The need for Layer 2 networks has been one of the core approaches of the Ethereum scaling solution because of the continued growth in blockchain usage causing higher fees and network congestions. The Ethereum network supports various DeFi applications, Non-Fungible Tokens, smart contracts, and web 3 applications, but its main network lacks sufficient transactional capacity in times of peak usage.
This has led to an increased focus on using Layer 2 networks which can handle transactions more efficiently while leveraging the Ethereum security model. Layer 2 networks like Arbitrum, Optimism, and Polygon have been used to reduce Ethereum fees.
Ethereum Network Congestion Drives Layer 2 Adoption
Ethereum is a decentralized blockchain that enables the implementation of smart contracts and DApps on its platform. The transactions on the network are facilitated through the use of validators for the verification and confirmation of transactional activities. Nevertheless, the base layer of Ethereum is capable of handling a limited number of transactions at once.
The increasing usage of the blockchain brought about the situation where the number of transactions became greater than the processing capability of Ethereum. In times of NFT minting and DeFi exchanges, users had to pay expensive fees to transfer small amounts of money from one account to another.
In order to solve the issue of congestion on the blockchain, developers have come up with Layer 2 solutions. Through Layer 2 networks, transactions are processed independently of the blockchain and then the compressed information is sent to Ethereum. This way, the blockchain gets fewer transactions to deal with.
How Layer 2 Networks Process Transactions
Layer 2 networks run on top of Ethereum’s primary blockchain infrastructure. Unlike Ethereum that processes each transaction individually, Layer 2 networks bundle all transactions and then send the outcome to the underlying blockchain for processing.
The method has been referred to as rollups or transaction batching. The system reduces computation requirements on Ethereum validators without compromising security.
Two major Layer 2 technologies currently dominate the sector.
Optimistic Rollups
In Optimistic Rollups, the assumption is that all submitted transactions are valid until any disputes by the network parties. Such a process will make it easy to facilitate compatibility with Ethereum smart contracts. Such networks include Arbitrum and Optimism.
Zero-Knowledge Rollups
Zero Knowledge Rollups, also known as ZK Rollups, make use of cryptographically proven transactions before their confirmation and settlement on Ethereum. The cryptographic proofs authenticate transactions while also reducing the volume of data saved on Ethereum. Some projects which make use of this technology are zkSync and Starknet. ZK Rollups provide better transaction finality and data reduction than other methods.
Ethereum Scaling Expands Web3 Infrastructure
Layer 2 network technologies have emerged as an integral part of the broader Ethereum ecosystem as more and more blockchains are implemented by decentralized finance, gaming, and NFT platforms. The integration of scaling technologies is an ongoing process aimed at increasing the volume of users and reducing the cost of work.
Web3-based projects are increasingly redirecting users to Layer 2 networks due to cheaper transactions compared to higher fees on Ethereum and faster transactions as well. Already, many decentralized exchanges and gaming sites perform most functions in the Layer 2 network rather than on Ethereum Layer 1.
Meanwhile, Ethereum developers have not stopped working on their long-term scaling improvements. Still, Layer 2 networks remain one of the main solutions for alleviating network congestion within the blockchain ecosystem.
Final Thoughts
As the developers look for ways to develop a faster and cheaper infrastructure on the Ethereum network, there will be continued growth in Layer 2 networks within the Ethereum network. Using Layer 2 networks allows transaction processing off the main Ethereum network thereby reducing traffic congestion without compromising Ethereum’s security model.
This growth is part of the broader push for improving blockchain technology as well. This includes using blockchain technology for finance and Web 3 apps. As the use of Ethereum continues, we can expect that technologies like Optimistic and ZK rollups will play an important role in transactions.
