Blockchain scaling solutions exist in two phases, Layer 1 scaling solutions and Layer 2 solutions, of which Layer 2 is usually built on Layer 1, using the existing elements of Layer 1 like smart contracts, layer 1 security and other Layer 1 components. While the layer 1 scaling solution involves scaling the base layer of the blockchain, the layer 2 solution involves scaling the network to help improve the limitations of the base layer. Layer is a general concept in blockchain, not particular to Ethereum as in known cases. Layer 2 scaling in Ethereum plays a major role by increasing the capability of layer 1 in handling off-chain transactions. Two major issues usually handled in layer 2 solutions are Transaction speed and transaction throughput, thus contributing to handling high gas fees. Categories of Layer 2 solutions:

1. Channels: Channels allow users to carry out transactions off-chain while submitting two transactions to the base layer. Channels could be state channels or payment channels, whereas payment channels are quite similar to state channels and can be located under state channels. So, therefore, payment channels deal with payment and state channels deal with chain updates. They tend to enhance large amounts of transactions per second, but they as well have a downside which — No open participation and participants have to be known upfront. Channels are application specific and cannot be used to scale general-purpose smart contracts.

2. Plasma: plasma is a framework for building scalable Ethereum applications, leverages the use of smart contracts and enables the creation of a child chain. Offloading transactions from the child chain to the main chain allows for faster and cheap transactions. Although plasma takes quite a longer time for users who want to withdraw their funds from layer 2. Similar to channels, plasma cannot be used to scale general-purpose smart contracts. The Matic network also known as Polygon is using an adapted version of the plasma framework.

3. Sidechain: This is an Ethereum-compatible independent blockchain built on their consensus models and block parameters. Sidechains are connected to the main chain by a two-way model, which enhances and facilitates data processing from the main chain. Contracts deployed to the Ethereum main layer can be directly deployed to the Ethereum side chain.

4. Roll-ups: Roll-ups provide scaling by building or rolling up Sidechain transactions into a single transaction and generating a cryptographic proof also known as Snark which is submitted to the base layer. With roll-ups, all transaction state and transaction execution are handled on the side chain, the base layer stores transaction data only. Roll-ups can be classified into two: Zk Roll-ups and Optimistic Roll-ups. While Zk Roll-ups tend to be faster and more efficient than optimistic Roll-ups, they do not provide an easy way for existing smart contracts to migrate to layer 2, Optimistic Roll-ups run an EVM-compatible virtual machine called OVM (Optimistic Virtual Machine), which allows for executing same smart contracts as can be executed on Ethereum. This helps the existing smart contract to maintain its compose ability which is extremely important in Defi.

In this article, we have carefully reviewed what layer-2 solutions represent in the ethereum ecosystem, and how they are helping to solve various base chain issues like scalability and efficiency. Moreso, the article covered categories of layer-2 solutions and their specific functions. Thanks for reading about Layer 2 Ethereum scaling solutions. Please subscribe to my Newsletter.