The continuous demands of users determines the modification of every technology. Let’s take our cell phone for instance: it started with LAN phones, gradually to cell phones and now smartphones. So is it for every technology — its revolution is dependent on the consumer's demand. And the blockchain industry isn’t left out. In other words, the requirements and some certain features demanded by newbies and enthusiasts on blockchain network were the basis discovery for the development of level 2 protocol for blockchain network.
Now, if you carefully consider the DeFi ecosystem , you’d agree with me that it’s significantly and continuously transforming through the integration of Layer 2 (L2) network solutions. All thanks to Ethereum — the world's biggest blockchain platform. Through this platform, innovative transformations of this kind are possible: Improved DeFi ecosystem, enhanced scalability, reduced transaction costs, and empowers both brokers and users.
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The Revolutionary Impact of L2 Network in The Blockchain Industry:
Layer 2 network solutions can be referred to as secondary frameworks or protocols built on a primary blockchain network (known as Layer 1). From all indications, Layer 2 solutions aim at enhancing scalability and efficiency of the blockchain network by processing certain transactions or computation without compromising security and decentralization of the underlying Layer 1 network.
While there are so many ways layer 2 solution has affected the blockchain industry, here are two major revolutionary impacts:
1: Primarily, Layer 2 solutions intend to lessen the limitations of Layer 1 blockchains which are: slow transactions processing and high cost. By moving some transactions off-chain, L2 solution can obviously increase the throughput and at reduced cost.
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2: With Layer 2 solutions, DeFi brokers can offer their users a more cost-efficient and accessible trading experience. Users can gladly participate in DeFi protocols without being hindered by exorbitant costs or waiting for long confirmation times. All thanks to L2 solutions .
Four Different Types of Layer 2 Solutions:
Cryptopolitan simplified them better and they are as follows:
1: State Channels: This particular type enables participants to conduct a series of transactions off-chain, with only the initial and final states being documented on the layer 1 blockchain. Well, this lessens the number of on-chain transactions and enhances scalability.
2: Sidechains: This type is an independent blockchain that is interoperable with the main layer 1 blockchain. They seamlessly allow users to perform transactions and execute smart contracts on the sidechain, reducing loads on the Layer 1 blockchain.
3: Plasma: Plasma is a type of Layer 2 solution that facilitates faster transaction processing by aggregating multiple transactions into a single batch and submitting the result to the main chain for verification. In simple terms, Plasma is a framework that creates a child chain (hierarchical chains) that gets attached to the parent chain(main chain).
4: Rollups: These are Layer 2 constructions that bundle several transactions together and submit a summary of these transactions to the parent chain(main chain). They can be categorized into two:
Optimistic Rollups (OR): According to blockspaces , these are Layer 2 solutions for Ethereum that encourage users to execute smart contracts off-chain, without the need for each transaction to be broadcast to the entire network. OR are secured by Ethereum Layer 1, as every transaction eventually settles on Ethereum. However, OR has drawbacks and one of them is that Rollups optimistically assumes that transactions are valid and impose a seven-day verification challenge period before a user can withdraw his or her funds to the Ethereum main chain. Examples of Layer 2 projects under Optimistic Rollups are Arbitrum and Optimism.
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Zero Knowledge Rollups (ZK- Rollups): This kind of Rollups makes use of Zero Knowledge Proofs (ZK Proofs) to verify the validity of over a thousand transactions in a batch and then post minimal summary data to the parent chain. A ZK Proof allows one party (the prover) to prove to another party ( the verifier) that a statement is true without revealing any information about the statement itself. Examples of ZK -Rollups blockchain are Starknet by Starkware, Polygon Zk EVM and ZKSync.
Examples of layer 2 projects that are revolutionizing the industry
In one of Hindustan Times post , the following were mentioned.
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#1 Polygon (MATIC):
Polygon has proven to be one of the famous Layer 2 projects in 2023.
Polygon is the first Ethereum layer 2 blockchain that makes use of an adapted version of plasma with PoS-based side chains to provide a transaction speed of about 7,000 TPS compared to Ethereum's 15 TPS. This Layer 2 crypto has a TVL worth about $893 million, with over 37,000 applications running on its chain at the moment. It has a native token called and it is used for participation in network governance, payment of operation fees and staking.
One of its uncommon advantages that sets it apart is its framework for building interconnected blockchain networks, which allows assets to move seamlessly between different networks.
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#2 Inspect (INSP):
Inspect is one of the best layer 2 cryptocurrencies that is loaded with so many scaling solutions in the crypto market. Besides being an interesting investment opportunity among many, keep in mind that Inspect is a relatively new Layer 2 solution that instantly turns Twitter (X) into a Web3 platform.
Due to the fact that Inspect has over 75,000 MAU web applications and 30,000 WAU chrome extensions, It allows you to seamlessly track, engage, explore and swap crypto assets, NFTs and DeFi projects directly within anyone's Twitter feed.
The Inspect ecosystem has its native token, INSP. And it is used to incentivize user engagement, to grant access to exclusive features, and to participate in governance.
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#3 Arbitrum (ARB):
Do you know that Arbitrum has been recorded to be the most used Ethereum layer 2 roll-ups? Its potential in layer 2 scaling solutions can’t be overemphasized. By bundling multiple transactions into a single transaction, Arbitrum reduces the load on the Ethereum network, thereby speeding up operations and cost-friendly rates.
As of the time of writing, there are about 435 protocols active on the Arbitrum chain and they all together currently boast of a TVL (Total value locked) worth $2 billion — this simply reveals the huge number of users who believe in these protocols.
Conclusion:
In summary, it’s crystal clear that Ethereum’s Layer 2 solutions are the bedrock for the evolution of decentralized finance, fostering greater accessibility, efficiency, and security.
