For a blockchain to be perfect, it must fulfill three fundamental properties: security, decentralization, and scalability. But with the way blockchains are designed, this is difficult to achieve — leading to a problem called the blockchain trilemma.
If a blockchain focuses on security and decentralization, it has to compromise on scalability. And there are multiple blockchains that struggle with blockchain trilemma, including Bitcoin and Ethereum.
The way out of this trilemma is Layer 2 networks, which can scale transactions and data computation without forgoing blockchain’s decentralization or security. And right now, the Ethereum layer 2 race is in full swing, constituting the most active Layer 2 ecosystem.
But what are Layer 2 blockchains? How do they work? Why are there so many different types, and which one is best?
In this blog post, we’ll explain what a Layer 2 blockchain is, its types, how Layer 2 blockchains work, and how you can use these Layer 2 networks.
What is a Layer 2 (L2) blockchain?
Layer 2 blockchains are supplementary networks that help decentralized apps on a slower chain attain faster and cheaper transactions. For example, Ethereum-based decentralized applications (or dApps) can migrate to its Layer 2 (or L2) chains without major changes to support higher usage volumes while still enjoying Ethereum’s security.
So, layer 1 chains provide security through their distributed nodes while Layer 2 networks provide an off-chain framework for faster transactions and computation.
You can imagine Layer 1 blockchains as congested highways while Layer 2 networks as alternate pathways that help clear traffic.
Or, consider the payments network Visa, which can handle 65,000 transactions per second. Instead of micro-managing every transaction, Visa groups them into batches on its end and sends them to the bank at once for final settlement.
Now that you know what Layer 2 blockchains are, let’s explore their benefits.
What are the benefits of Layer 2 blockchains?
While there are other chains with Layer 2 solutions, Ethereum’s Layer 2 space is the most active. That’s because Ethereum has the largest dApp ecosystem but it can only offer up to 15 transactions per second.
Consequently, during times of high network usage, Ethereum becomes congested and gas fees reach hundreds of dollars for simple transactions. Ethereum Layer 2 solutions fix this by offering the following benefits:
1. Faster transactions: Unlike Ethereum, its Layer 2 chains such as Polygon, Optimism, and Arbitrum are designed to manage high transaction volumes. They offer transaction speeds of up to 65k, 2k, and 40k per second respectively.
2. Lower gas fees: As Layer 2 chains can handle higher transaction volumes, users don’t need to pay higher gas to get their transactions executed before others. As a result, gas prices remain optimal.
3. Maintaining high security: Although transaction processing happens on Layer 2 networks, the underlying Layer 1 chain verifies and settles the transaction data. Since L2 networks inherit the main blockchain’s security, it makes all transactions secure.
4. Diversified use cases: L2 blockchains offer speed and scalability. This makes it possible for developers to create diverse apps that have higher computation demands or attract high usage volume.
What are the different types of Layer 2 blockchains?
Layer 2 is a collective term that encompasses a wide variety of scaling solutions.
The most popular types of Layer 2 solutions are optimistic and zero-knowledge rollups. But there are also other types like sidechains and validiums that offer scalability similar to L2's but don’t depend on the mainnet for security.
Let’s dive into the different types of Layer 2 blockchains that help scale the Ethereum mainnet.
Rollups execute transactions off-chain and bundle (roll up) multiple transactions into batches before submitting them on Layer 1. There are currently two types of rollups: optimistic rollups and zero-knowledge rollups.
1. Optimistic rollups
Optimistic rollups ‘optimistically’ assume that all layer 2 transactions are valid until challenged and proven wrong by a network validator.
During the dispute period, i.e. before transactions reach finality on Layer 1, anyone can propose a fault proof to challenge the transaction data and state change. A valid proof nullifies the faulty transaction and charges a penalty for the malicious validator that approved the transaction.
That means, for an optimistic rollup to function legitimately, there should always at least be one honest node to challenge invalid state changes.
2. Zero-knowledge rollups
Zero-knowledge rollups assume all transaction computation data are invalid until proven true through zero-knowledge proofs or validity proofs.
Validity proofs can prove with cryptographic certainty if a transaction is correct or not without revealing any transaction details. Thus the name ‘zero-knowledge’.
Generalized L2s and Application-specific L2s
Generalized Layer 2 networks offer blockchain-like features with more scalability than the mainnet, faster transaction settlement, and lower fees. For example, Arbitrum One and Optimism are generalized L2s.
Sidechains are separate blockchains with independent block parameters and consensus algorithms that don’t inherit the layer 1 blockchain’s security. Moreover, sidechains don’t publish state changes and transaction data back to the mainnet.
However, sidechains can be EVM-compatible, meaning Etheruem-based smart contracts can easily migrate to these sidechains and interact with Ethereum using blockchain bridges.
Validiums process transactions off-chain and use validity proofs to verify transactions. However, validiums don’t store transaction data on the Ethereum mainnet and rely on an off-chain data availability model.
Low on-chain data storage reduces gas fees as the price of publishing calldata comes down significantly. However, validiums are susceptible to transaction data distortions.
Channels are multisig smart contract-managed peer-to-peer protocols that enable two parties to make multiple transactions and post the final result to the blockchain.
There are two types of channels: payment and state channels. Payment channels help in atomic transfers and micropayments while state channels handle general computation and state transition logic.
However, peers need to remain online to monitor channel activity and prevent malicious actors from stealing funds.
A plasma chain is a separate blockchain or a ‘child chain’ anchored to the parent chain or root chain (Ethereum mainnet). They execute transactions off-chain and have their own block validation mechanism.
However, plasma chains have multiple disadvantages like the inability to support Ethereum smart contracts, data unavailability, and mass exit problem.
Now that you know the different types of Layer 2 blockchains, let’s find out how they work.
How does a Layer 2 blockchain work?
As the above section demonstrates, Layer 2 blockchains deploy multiple techniques to achieve a higher transaction throughput.
The common factor that binds all Layer 2 networks is how they settle the transactions on the main chain. The settlement happens by furnishing a cryptographic ‘proof’ to determine the integrity of the state change.
For Layer 2 blockchains, cryptographic proofs offer verifiable and tamper-proof evidence that a transaction is true and the proposed state change is valid. The main chain’s smart contract depends on the proof to finalize transactions and settle disputes.
The most widely-used proofs are fault proofs and validity proofs, used for optimistic rollups and zero-knowledge rollups respectively.
Other scaling solutions have their own independent mechanisms to finalize transactions and state changes.
List of 10 top Layer 2 blockchains (by usage)
Ethereum has many Layer 2 networks, each with its own unique benefits. While some are more suited for privacy-centric apps, others are designed for large-scale, high-compute gaming platforms. Developers can choose one based on their needs.
Some of the most popular Layer 2 networks, by usage, include:
2. Arbitrum One
Arbitrum One is an optimistic rollup that uses fraud proofs and offers a much higher transaction throughput than Ethereum.
zkSync Era is a recently launched zero-knowledge Layer 2 protocol that aims to bring internet-grade ‘hyperscalability’ with a self-custodial, secure user interface.
6. Scroll zkEVM
7. Gnosis Chain
8. Polygon zkEVM
Metis is a Layer 2 network for scaling dApps, businesses, and user communities and aims to make Ethereum boundless in terms of throughput.
StarkNet is a permissionless L2 using zk-STARK with smart contracts in Turing complete Cairo programming language.
As the list suggests, there are many Layer 2 blockchains, each with its own set of unique features.
You can find all of these, along with resources to get started (such as RPCs, block explorers, and faucets) on thirdweb’s Chainlist, which features 700+ EVM-compatiblse blockchains:
How do I get started with a Layer 2 blockchain?
There are 2 primary ways to get assets onto a Layer 2 blockchain: bridges and centralized exchanges.
Blockchain bridges enable the transfer of assets from one chain to another. If you already have ETH in your wallet, you can use a bridge to transfer your crypto from the Ethereum mainnet to an Ethereum Layer 2 network.
For example, if you want to move your ETH from Ethereum to Arbitrum, you can use Arbitrum’s native bridge. Similarly, other Layer 2 networks also have native cross-chain bridges.
Withdrawing from exchanges
Some centralized exchanges (CEXs) like Coinbase Exchange, Binance, Crypto.com, OKX, and Kraken support multiple chains. So, for example, if you have ETH in your CEX wallet, you can withdraw it directly to your Layer 2 wallet by choosing the respective network and corresponding wallet address.
There are also dApps to bridge your assets directly from exchanges to Layer 2 blockchains.
Frequently Asked Questions (FAQs)
Why doesn’t Ethereum make its own Layer 2?
Ethereum is undergoing several upgrades to make the network more scalable on its own. For instance, the Merge upgraded Ethereum to a Proof-of-Stake blockchain, creating the foundation for sharding. The next upgrade (Surge) will introduce sharding to find optimum ways of storing calldata from Layer 2 networks. This will eventually help Ethereum to scale to over 100,000 transactions per second.
What is the difference between optimistic and zero-knowledge rollups?
Optimistic rollups assume all transactions are valid until challenged by a validator and proven wrong through fault proof. Zero-knowledge rollups rely on validity proofs to verify the transactions before adding them on-chain.
Do Layer 2 blockchains reduce gas fees?
Yes, Layer 2 blockchains reduce gas fees by reducing the burden of transactions on the Layer 1 chain and de-congesting the network.
Are there only Layer 2 blockchains for Ethereum?
No, other blockchains apart from Ethereum also have Layer 2 networks. However, as the largest smart contract network, Ethereum has the maximum number of Layer 2 blockchains.
What is the biggest Layer 2 blockchain?
Currently, Polygon and Arbitrum are two of the most active Ethereum Layer 2 blockchains.
Is Solana a Layer 2 blockchain?
What advantages do Layer 2 blockchains have?
Layer 2 blockchains offer higher transaction throughput and lower gas along with the security guarantees of the Layer 1 blockchain.
Is a Layer 1 or Layer 2 blockchain better?
Layer 1 blockchains provide decentralized security, while Layer 2 blockchains offer scalability. So they complement each other and work in tandem to get optimum results.
Why are there so many Layer 2 blockchains?
Each Layer 2 blockchain offers a unique technological solution and tries to overcome the shortcomings of other Layer 2 networks. For instance, optimistic rollups are easier to build and offer solid short to mid-term scalability. But zero-knowledge rollups have a more secure approach to transaction approvals.
Concluding thoughts: The future of Layer 2 blockchains
Layer 2 blockchains are crucial for the continued growth and success of the Ethereum network — boosting scalability by lowering fees & increasing transaction throughput. Layer 2 protocols do this by offloading some of the computational work from the Layer 1 blockchain (Ethereum), alleviating network congestion & improving performance.
The importance of Layer 2 scaling solutions cannot be overstated, as they enable Ethereum to meet the increasing demands of a growing user base and diverse applications. By providing more efficient and cost-effective means for transactions and smart contracts, Layer 2 solutions foster innovation and drive the adoption of dApps on the Ethereum platform.
We hope this blog post has helped you better understand what Layer 2 blockchains are, how they work, how to get started with them, and why they play such a pivotal role in unlocking the full potential of Ethereum as a global, decentralized computing platform.
And if you’re ready to start building best-in-class dApps on any Layer 2 blockchain, get started with thirdweb’s web3 development stack & SDKs — they’re free!