Blockchain infrastructure has evolved to encompass an ecosystem of layer-1 and layer-2 networks. In this article, we will explore the difference between the two and how layer-2 networks, along with other scaling methods like sidechains, attempt to address the scalability challenges of layer-1 blockchains. Layer-2 networks are blockchain networks that live atop a layer-1 network such as Ethereum, with the layer-1 network providing the base layer of infrastructure and security for networks building on it, validating transactions and achieving consensus. These layer-2 networks use various technologies to address scalability bottlenecks on the layer-1 blockchain, which are caused by throughput and transaction costs. Ethereum, for example, currently handles around 14 transactions per second, while Visa processes around 65,000 transactions per second.
Scalability issues are most pronounced during periods of high network activity, when blockchain networks face increased transaction fees, network congestion, and reduced transaction times. Ethereum creator Vitalik Buterin identified the “scalability trilemma” in 2017, arguing that blockchains face the challenge of processing thousands of transactions per second while remaining secure and decentralized. The trilemma suggests that a network can only focus on two of these principles at the expense of the third. Ethereum’s solution to scalability is to make its layer-1 blockchain as secure and decentralized as possible while outsourcing scaling to layer-2 networks built atop its infrastructure.
Scaling networks deploy various solutions to address scalability challenges, including bundling transactions, processing transactions off-chain, using sidechains, and layer-2 rollups. Sidechains are blockchains that run independently of the layer-1 chain, connected via a bridge that locks assets from the layer-1 chain and mints mirror image tokens on the sidechain. Rollups, on the other hand, roll up multiple transactions into a single transaction, making them faster to process. There are optimistic and zero-knowledge rollups, each with its own approach to scaling.
Several layer-2 and sidechain networks are building atop Ethereum with their preferred technological solutions to scale the layer-1. Some of the notable networks include Base, Arbitrum, Polygon, Optimism, Scroll, and Blast. These networks leverage various scaling technologies like optimistic rollups, zk-rollups, and sidechains to improve transaction speeds and reduce costs. Ethereum co-founder Vitalik Buterin envisions a rollup-centric roadmap for Ethereum, aiming to increase the blockchain’s capacity to handle over 100,000 transactions per second by converging layer-2 protocols with sharding.
Layer-2 networks are not exclusive to Ethereum, as developers at BitcoinOS have verified a zk-proof on the Bitcoin mainnet for the first time, opening up scaling possibilities for Bitcoin. Solana is also seeing increased layer-2 activity, such as through the gaming-centric Sonic SVM network. New layer-2 networks continue to emerge on Ethereum, with decentralized exchange Uniswap planning to launch its own layer-2 network, Unichain, using Optimism technology, and centralized exchange Kraken developing its Optimism-based layer-2 network called Ink. Overall, layer-2 networks play a crucial role in improving blockchain scalability and processing capabilities.
