Layer 2 scaling solutions aim to increase transaction throughput by processing transactions off-chain before settling them on the blockchain. This eliminates the need for every transaction to be processed by the main chain, allowing the main chain to process a higher volume of transactions.
Ethereum, the second-largest blockchain, has been struggling with scaling issues for quite some time. In September 2020, the average transaction fee on Ethereum reached an all-time high of $14. Both Ethereum and Bitcoin rely on layer 2 scaling solutions to help them reach their scalability benchmarks.
The Ethereum community is working on several promising scaling solutions, including state channels, plasma, rollups, and sharding. While these technologies are being tested and developed, various groups are jockeying for position in the race to build the best layer 2 solution.
Optimism is one such group. It’s a blockchain-based protocol designed to help raise scalability on Ethereum by facilitating off-chain transactions in a decentralized environment. Another group is Polygon, formerly known as Matic, facilitates fast, affordable, and secure transactions by combining both delegated proof-of-stake and plasma chains.
Loopring is another promising solution for Ethereum scaling. It’s a decentralized exchange protocol that uses zero-knowledge proofs to verify transaction batches. This dramatically reduces the gas costs and allows more transactions to be processed faster.
Bitcoin enthusiasts are also pursuing layer 2 scaling solutions. The Lightning network is Bitcoin’s leading layer 2 scaling solution. It operates as a peer-to-peer payment protocol that allows users to create payment channels between one another. Transactions between two parties that have an open payment channel bypass the main blockchain, which increases transaction throughput significantly. The Lightning network is well developed and is gaining traction at an impressive rate.
The competition is intense, but there are a few attributes to consider when selecting a layer 2 scaling solution. The solution must be fast, scalable, energy-efficient, secure, decentralized, and interoperable with other blockchains. It’s also essential to consider the team behind development, adoption, and community support.
Several teams are in the race to build the best layer 2 scaling solution, and it’s still too early to crown a winner. However, the competition has propelled significant developments in blockchain’s layer 2 scaling, and we are likely to see superior solutions arise in the months, if not years, to come.