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Understand the expansion of Ethereum layer2 in one minute

Read this article in 13 Minutes

The DeFi fire has overwhelmed the Ethereum network, and Layer 2, which is expected to expand in the short term, has attracted much attention. Let’s briefly understand the principle.

Original title: "Popular Science丨Understanding Ethereum layer2 expansion in one minute"

Original source: Babbitt

What is the expansion of the second layer (layer2) of Ethereum? What is the difference between projects like Optimism, xDai, OMG, and Loopring? We will answer these questions next.

Necessity of expansion

Ethereum scaling has been one of the most discussed topics since the launch of the Ethereum network. Scaling debates always play out after major congestion on the Ethereum network.

The earliest such debates occurred in the crypto bull market in 2017. The not-so-famous CryptoKitties and ICO blocked the entire Ethereum network, causing gas fees Soared sharply.

This year, network congestion has come again, and it is even more serious. This time it is caused by the popularity of DeFi and liquidity mining Caused. For a while, even paying a gas fee of more than 500 gwei, there will be a situation where the transaction cannot be verified for a while.

When it comes to the expansion of Ethereum or other blockchains, there are two main ways: to expand the base layer itself (layer 1), or to put part of the work in layer2 to achieve network expansion.

Layer1 extension VS Layer2 extension

Layer1 is the standard basic consensus layer, and almost all transactions are currently settled at this layer. The concept of "layers" is not specific to Ethereum, other blockchains have such concepts, such as Bitcon or Zcash.

Layer2 is another layer built on top of Layer1. There are several important points here. Layer 2 does not need to make any changes to Layer 1, it only needs to use Layer 1's existing components (such as smart contracts) to build on top of it. Layer2 can also enjoy the security of Layer1 by anchoring its state to Layer1.

Ethereum can currently process about 15 transactions per second on its base layer (Layer1). The expansion of Layer 2 can greatly increase the number of transactions. Depending on the solution, 2000-4000 transactions/second can be achieved.

What about Ethereum 2.0? Is that also an expansion of Ethereum?

Yes, Ethereum 2.0 introduces POS and sharding, which will greatly increase the transaction throughput of the base layer.

Does this mean that after Ethereum 2.0 is released, we don't need Layer 2 extensions?

That's not the case, even with sharding, Ethereum still needs Layer 2 expansion in order to be able to handle hundreds of thousands or even millions of transactions per second in the future trade.

This is also the famous "scalability trilemma". In theory, we could skip layer2 and focus on scaling the base layer, but that would require highly specialized nodes to handle the increased workload, which would lead to a higher degree of centralization, reducing the security and censorship resistance of the network.

Ensuring scalability must not be at the expense of security and decentralization. In future development, we can only use the combination of Layer1 and Layer2 extensions Way.

Layer2 extension solution

Layer2 scaling refers to a collective term for solutions that help improve Layer1 performance by processing off-chain transactions (outside layer1 chain). Layer2 mainly can improve transaction speed and transaction throughput. In addition to this, the gas fee can be greatly reduced.

When it comes to specific scaling solutions, there are several options. Some of these solutions are available today and could increase the throughput of the Ethereum network in the short to medium term.

Some scaling solutions are application-specific, eg payment channels. Other schemes, such as Optimistic Rollup, can be used for the execution of any arbitrary contract.

To better understand these differences, let's explore the most popular layer2 scaling solutions.

Channel

Channels are one of the first widely discussed scaling solutions that allow participants to conduct multiple transactions off-chain while submitting only two to the base layer .

The most popular channel types are state channels and their subcategory - payment channels.

While channels have the potential to easily handle thousands of transactions per second, they also have some disadvantages: their participation is not open, and participants must be As you know, users must lock their funds in multi-sign contracts. Most importantly, this extension solution is application-specific and cannot be used to extend general-purpose smart contracts.

The project that uses state channels on Ethereum is Raiden, and the concept of payment channels is also used by Bitcoin's Lightning Network.

Plasma

Plasma is a layer2 scaling solution originally proposed by Joseph Poon and Vitalik Buterin. It is a framework for building scalable applications on Ethereum.

Plasma uses smart contracts and Merkle trees to create an unlimited number of child chains, copies of the Ethereum blockchain.

Offloading transactions from the main chain to sub-chains enables fast and cheap transactions. But one downside of Plasma is the long wait time for users who want to withdraw funds from layer2. Plasma, like channels, cannot be used to extend general-purpose smart contracts.

OMG Network is built on their own Plasma called MoreViable Plasma. And Matic Network is another platform that uses an adapted version of the Plasma framework.

Sidechain

The sidechain is an independent blockchain compatible with Ethereum, with its own consensus model and block parameters.

Interoperability with Ethereum is achieved by using the same EVM (Ethereum Virtual Machine), so deploying Contracts on the base layer of Ethereum can be directly deployed on the side chain. xDai is an example of such a sidechain.

Rollups

Rollups provide scaling by bundling or "rolling" sidechain transactions into a single transaction and generating a cryptographic proof, also known as a SNARK (Succinct Non-Interactive Argument of Knowledge) . Only this proof is submitted to the base layer.

With Rollups, all transaction status and execution is handled in the sidechain. The Ethereum main chain only stores transaction data.

There are 2 types of Rollups. Zk rollups and Optimistic rollups.

Zk rollups, while faster and more efficient than Optimistic rollups, do not provide an easy way for existing smart contracts to migrate to layer2.

Optimistic rollups run an EVM-compatible virtual machine called OVM (Optimistic Virtual Machine), which allows the execution of the same smart contracts as on Ethereum. It can make it easier for existing smart contracts to maintain their composability, which is extremely important in DeFi where all major smart contracts have been battle tested.

One of the main projects using Optimistic rollups is Optimism, their mainnet launch is coming soon.

Speaking of Zk rollups, Loopring and Deversifi are good examples of decentralized exchanges built on layer2. In addition to this, there is ZkSync which implements scalable encrypted payments.

The scalability of Rollups can also be amplified by Ethereum 2.0. In fact, since rollups only need to expand the data layer, scalability can be greatly improved in Ethereum 2.0 phase 1 (about data sharding).

Summary

While there are a range of layer2 scaling solutions to choose from, it looks like the ethereum community is leaning toward an approach that primarily scales via rollup and ethereum 2.0 phase 1 data sharding.

This approach was also confirmed in a recent article by Vitalik Buterin called "A rollup centric Ethereum roadmap".