Written by Starknet
Translation: Blockchain in Vernacular
Blockchain technology continues to advance, with Ethereum achieving a record 2 million daily transactions in January 2024. However, scalability issues among first-layer (L1) chains such as Bitcoin and Ethereum continue to limit their widespread adoption.
Thus, second layer (L2) solutions emerged: a series of technologies designed to speed up transactions and reduce costs without compromising the security and decentralization of leading L1 networks. According to L2Beat, L2 scaling solutions have transformed Ethereum, processing 11-12 times the transaction volume of Ethereum itself.
Source: L2beat.com
This article explores the L2 ecosystem, including its key innovations, challenges, and future directions.
1. The origin of L2
As more and more users conduct transactions on L1, these networks become slower and more expensive. Solving scalability problems on L1 often means compromising between security or decentralization, two characteristics that all blockchains want to have. The trade-off of choosing only two of the three desired blockchain characteristics of scalability, decentralization, and security is known as the "blockchain trilemma."
Solving the blockchain trilemma is particularly important for Ethereum, as it has become the preferred L1 for building decentralized applications (dApps). Of the three desired characteristics, Ethereum chose security and decentralization at the expense of scalability.
In order to expand the number and types of use cases for Ethereum, building more complex dApps must be economically feasible.
L2 solutions have emerged as a way to address these issues by moving most of the heavy computation associated with processing transactions from the base layer to the second layer, increasing transaction throughput, reducing costs, and improving user experience. The goal is to achieve this while leveraging the security and decentralization of the underlying L1 blockchain.
2. Core technologies and frameworks
The L2 ecosystem now has a total locked value (TVL) of over $46 billion and includes a variety of technologies and frameworks with unique characteristics. Let’s take a closer look at some of the most important technologies:
Rollups - There are two types of Rollups: Optimistic Rollup and Validity/Zero knowledge Rollup. Optimistic Rollups assume that transactions are valid by default. They have a mechanism to prevent fraud, enabling network participants to challenge transactions that are expected to be fraudulent using "fraud proofs" to prove their invalidity. In contrast, validity rollups use "validity proofs" to prove the validity of each transaction submitted to the base layer. Both types of rollups offer higher throughput and lower fees than L1.
State channels - State channels allow participants to conduct off-chain transactions by locking a portion of the blockchain state into a multi-signature contract. Participants can freely transact off-chain, and the final state is settled on-chain. State channels offer nearly instant transactions and low fees, but have certain limitations in terms of functionality and number of participants.
Plasma (Shard Chain) - Plasma is a framework for creating layered sidechains that are anchored to the main chain. Plasma chains can process transactions off-chain and only submit periodic updates to the main chain, reducing the burden on the L1 network. Similar to optimistic aggregation chains, Plasma chains use fraud proofs to challenge suspicious transactions.
3. Review of the L2 ecosystem
The L2 ecosystem is developing rapidly, with numerous projects and initiatives working to scale the main L1 blockchains. While there are solutions dedicated to bringing scalability to Bitcoin, such as the famous Lightning Network, which leverages state channels to provide faster and cheaper transactions on the network, there are no L2 solutions for general-purpose computing on Bitcoin.
On the other hand, Ethereum has spawned a thriving ecosystem of L2 solutions. We will highlight the main players and briefly describe them.
1) Validity Aggregation Chain (also known as Zero-Knowledge Aggregation Chain)
Starknet: The validity aggregation chain with the fastest growing developer community, with native account abstraction and its own programming language (Cairo), optimized for exploiting validity proofs.
zkSync: Another leading validity aggregation chain with native account abstraction, running on the Ethereum Virtual Machine (EVM).
Scroll: An EVM-compatible validity aggregation chain focused on native-level compatibility with existing Ethereum dApps and tools.
Polygon zkEVM: Developed by L2 scaling veteran Polygon, zkEVM is an EVM-compatible validation aggregation chain.
Linea: Powered by Consensys, the company behind MetaMask, Linea is a validity aggregation chain that can be used directly through MetaMask.
2) Optimistic aggregation chain
Arbitrum: The largest optimistic aggregator chain measured by total value locked (TVL), compatible with the EVM.
Optimism: The second largest optimistic aggregation chain measured by TVL, compatible with EVM.
Base: The third-largest optimistic aggregator chain by TVL, and is EVM-compatible.
Many of these projects are still in their early stages, often involving a period of centralized control known as a “training wheels” phase, which allows for controlled system updates and bug fixes. While necessary initially, these training wheels should eventually be removed to achieve the desired decentralization and trustless operation.
The adoption of L2 solutions has been growing steadily in various fields including decentralized finance (DeFi), non-fungible tokens (NFTs), and on-chain games. The most commonly used types of L2 tend to be optimistic aggregation chains and validity aggregation chains. However, the integration of L2 solutions is not without challenges.
4. Challenges and Solutions
Although L2 solutions hold great promise, there are still challenges to overcome before their full potential can be realized. From a user perspective, interacting with L2 networks may be slightly more complex, requiring additional steps such as bridging assets and managing multiple wallets. Improving the user experience through better wallet integration, easier onboarding, and more intuitive interfaces will be critical to driving mainstream adoption.
That’s why Starknet provides built-in account abstraction features that enable smoother user experiences, such as transaction signing via facial and fingerprint recognition (Braavos wallet offers both, for example). On Starknet, making Ethereum scale means that a Web2-style user experience is just as important as cheaper, faster transactions.
5. Prospects of L2
As the L2 ecosystem matures, we can expect a wave of innovation, such as local account abstraction capabilities on Starknet. Hybrid solutions that combine the strengths of different L2 technologies have begun to emerge, providing dual benefits for optimistic and validity aggregation chains. Advances in validity proofs (such as STARKs) further improve the scalability and privacy of L2 networks.
Looking ahead, the future of L2 solutions is closely tied to the overall development of blockchain technology. As L1 networks continue to evolve and new consensus mechanisms such as proof of stake are promoted, L2 solutions will need to adapt and integrate seamlessly with these changes.
In the coming years, we will see a flourishing of L2 solutions tailored to specific use cases and application areas. Some predict that L2 networks will eventually become the primary layer for user interactions, while L1 will serve as a secure settlement layer. Others envision a multi-layered blockchain architecture, with L2 solutions evolving in parallel with each other, sometimes with a third layer (L3) chain on top of them, to create a scalable and interoperable ecosystem.
6 Conclusion
As the L2 ecosystem continues to grow, collaboration and contributions between developers, researchers, and users are critical to developing robust and user-friendly L2 solutions.
By embracing the potential of L2 technology, the blockchain community can overcome the limitations of L1 networks and unlock new possibilities for decentralized applications. The road ahead is filled with challenges and opportunities, but with the right approach and a shared vision, we can build a scalable and inclusive blockchain ecosystem that empowers individuals and transforms industries.
