Blockchain Layer Solutions
The three important elements of a Blockchain are- decentralization, security and scalability. While decentralization refers to the distribution of consensus and computing power across several nodes, security refers to a Distributed Ledger Technology’s (DLT) fortification against malicious attacks from hackers. The foregoing factors are as important as a scalable and ever evolving distributed ledger technology. In this piece, however, we will explore the scalability element. Scalability reflects a DLT’s ability to service a growing number of transactions and embrace much needed upgrades and updates. Like everything, evolution is key as change is constant. A blockchain should be able to accommodate high transactional outputs and enable advanced upgrades. What this means is that a distributed ledger technology must be “capable of accommodating an exponentially growing number of users, transactions, and other data” consequently- engendering better performance.
Cryptopedia gives a relatable illustration to explain how significant the scalability element is:
“Bitcoin processes between 4–7 transactions per second. Visa, on the other hand, transacts approximately 1,700 transactions per second.”
Although a nascent technology, proponents of blockchain technology must continue to eclipse their legacy counterparts so as to proffer cutting edge solutions for advanced problems that this era presents. Trust the creatives of this world- we currently have several startups and business entities carving their niche in the relevant industry in a bid to proffer scalability solutions.
It goes without saying that ensuring the scalability of a blockchain is the need of the hour. Blockchain proponents have therefore provided the “layer-1” and “layer-2” solutions. What do we mean by layer- 1 and layer- 2 solutions? These two solutions are presently the two mediums for realizing blockchain scalability in this present age and time.
Layer 1 Solution
In a lot of words, Layer-1 technology refers to the original blockchain itself. Using the Bitcoin blockchain and the attending Lightning Network as a case study, Bitcoin itself is the Layer-1 blockchain while the Lightning Network is the overlying Layer 2 solution. We will go on and espouse the Layer 2 solution below for better context.
Layer 2 Solution
The Layer-2 solution is the network that is integrated atop the Layer-1 solution. As illustrated above, Dryja and Poon’s Lightning Network is the layer 2 atop the Bitcoin Network, and it lies on top of the underlying blockchain. The Lightning Network overlays the Bitcoin network to speed up transaction processing time and facilitate on-chain actions between parties away from the blockchain, otherwise known as off-chain transactions. This added layer is a major factor contributing to the reduced cost associated with the Bitcoin distributed ledger technology.
Also using the Bitcoin and Ethereum Layer -1 blockchains as case studies, the prior obsession on Bitcoin shifted towards the Ethereum blockchain because the latter was perceived to be more flexible than the former. To this end, several DeFi Apps have been built on the Ethereum blockchain. Expectedly, the increase in the number of DeFi Apps has had a major bearing on the pace of the Ethereum network; hence the ridiculously high transaction rates. The Ethereum developers tried to salvage the situation by developing ETH 2.0 which evolved the Layer 1 protocol from Proof-of-Work to Proof-of-Stake. Nevertheless, there is a need for a move to Layer-2 technology to accommodate the future of the blockchain ecosystem.
The Scalability Trilemma
Popular Ethereum founder, Vitalike Buterin, revealed the trilemma of balancing the three elements of decentralization, security and scalability, he tagged it the Scalability Trilemma. Blockchain proponents are faced with deciding what element to sacrifice in a bid to realize a significant element of blockchain technology. Should a blockchain project decide to augment scalability and decentralization, they may have to sacrifice the critical element of security and data protection.
Way to Go
Blockchain project builders have discovered that the way to go is to establish blockchain projects that have all the essential properties integrated within the blockchain, particularly “scalability”. We have the Algorand product as a case study. It particularly embodies all these necessary properties of decentralization, security and scalability.
It may interest you to know that a novel set of DLT platforms have surfaced, they are known as Blockchain 3.0. These platforms ensure freshly evolving scalability and fantastic performance by using new data structures. These platforms also improve the quality of transactions via voting techniques and creative endorsements.
Boosting Blockchain Networks’ Scalability
Advanced solutions that are geared towards scaling the Layer-1 and Layer-2 networks are really geared towards the same thing. The end goal is really to ensure that decentralized ledger technologies run faster and have higher throughputs especially as the blockchain and crypto ecosystem continues to explode by the day. Without extinguishing the need for security and the assurance of decentralization, several blockchain projects are investing heavily in both Layer-1 and Layer-2 scaling.
To ensure that the principles of decentralized ledger technologies are maintained, more projects are needed in the growing scalability niche. Consequently, for cryptos to continue to become widely accepted, blockchain projects must ensure that their networks are able to accommodate the growing number of users. Hence, cheers to scalability projects!
List of ETH L2 Solutions
Here is another list for your review.