything happens for a reason" target="_blank" rel="" class=""><em><strong>Optimism price surge: Everything happens for a reason</strong></em></a></p><h3>Loopring</h3><p dir="ltr">The <a href="https://www.builder.news/project-review/loopring-review-where-zkrollups-become-handy-oeTDm" alt="Loopring review" title="Loopring review: Where zkRollups become handy" target="_blank" rel="" class="">Loopring ZK-Rollup</a>, which was launched in March 2020, focuses especially on decentralized exchanges. Loopring has a high throughput of 1000x Layer 1. Loopring, for example, can presently process roughly 2025 transactions per second.</p><p dir="ltr">According to some reports, Looprings gas prices are 100 times cheaper than typical Ethereum layer-1 fees. Loopring's utilization of 16 order rings assures that its token has constant high liquidity. When Loopring's native token, LRC, first began trading in 2017, it was worth $0.13. It reached an all-time high of $3.37 in late 2021. LRC is now trading at roughly $0.37, and analysts believe that it will reach around $1.7 by 2026.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed22c34c9d72b4a8e6023f659fee92.jpg" alt="Loopring price" title="Loopring price" width="600" height="376"></p><h3>Arbitrum</h3><p dir="ltr"><a href="https://www.builder.news/crypto-insights/arbitrum-the-mosttvl-layer-2-project" alt="Arbitrum - Story about most-TVL layer 2 project" title="Arbitrum - Story about most-TVL layer 2 project" target="_blank" rel="" class="">Arbitrum Optimistic Rollup</a> debuted in mid-2021 and quickly exploded in popularity, with over 280,000 addresses engaging with the network by November 2021. It has already handled over 14 million transactions and can grow the Ethereum network by roughly 40,000 TPS. Arbitrum's transaction verification occurs on Ethereum's main chain. As a result, gas prices are higher than those of many other layer-2 solutions but slightly lower than those of the Ethereum main chain.</p><p dir="ltr">It is known as a partner to a lot of projects, such as Chainlink, Graph Protocol, OKEx, and many more, to achieve maximum scalability. According to recent sources, UniSwap, the largest DEX, passed a governance vote to employ Arbitrum's layer-2 solutions. The solution employs an EthBridge to connect to Ethereum. Unlike other Layer 2 solutions, Arbitrum lacks a native token, so there is no foundation for judging its investment possibilities. Arbitrum, like the other layer-2 solutions, is anticipated to have room after the ETH 2 merger.</p><div class="pr-block-special"><strong>Disclaimer:</strong><br>This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div><p><br></p>

Layer 2 scaling solutions are designed to solve typical problems in current blockchain networks. Let's find out what they have done!

Layer 2 scaling solutions - What you need to know

レイヤー2スケーリングソリューションは、現在のブロックチェーンネットワークでの典型的な問題を解決するために設計されています。それらが何を成し遂げたのか見てみましょう！
