Decentralization, trustless interactions, high degrees of security, and immutable record-keeping are advantages of blockchain technology. As a result, it has aided the growth of a thriving cryptocurrency ecosystem while supporting constant technical progress. However, scalability is one of the major issues with many blockchain networks. When the volume of data passing via the blockchain reaches a limit due to the blockchain’s limited capacity, scaling issues arise.

This blog will get an overview of the Layer 2 scaling solution that brought a revolution in the Blockchain world.

First things first: What is Blockchain scalability?

A blockchain, in an ideal world processes, a limitless number of transactions per second, often known as throughput or TPS (Transactions per second). On the other hand, the Bitcoin main chain can only handle 3-7 TPS. Developers are working to broaden the scope of what a blockchain can achieve to meet these concerns. Consequently, more transactions may be processed per second, and processing times can be reduced.

Scalability is essential because it is the only way for blockchain networks to compete on an equal footing with older, centralized systems that provide faster settlement times. Using Layer-2 scaling techniques is one option.

What are we waiting for? Let’s deep dive into the Layer-2 scaling solutions.

An introduction to Layer-2 scaling solution

Layer-2 is a network or system that runs on top of a blockchain protocol to increase scalability and efficiency. This scaling solution involves offloading a portion of a blockchain protocol’s transactional weight to an adjacent system architecture, which then performs the majority of the network’s processing and only reports back to the main blockchain to complete the process. As a result, the base layer blockchain becomes less crowded — and eventually more scalable — by extracting the majority of data processing to supplementary architecture.

Bitcoin, for example, is a Layer-1 network, and the Lightning Network is a Layer-2 solution created to enhance transaction speeds on the Bitcoin network in this way.

Need for a Layer-2 scaling solution

Layer 2 solutions are required because they provide scalability and greater throughput. In addition, they maintain the Ethereum blockchain’s integrity, allowing for total decentralization, transparency, and security while also lowering carbon emissions (less gas means less energy used, which equates to less carbon.)

Even though the Ethereum blockchain is the most commonly used and most secure, it does have flaws. The Ethereum Mainnet is famous for its prolonged transaction speeds (13 per second) and high gas prices. On top of the Ethereum blockchain, Layer 2s maintains transactions safe, fast, and scalable.

Each system has its own set of benefits and disadvantages, including throughput, gas costs, security, scalability, and, of course, functionality. At the moment, no one layer 2 solutions can meet all of these requirements. However, layer 2 scaling techniques called rollups try to enhance all of these qualities.

A quick introduction to Layer-1 scaling solution

A Layer-1 network is a blockchain in the decentralized ecosystem, whereas a Layer-2 protocol is a third-party integration that may be combined with a Layer-1 blockchain. Layer-1 blockchains include Bitcoin, Litecoin, and Ethereum, for example. Furthermore, layer-1 scaling solutions supplement the blockchain protocol’s foundation layer to boost scalability.

How do the Layer-2 scaling solutions work?

Layers 1 and 2 are linked, and a summary of Layer-2 transactions is transferred to Layer 1 at regular intervals for archival purposes. Therefore, layer-2 networks must consider how transactions are validated before they are “cast in concrete” on the main chain.

It entails offloading a portion of a blockchain protocol’s transactional weight to an adjacent system architecture, which handles most of the network’s processing and only reports back to the main blockchain when it’s finished. By extracting the majority of data processing to supplementary architecture, the base layer blockchain becomes less congested – and eventually more scalable.

Instead of transmitting every transaction via Layer 1, it aims to handle these transactions on a parallel blockchain known as “Layer-2” to avoid congestion.

Final words

Layer-2 solutions are important because they enable better scalability and throughput while retaining the Ethereum blockchain’s integrity, allowing for full decentralization, transparency, and security while reducing carbon emissions.

Even while no one Layer-2 solution currently meets all of these criteria, they continue to attempt to improve all of them.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.