Layer 2 solutions such as Optimism, Arbitrum, and Polygon are leading the charge to scale Ethereum and other Layer 1 blockchains. Such technologies increase the speed of transactions, lower costs and make decentralized applications more efficient. At the same time Layer 2 protocols make security and decentralization of Layer 1 more effective, efficient and scalable. They address the shortcomings of base layer blockchains, setting the stage for more mainstream adoption and thrilling new use cases.
Layer 1 blockchains like Bitcoin, Ethereum and Solana are constructed to provide security and consensus about the processing of transactions. In theory, Layer 1 offers a strong infrastructure, but in practice, it usually encounters scalability issues. As a point of reference, Bitcoin handles less than 7 transactions per second (TPS). Prior to its move to Ethereum 2.0 and proof-of-stake, Ethereum processed about 30 TPS. Unlike many other chains optimized for scalability, Solana natively supports thousands of TPS on its base layer without sharding or layer-2s.
Layer 2 solutions — things like rollups or state channels — provide a crucial complement to these Layer 1 chains. They make transactions faster and cheaper by acting on layer one’s base layer. Layer 1 provides foundational immutability and security that are critical for high-value transactions and mission-critical smart contracts. Layer 2 brings a large increase in performance suitable for everyday use.
Since then, Optimism and Arbitrum have emerged as the clear frontrunners in the Layer 2 landscape. Collectively, they’re responsible for more than 60% of Layer 2 activity. These solutions, such as Polygon, utilize different mechanisms to improve scalability. They use a suite of technologies such as optimistic rollups, zero-knowledge rollups, sidechains, state channels and nested chains. Rollups and sidechains, especially, enable fast scaling, powering innovation in DeFi, NFTs and gaming.
Coinbase just opened the doors on its Base rollup amid much fanfare and enthusiasm by the ecosystem participants. As such, they’re convinced that Layer 2 solutions are how blockchain technology achieves mass adoption. These approaches address the fundamental blockchain trilemma — the challenge of achieving a suitable balance between the three pillars of scalability, security, and decentralization. Layer 1 chains focus on security and decentralization, often sacrificing scalability in the process.
Recent releases and movements help underscore just how quickly the field of Layer 2 technology is advancing. Optimism’s “Bedrock” update, for instance, halved gas prices and speeded up transaction confirmations. In like manner, Arbitrum provides different implementations through which users can access low-cost alternatives, although with negligible disadvantages in decentralization.
Layer 1 base chains These chains, usually known as layer 1s, are the true foundation of decentralization and security. In parallel, Layer 2 solutions build upon this foundation by increasing scalability, reducing costs, and improving performance. We know the blockchain ecosystem is moving very fast. This attractive and dynamic relationship between Layer 1 and Layer 2 will be key in reaching mass adoption and unlocking thrilling new potentialities for decentralized apps.
