Define Ethereum Layer 2

Ethereum Layer 2 

Layer 2 refers to a protocol or secondary structure that is built over the existing blockchain framework. The main purpose of these protocols is to address the challenge of the speed and scale of transactions faced by major cryptocurrency networks. Layer 2 protocols generate a secondary structure in a broader context, where blockchain transactions and processes can take place regardless of layer 1. (main chain). For this purpose, “off-chain” scaling solutions may also be referred to as these techniques. 

Layer 1 shall apply to the blockchain of Ethereum, while Layer 2 shall be any protocol built on top of Ethereum. Layer 2 is the collective term for solutions that help to scale the application by managing transactions beyond the main Ethereum chain (layer 1). When the network is busy, there is a transaction speed that can make the user experience low for certain types of dapps. As the network gets busier, as transaction senders try to outbid each other, gas prices are rising. 

In other words, a significant portion of the work carried out by the main chain can be transferred to the second layer. Thus, while the main chain (layer 1) provides security, the second layer delivers high performance, enabling hundreds or even thousands of transactions per second to be carried out.

Importance of Ethereum Layer 2 

  • With current transaction times, some use cases, such as blockchain gaming, don’t make sense
  • Using blockchain technology can be overly costly
  • Scalability updates should not be made at the expense of security decentralization. Layer 2 is built at the top of Ethereum

Types of Layer 2 solution 

  • Rollups
    • ZK rollups
    • Optimistic rollups
  • State channels
  • Plasma
  • Validium
  • Sidechains
  • Hybrid solutions

Rollups 

Rollups are solutions that combine side-chain transactions into a single transaction or roll up and produce cryptographic proof, known as SNARK (succinct non-interactive argument of knowledge). Only this information is forwarded to the main chain.

In other words, rollups suggest that all state and execution is done in side-chains: authentication of signatures, execution of contracts, etc. Only transaction data are processed by the main Ethereum chain (layer 1). Ethereum-compatible, stand-alone blockchains are sidechains. 

Rollup solutions include relays in the roll-up contract that have entered into the bond. This motivates them to relay the rollups reliably.

Useful for: 

  • Reduction of user fees
  • The involvement is freely available
  • Quick Transaction Output

Channels 

Channels allow participants to transact x times off-chain while sending only two chain transactions to the network. This allows a particularly high output of transactions

Useful for:

  • A lot of changes for the state
  • If the number of participants is known immediately,
  • When participants are always available

Plasma 

The plasma chain is a separate blockchain anchored to the main Ethereum chain, which uses evidence of fraud to mediate conflicts.

Validium 

Using validation proofing, data is not stored in the main layer 1 Ethereum chain. This can lead to 10k transactions per second per validium chain and multiple chains can be run in parallel.

Ethereum Classic VS Ethereum 2.0 

Ethereum Classic focuses on security. Whereas Ethereum 2.0 focuses on performance. 

What are they good for, if the ETC is very secure, but not as scalable, and the ETH is highly scalable, but not as secure?

Based on the above definition, due to its scalability, Ethereum 2.0 appears to be a framework that is very suitable for service users and businesses who need to process high volume and low value transactions. In the case of the Ethereum Classic, the processing of low volume, high value transactions would be acceptable.

ETC is an L1 system that could perfectly supply ETH 2.0 with security services and a finality that could perfectly provide ETC with scalability.

ETC is definitely a much more conservative system because its ecosystem has made design decisions that maintain the highest level of integrity in its database. ETH 2.0 is aiming for a lot more scalability, so it has agreed to be a high-performance system.

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