Layer 2 can greatly increase throughput and reduce gas fees through various technical means based on Layer 1, allowing ordinary users to easily use dApp and DeFi services and enjoy a truly high-speed and low-cost blockchain transaction experience. This will allow blockchain technology to move towards commercial applications with millions of users.
What is Layer 2?
Layer 2 refers to the second-layer protocol built on the public blockchain (Layer 1). Its purpose is to expand the transaction capabilities and application scenarios of the blockchain. Currently, most common Layer 2s are built on the Ethereum network.
Layer 2 builds a secondary protocol network outside the main chain, completes most transactions and executions on Layer 2, and then submits the results to Layer 1 for verification in batches on a regular basis through various mechanisms.
This can greatly increase the transaction speed of the blockchain and reduce transaction costs. At the same time, Layer 2 also inherits the advantages of decentralization, security and privacy of the public chain.
Why is Layer 2 important?
Although Layer 1 public chains such as Ethereum provide decentralized and censorship-resistant infrastructure, there are limitations in transaction speed and cost. Especially in the bull market when DeFi, GameFi and NFT are popular, the network will be congested and the gas fee will soar to a sky-high price, making it unaffordable for many users who want to use dApps.
We all know that blockchain should be a cheaper and faster way to do transactions. This is its core value and appeal. But if each transaction costs hundreds of dollars in gas fees, what is the difference with traditional payment tools such as Visa, Paypal, and wire transfers? In order to avoid the 1-3% handling fee, users have to bear higher blockchain transaction costs, which cannot attract Web2 users to use it.
And this is where Layer 2 comes in handy!
Layer 2 can greatly increase throughput and reduce gas fees (network fees) through various technical means based on Layer 1. This solves the pain point of insufficient scalability of Layer 1, allowing ordinary users to easily use dApp and DeFi services and enjoy a truly high-speed and cheap blockchain transaction experience. It allows cryptocurrencies to move towards commercial applications with millions of users, rather than just staying in niche areas.
For public chain networks, Layer 2 can bring the following advantages:
Expanding the transaction capacity of blockchain: Layer 1 is difficult to support large-scale commercial applications because its transaction speed is limited by block time. Layer 2 can greatly increase the transaction speed per second (TPS) to achieve high transaction throughput.
Reduce transaction costs: Operating on Layer 2 can avoid the high gas fee (network fee) of Layer 1, making blockchain applications affordable for more users.
Expand functions and application scenarios: Layer 2 can introduce more functions, such as privacy protection, cross-chain operations, etc., to expand the application of blockchain.
Improve user experience: The Layer 2 transaction experience can be closer to traditional Web2 applications, allowing more non-technical users to use it easily.
Protecting Layer 1 security: Placing a large amount of transaction processing on Layer 2 can reduce the load on Layer 1 and improve security.
How Layer 2 works: Channels, sidechains, validiums, rollups
Common Layer 2 protocol technologies include the following:
1. Channels (state channels, payment channels)
Channels are the earliest form of Layer 2 technology. It allows two or more parties to conduct multiple transactions off-chain without broadcasting each transaction to the entire network. Avoid leaving records on the Layer 1 chain every time, reduce fees by reducing the number of transactions that need to be processed, and significantly improve the scalability of the blockchain.
For example, the Lightning Network runs on Layer 2 of the Bitcoin blockchain. Through the Lightning Network, users can quickly make payments to each other and settle many transactions at once without having to transmit them on the main chain every time.
This can greatly increase the throughput of the Bitcoin blockchain and reduce transaction costs and waiting time. The user experience is almost the same as that of traditional payment apps, but with the security and auditability of blockchain.
2. Sidechains
The sidechain uses its own consensus mechanism to operate. It is an independent blockchain that can communicate with the main chain. It provides a fast channel that allows assets to circulate quickly between the main chain and the sidechain at certain times.
However, since the side chain runs independently and is not protected by the main chain, it is responsible for maintaining its own security. This requires consuming additional computing power or resources, such as POS or POW consensus mechanisms.
Currently, the most well-known sidechain solutions for Ethereum are xDai and Gnosis Chain. These sidechains provide high-speed channels for Ethereum. Developers can use the free nodes of these sidechains to develop dApps.
While sidechains are not required to submit state data to the main chain, many still choose to do so in order to leverage the security of a larger, more decentralized chain.
3. Validiums
Validiums is similar to a sidechain, an independently operated blockchain, but closely linked to the main chain. Validiums mainly uses zero-knowledge proof instead of traditional proof of work or proof of equity mechanism.
Although Validiums uses zero-knowledge proof encryption technology, it differs from zk-Rollup in that transaction data is not stored on the Layer 1 main chain, so Validium can prove that the transaction is valid and complies with the preset rules without exposing the real transaction information.
But like the sidechain, Validium also has limitations. Because it does not rely on the security of the main chain, it needs to build its own consensus layer, which places high demands on developers. Smart contract support is also relatively limited.
Simply put, Validium is a technology between the sidechain and Layer 2 Rollup. It has a bridge with the main chain and can exchange assets. But it needs to ensure its own security.
Currently, projects using the Validium Layer 2 solution include StarkWare, Immutable X, ApeX, etc.
Rollups – Optimistic Rollup、zk – Rollup
Rollup is the most popular Layer 2 technology today. The basic concept is to package transaction data and submit it to Layer 1 in the form of Rollup. There are mainly two schools of thought:
Optimistic Rollup
Optimistic Rollup is the most widely used Layer 2 solution, with representative projects including Arbitrum and Optimism. Its advantages are that it is easy to develop and deploy, and can quickly attract applications. Its disadvantages are that it has a certain risk of fraud, which needs to rely on economic mechanisms to prevent it.
zk-Rollup
zk-Rollup uses what are called zero-knowledge proofs (ZK-proofs) to verify the authenticity of transactions, which can be used to improve privacy on the blockchain because it allows transactions to be verified without revealing sensitive information about the transactions. The disadvantage is that it is less difficult to develop. Representative projects include zkSync, Polygon zkEVM, and Linea.
The emergence of zero-knowledge proof technology is likely to become a future adoption solution for enterprises because it can only show third parties (users) the information they want to convey while securely transmitting sensitive data.
difference
Overall, ZK rollups can bring higher efficiency, but the biggest difference between Optimistic Rollup and ZK Rollup is that Optimistic is directly compatible with EVM, so anything possible on Layer 1 can be directly implemented on Layer 2.
However, in order to solve the EVM compatibility issue of ZK rollups, the zkEVM solution gradually emerged. For information about zkEVM, please refer to "What is zkEVM? What projects and airdrops can be ambush?"
What are the popular Layer 2 projects and tokens?
According to the cryptocurrency data website L 2B EAT, Arbitrum and OP Mainner are the Layer 2 projects with the largest locked-in amount in the market so far. The following will introduce you to the popular Layer 2 projects in the market one by one:
Optimism
Optimism is the earliest Optimistic Rollup project in the Ethereum ecosystem, and is also focused on building an efficient EVM execution environment. Although it has an early development history, it has also been accelerating its upgrades recently, providing a set of easy-to-develop software tools OP Stack.
OP Stack is mainly managed and maintained by Optimism Collective, which simplifies the process of creating Layer 2 blockchain and significantly reduces development costs. Developers can use the OP Stack toolkit to assemble a customized Layer 2 network according to their own needs and scenarios, and this network is the OP super chain.
Currently, well-known institutions such as CoinBase, a16z, and BNB Chain have begun to create super chain networks based on OP Stack.
Native Token: ETH
Governance Token: OP
Mainnet Status: Online
Further reading: What is Optimism (OP coin)? What are the OP Stack ecosystems?
Decision
Arbitrum is one of the most mature Optimistic Rollup solutions in the Ethereum ecosystem. It provides a high degree of EVM compatibility, allowing Ethereum dApps to be seamlessly ported to Arbitrum Layer 2, achieving higher transaction throughput and lower gas fees. ARB is Arbitrum's governance token.
Native Token: ETH
Governance Token: ARB
Mainnet Status: Online
Further reading: What is Arbitrum coin: popular ecological introduction, teaching, investment strategy
Starknet
Starknet is a zk-Rollup type developed by StarkWare. It uses efficient Stark zero-knowledge proofs to verify Layer 2 transactions. Unlike other zk-Rollups, it is naturally compatible with EVM.
Native Token: ETH
Governance Token: Unknown
Mainnet Status: Online
Further reading: What is StarkNet coin | Airdrop tutorial, ecological introduction
zkSync
zkSync is a representative project of zk-Rollup, created by Matter Labs. It focuses on providing high-speed, low-cost and private transactions for Ethereum. However, the zkSync project has also been involved in many controversies recently, such as on-chain data falsification, soft rug running and so on.
Native Token: ETH
Governance Token: Unknown
Mainnet Status: Online
Further reading: What is zkSync: token airdrop, operation tutorial, ecosystem introduction
Polygon zkEVM
Polygon zkEVM is a zk-Rollup solution launched by the originally famous public chain project Polygon, which will provide Polygon with the dual advantages of EVM and zkRollup.
Native Token: ETH
Governance Token: MATIC
Mainnet Status: Online
Further reading: What is Polygon Chain | Future Potential, Exchanges, Ecosystem Introduction | zkEVM Development
Scroll
Scroll is another zk-Rollup solution that uses a unique ZK node for enhanced security and focuses on an EVM-compatible environment. Scroll has now reached its last testnet, Sepolia, and the mainnet is expected to be launched this year.
Native Token: ETH
Governance Token: Unknown
Mainnet status: Under testing
Further reading: What is Scroll Chain: Token airdrop, operation tutorial, ecological introduction
Line
Linea is also one of the zk-Rollup solution projects. It was created by Consensys, the development team behind MetaMask. It is an influential Ethereum development company in the market. The network is currently preset in the popular wallet Metamask, and users can directly perform related interactive operations.
Native Token: ETH
Governance Token: Unknown
Mainnet Status: Online
Further reading: What is Linea Chain | Token airdrop, wallet tutorial, ecological interaction
Base
Base is an Ethereum Layer 2 network launched by Coinbase, supported by Optimism's OP Stack, which can provide a high-speed, secure and low-cost trading environment.
Leveraging the CoinBase team’s extensive experience in crypto products, we will develop a complete ecosystem to provide a new DeFi environment for the Ethereum developer community and Coinbase’s existing users.
Native Token: ETH
Governance Token: Unknown
Mainnet Status: Online
Further reading: CoinBase: What is the Base chain? Is there an airdrop? Wallet tutorial
Mantle
Mantle Network is a Layer 2 network launched by BitDAO, one of the largest decentralized autonomous organizations in the market. It uses the OP Stack technology provided by Optimistic Rollups to provide a faster and cheaper transaction experience than Ethereum, and uses a modular blockchain design to create larger-scale performance.
Native Token: MNT
Governance Token: MNT
Mainnet Status: Online
Further reading: What is Mantle Netwrok: Token, Ecosystem Introduction, and Relationship with BitDAO/Bybit?
opBNB
opBNB is a Layer 2 solution officially launched by BNB Chain. It is built on OP Stack and is part of BNB Chain’s important network upgrade plan. It can achieve a transaction speed of up to 10,000 TPS. opBNB will greatly improve the performance of the BNB ecosystem.
Native Token: BNB
Governance Token: Unknown
Mainnet status: Under testing
Further reading: What is opBNB? Will there be a token airdrop? BNB Chain’s L2 expansion plan
in conclusion
It is foreseeable that with the gradual upgrade of ETH 2.0, Layer 2 solutions will play an increasingly important role; however, the current problem of blockchain is that there are too few actual users.
Even though these projects have their own characteristics and each is supported by well-known investment institutions, the competition among them will become increasingly fierce. For example, OP Stack, ZK Stack, zkEVM series, etc., perhaps only a few projects may stand out and become the cornerstone of the Ethereum ecosystem.
Of course, as these Layer 2s are expected to reshape the use cases of public chains, they will have the opportunity to become the foundation for supporting the metaverse and Web3 world in the future, which will also be the key to the large-scale adoption and commercial application of blockchain technology.
