Table Of Contents
· Table Of Contents
· Introduction
· Understanding Layer 1 and Layer 2 Blockchains
· The Blockchain Trilemma
· The scalability challenge
· The Role of Layer 2 Solutions in Scaling L1 Blockchains
· Understanding Rollups
· Types of Rollups: Optimistic vs. Validity
· Validity rollups (aka zero-knowledge rollups)
· Optimistic rollups
· Bridging Tokens
· Conclusion
· Sources
Introduction
Layer 2 solutions are transforming Ethereum by addressing its scalability limitations. Among these, rollups have emerged as the most effective way to enhance transaction speed and reduce costs while maintaining Ethereum’s security and decentralization.
Understanding Layer 1 and Layer 2 Blockchains
Ethereum, Bitcoin and Solana are examples of L1 blockchains
Layer 1 (L1) blockchains serve as the foundation of blockchain networks, executing and validating transactions independently without relying on external systems. Examples include Bitcoin, Ethereum, and Solana.
Optimism, Arbitrum and Starknet are examples of L2 blockchain for Ethereum L1
In contrast, Layer 2 (L2) solutions are built on top of Layer 1 blockchains to improve scalability and efficiency. They process transactions off-chain and periodically record summaries on the underlying L1 blockchain. For instance, Optimism, Arbitrum and Starknet operate as L2 solutions on Ethereum, enhancing its transaction speed and reducing costs.
The Blockchain Trilemma
Blockchains strive to achieve three key attributes: security, decentralization, and scalability. However, the well-known blockchain trilemma suggests that a system can optimize only two of these at a time, requiring a trade-off on the third.
Ethereum, along with Bitcoin and other Layer 1 blockchains, has historically prioritized security and decentralization over scalability, which has led to the development of Layer 2 (L2) solutions designed to address the scalability gap in Layer 1 networks.
The scalability challenge
Transaction fees and wait times rise linearly with the number of people using Ethereum — that is, the more people using Ethereum at any given time, the slower and more expensive transactions become.
This creates a barrier for the development and adoption of applications that rely on fast transactions and low costs, especially when serving large user bases.
To put this in perspective, the Ethereum mainnet processes only 13 transactions per second (TPS), whereas Visa handles around 1,700 TPS. Clearly, 13 TPS is insufficient for most applications.
So why not simply increase the number of transactions per block on Ethereum? Increasing Ethereum’s block size could raise the cost of running nodes, discouraging decentralization. Larger blocks also destabilize consensus by being harder to process, slower to propagate, and requiring more bandwidth, potentially causing nodes to fall behind and resulting in consensus failures or temporary forks.
The Role of Layer 2 Solutions in Scaling L1 Blockchains
Layer 2 (L2) solutions were developed to tackle these challenges by shifting most of the computational workload involved in processing transactions from the main blockchain (Layer 1) to a secondary layer. A Layer 2 solution will use an external, parallel network to facilitate transactions away from the mainchain. This approach significantly boosts transaction throughput, lowers costs, and enhances the overall user experience — all while maintaining the security and decentralization of the underlying L1 blockchain.
The Layer 2 (L2) ecosystem includes a diverse range of technologies and frameworks, each with its own distinct features. The most notable are rollups, state channels, and plasma. However, this article will primarily focus on rollups, as they have emerged as the most effective L2 solution for scaling Ethereum.
Understanding Rollups
How L2 rollups works
Rollups enhance Layer 1 (L1) scalability by offloading most of the heavy computation to a secondary layer (Layer 2, or L2). Instead of processing transactions one by one on L1, rollups handle them on L2, where it’s more cost-effective. They then group multiple transactions into a single, compressed summary and submit it to L1 for verification.
This approach provides several benefits:
Lower transaction costs: Transactions are processed on a more affordable layer, and by bundling them, rollups help reduce L1 expenses.Faster transaction processing: With fewer limitations (such as block-size restrictions and L1 gas fees), transactions on L2 can be processed more quickly and then settled on L1 in bulk.Greater functionality: Rollups enable the introduction of features and functionalities that may be inefficient or impossible to implement directly on L1, like advanced smart contracts or privacy enhancements.
Types of Rollups: Optimistic vs. Validity
Rollups are categorized into two main types: optimistic rollups and validity rollups. Both enhance scalability while preserving the security and decentralization of Layer 1 (L1), but they differ in their validation mechanisms.
Optimistic Rollups: These assume all transactions are valid by default. To prevent fraud, they include a dispute-resolution system, allowing anyone to challenge a transaction within a set period (typically up to a week). If a fraudulent transaction is detected, a “fraud proof” is submitted to prove the error.Validity Rollups: Instead of relying on disputes, validity rollups require operators to submit a cryptographic proof verifying the correctness of every transaction in a batch before it is finalized on L1.
The key difference is that optimistic rollups depend on human intervention to catch fraud, while validity rollups rely on mathematical proofs, making them inherently more secure. Additionally, since validity rollups do not require a challenge period, they achieve near-instant finality on L1, whereas optimistic rollups may take up to a week.
Validity rollups (aka zero-knowledge rollups)
Starknet: avalidity rollup with native account abstraction, and its own programming language (Cairo) that optimizes for leveraging validity proofs.zkSync: Another leading validity rollup with native account abstraction that runs on the Ethereum Virtual Machine (EVM).Scroll: An EVM-compatible validity rollup that focuses on native-level compatibility with existing Ethereum dApps and tools.Polygon zkEVM: Built by L2 scaling veteran Polygon, zkEVM is an EMV-compatible validity rollup.Linea: Powered by Consensys, the company behind MetaMask, Linea is a validity rollup available directly via MetaMask.
Optimistic rollups
Arbitrum: The largest optimistic rollup in terms of TVL, and EMV-compatible.Optimism: The second-largest optimistic rollup in terms of TVL, and EMV-compatible.Base: The third largest optimistic rollup in terms of TVL, and EMV-compatible.
Bridging Tokens
Since L2s are separate blockchains from Ethereum L1, moving assets like ETH or other ERC-20 tokens between L1 and L2 requires using a bridge. Bridges facilitate this process by locking assets on one chain and minting equivalent representations on the other. For example, when transferring ETH from Ethereum to an L2 like Arbitrum, a bridge locks the ETH on the Ethereum mainnet and issues an equivalent amount of ETH on Arbitrum.
Conclusion
As Ethereum adoption grows, Layer 2 rollups play a crucial role in ensuring scalability without sacrificing security or decentralization. By leveraging rollups, we move closer to a more efficient and accessible blockchain ecosystem.
Sources
Why validity rollups are the future of blockchainThe Layer 2 ecosystem: Scaling blockchain for the futureBlockchain Layer 1 vs. Layer 2 Scaling SolutionsWhat are Layer 2 scaling solutions?Cross-Chain BridgesScalingOptimistic RollupsZero-Knowledge Rollups
Scaling Ethereum with Layer 2 Rollups: Faster, Cheaper Transactions Explained was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.