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Ethereum has seen significant growth since it launched. This growth has put continued pressure on the network. Ethereum can handle around 27 transactions per second, with a lot of other layer 1 networks able to handle consistently higher figures. Qubic, for instance, can handle more than 15 million transactions per second, which means it has a long way to go before it becomes congested.
Crypto Adoption
Ethereum was conceived in 2013 and launched in 2015. It was developed as a network for building and launching decentralized apps, and has also become popular as a form of investment, along with other cryptocurrencies. Like Bitcoin and Doge, Ether has also found use in online gambling, with many specialist crypto casinos and betting sites accepting the digital currency.
According to the latest insights from Esports Insider, cryptocurrency is especially popular as a gambling payment form because it offers privacy and anonymity. Players can, according to online gambling expert Viola D’Elia, register without having to submit personal or financial details.
What Are Layer 2 Networks?
This increased popularity means greater traffic on the Ethereum network, which is a top layer, or layer 1, network. Every network has its limitations, referred to as its capacity transactions per second (TPS). Ethereum’s layer-1 network has a capacity of around 27 TPS. However, this can be, and has been, increased through the use of layer-2 networks.
Layer 2 networks are additional protocols developed on top of layer 1 networks. These protocols effectively change the way transactions are handled.
Typically, this means reducing the time it takes for a transaction to complete, which helps increase the capacity of the overall network, minimize the risk of congestion, and reduce the cost and speed of transactions. Examples of such networks include Starknet, Celer Network, and Metis.
Layer 2 Network Benefits
The benefits of layer 2 networks include:
Faster Transactions – Layer 2 networks can handle transactions off-chain in a process known as offloading. Because the work is completed away from the chain, transactions are completed more quickly.
Cheaper Transactions – Offloading also reduces transaction fees, typically through the use of batch processing, whereby transactions are combined into a smaller number of transactions.
Maintained Security – Layer 2 networks inherit their security from the layer 1 networks they are built on, which means layer 2 Ethereum networks are as secure as Ethereum itself.
Reduce Ethereum Main Chain Congestion – Fewer transactions mean less congestion on the Ethereum main net. This, in turn, means better scaling opportunities as well as faster and lower-cost transactions.
They Enable More Complex dApps – The reduction of transaction costs and improvement in scaling means developers can create more complex dApps on the network.
Types Of Layer 2 Networks
Layer 2 networks can be created using different technologies and, subsequently, provide different benefits and features.
State Channels – State channels effectively enable off-chain transactions. The transactions are only recorded on the chain once the channel is closed. This can significantly reduce the number of transactions recorded on the network, therefore improving scaling.
Rollups – Multiple transactions are bundled into a single batch before this is submitted to the network, effectively as a single transaction. Costs are shared across the individual lines, and depending on the type of rollup used, different methods of validation are used, which can help keep transaction times down, too.
Sidechains – Strictly speaking, sidechains are not layer-2 networks. They are independent chains that run alongside the main net, using different consensus mechanisms. The sidechains communicate directly with the main network, however, and because they keep transactions off the main net, they do help with scaling.
Plasma – Plasma creates smaller child chains from the main net and then processes transactions before settling back to the main net. This hierarchical network of networks has the capacity for high levels of scaling.
Validium – Validium uses multiple scaling technologies, specifically rollups and off-chain transactions, to validate data away from the main network.
L2 Challenges
Scaling Ethereum is considered vital to its future growth; otherwise, the main net will hit its peak and be unable to grow further, while suffering slower transactions with higher gas fees. Some on-chain improvements can be made to help improve scaling, but these are limited by the network’s existing protocols.
Layer-2 networks effectively change and improve those protocols. Therefore, scaling through the use of layer-2 networks needs to proceed, but there are certain challenges faced.
Increased Potential For Fraud – Validators are blockchain network participants who add and verify blocks. They are vital to the whole process, but layer-2 networks use their own validators, and this means there is an increased risk of fraudulent activity by validators.
Less Decentralization – One of the ways that main nets reduce the risk of fraud is through decentralization. The main net has a large number of validators, who are generally unaware of the existence of others, and certainly don’t have a means of communicating with one another to effect transaction validation. Side nets and layer 2 networks use their own networks of validators, and this means there is less decentralization on the networks.
Computational Power Requirements – Offloading transactions from layer 1 networks to layer 2 networks means new networks have to handle large volumes of data and a lot of transactions. This, in turn, requires a considerable amount of computational power. The amount of computational power required depends on the protocols and demand for the layer 2 network, but demands can be very high in some cases.
Conclusion
The Ethereum network was developed for use in the creation of smart contracts and decentralized apps. It has become popular for these uses, as well as for the transfer of value, like traditional currencies, and as an alternative investment channel. This high demand has led to congestion on the network. Some on-chain improvements can help reduce congestion, but for future scaling, layer 2 networks are essential.
