The imaginative and prescient of a safe and user-friendly decentralized web, supported by a shared financial framework and embraced by billions, depends on growing important infrastructure. Scaling options, often known as Layer 2, play a vital function in developing this basis and enhancing Ethereum’s capabilities. These initiatives work collectively, forming a sturdy ecosystem that propels Ethereum in direction of its full potential.
On this article, we’ll delve into the improvements and narratives surrounding Layer 2 networks. We are going to talk about the challenges confronted by these networks and their potential transformative affect on Ethereum’s mass adoption. Our evaluation might be primarily based on knowledge from Footprint Analytics’ Layer 2 analysis web page, offering useful insights into this evolving ecosystem.
Why Do We Want Layer 2?
Blockchain expertise has lengthy been praised for its fascinating qualities of decentralization, safety, and scalability. Nonetheless, the “blockchain trilemma” means that reaching all three concurrently inside a easy structure is difficult. Ethereum, which presently processes over 1 million transactions per day, usually faces excessive transaction charges as a result of rising demand. To deal with this problem, Layer 2 networks have emerged as an modern answer.
The first goal of Layer 2 networks is to boost transaction throughput by reaching greater transactions per second (TPS) whereas sustaining decentralization and safety. These networks obtain this by consolidating a number of off-chain transactions right into a single layer 1 transaction. In consequence, transaction charges are considerably diminished, making Ethereum extra accessible and inclusive for a wider vary of customers.
Totally different Varieties of Layer 2
At present, there are three fundamental sorts of Layer 2, together with rollups, state channels and plasma.
Rollups
Rollups are layer 2 options that mixture quite a few transactions right into a single transaction on layer 1, leading to person price financial savings by distributing transaction charges throughout individuals throughout the rollup. There are two fundamental sorts of rollups: optimistic rollups and zero-knowledge rollups (ZK-rollups). Optimistic rollups make the most of fraud proofs to make sure the validity of off-chain transactions, whereas ZK-rollups make use of zero-knowledge proofs to boost privateness and safety.
Examples of optimistic rollups embody Arbitrum(Arbitrum One), Optimism(OP Mainnet), and Base.
Arbitrum, launched by the Offchain Labs workforce in August 2021, has emerged as a outstanding participant within the trade, capturing a market share of over 50%. With its Nitro improve, Arbitrum has achieved full Ethereum Digital Machine (EVM) equivalence, enabling builders to seamlessly migrate good contracts from Ethereum to Layer 2 with minimal or no modifications required.
Optimism, the second-largest Ethereum Layer 2 answer, soft-launched its mainnet in January 2021 and have become absolutely accessible to everybody in December 2021. Constructed with an EVM-equivalent structure, Optimism gives a seamless scaling answer for Ethereum purposes with out encountering vital challenges.
Base, constructed on OP Stack in collaboration with Optimism, went stay on the mainnet in July 2023. Inside just a few months, it achieved vital success, securing the third place within the Layer 2 market. Incubated by Coinbase, Base leverages Coinbase’s experience in constructing crypto merchandise.
Alternatively, ZK-rollup implementations embody zkSync Period, Starknet, Linea, and Polygon zkEVM.
zkSync Period, acknowledged because the world’s first zkEVM blockchain, launched on the mainnet for all customers in March 2023 and swiftly secured the fourth place within the Layer 2 market when it comes to market share. zkSync Period has established itself because the dominant rollup answer when it comes to person actions, together with TPS and transactions.
Starknet went stay on mainnet in November 2021. It achieves safe low-cost transactions and excessive efficiency by utilizing the STARK cryptographic proof system. Starknet is powered by Cairo and as such shouldn’t be EVM appropriate. Efforts are underway to allow compatibility between Solidity and Cairo by way of the transpiler Warp.
Linea, a ConsenSys-powered Layer 2 answer, went stay on the Ethereum mainnet in July 2023. It gives EVM compatibility, making it straightforward for builders emigrate and construct purposes on its community.
Polygon zkEVM public beta was launched in March 2023 and it offers EVM equivalence. Polygon, beforehand often known as Matic, is a blockchain platform providing various blockchain options. Polygon zkEVM is without doubt one of the choices from Polygon.
State channels
State channels are a mechanism that enables individuals to conduct quick and unrestricted off-chain transactions, settling the ultimate final result on the Ethereum blockchain. This strategy reduces community congestion, charges, and transaction delays.
The Raiden Community is an off-chain scaling answer that focuses on researching state channel expertise, defining protocols, and growing reference implementations. It permits near-instant, low-fee, and scalable funds, making it appropriate with any ERC20 token on Ethereum. The community goals to boost scalability and usefulness whereas sustaining compatibility with the Ethereum ecosystem.
Plasma
A plasma chain is an unbiased blockchain that’s linked to the primary Ethereum chain by way of anchoring, and it makes use of fraud proofs, just like optimistic rollups, to resolve disputes.
The OMG Community makes use of Layer-2 Plasma structure, which gives strong security assurances and excessive throughput. It offers a scalable answer for third-party builders concerned with constructing decentralized fee purposes on the Ethereum platform.
Knowledge Insights
A consensus is forming: Ethereum will attain mass adoption, a matter of when, not if. So, how far is it?
Just like the diffusion of different applied sciences, the adoption trajectory of Ethereum may be described by a basic bell curve. It begins with a restricted variety of innovators who’re fast to embrace the expertise, adopted by the engagement of early adopters. As Ethereum continues to evolve and mature, it progressively expands its attain to embody the early and late majority, resulting in a mass adoption part. Finally, the expertise reaches the remaining section of the inhabitants, known as the laggards, in its ultimate part of adoption.
Let’s discover the affect Layer 2 has on the mass adoption of Ethereum from these elements:
TVL
Whole worth locked, or TVL, is anticipated to be the main indicator of the place adoption will happen.
As of October 2023, Arbitrum is main the pack, with a formidable TVL of $6.00 billion and a market share of 61.03%, solidifying its place because the dominant participant out there. Optimism follows behind with a TVL of $2.60 billion and a market share of 26.41%, showcasing its substantial adoption and person engagement.
Different chains type the second echelon however their market shares fall far behind – lower than 5%. Base, the newcomer, which was launched on the mainnet for everybody on July 13, 2023, secures the third spot with a TVL of $462.91 million. The zkSync Period community holds the fourth place with $450.87 million locked, whereas Starknet occupies the fifth place with a TVL of $135.27 million.
Supply: Layer 2 Overview
Distinctive customers and transactions
Person actions, such because the variety of distinctive customers (known as “bridgers” who work together with Ethereum) and the quantity of transactions, function key adoption indicators for adoption.
Among the many numerous Layer 2 options, zkSync Period stands out because the frontrunner. It has collected a formidable 2.67 million distinctive customers, accounting for 37.10% of all rollups, and facilitated 2.23 million transactions, representing 50.84% of rollup exercise. zkSync Period’s preliminary airdrop exercise attracted a big variety of customers, and it has maintained its main place since then. Starknet follows carefully when it comes to transaction quantity, with 1.70 million transactions, constituting 23.70% of rollup exercise.
Base and Linea, each launched on the mainnet in July 2023, have gained exceptional reputation out there. They’ve surpassed Optimism and Polygon zkEVM when it comes to each distinctive person engagement and transaction quantity.
Throughput
One of many main scaling challenges ceaselessly mentioned within the blockchain neighborhood pertains to transaction throughput.
At current, the Ethereum Mainnet has a capability of roughly 15 transactions per second (TPS). In distinction, Visa boasts the power to deal with round 24,000 TPS, whereas Mastercard can course of 5,000 TPS.
Layer 2 is bridging the hole for Ethereum. In October, the common TPS achieved by outstanding rollups like Arbitrum and zkSync Period ranged from roughly 9.5 to 10, making them the closest in efficiency to the Ethereum community among the many rollup options obtainable. Rollups have collectively made vital contributions to scalability, surpassing the Ethereum mainnet by 321% in throughput, with a scalability issue of 4.21 in October.
Whereas rollups contribute to scalability, no particular person rollup presently surpasses Ethereum when it comes to throughput. In a bear market, attracting and retaining customers is difficult for each Layer 1 and Layer 2 networks. Constructing a affluent Layer 2 ecosystem requires not solely strong options but additionally high-traffic purposes. Moreover, the person expertise suffers because of the lack of seamless interplay between a number of Layer 2 options and between Layer 1 and Layer 2, for instance, necessitating pockets switching and incurring liquidity prices.
Value
The adoption of layer 2 networks has performed a vital function in decreasing community charges on Ethereum. By consolidating a number of off-chain transactions right into a single layer 1 transaction, Ethereum has witnessed a big decline in transaction charges.
In response to Footprint Analytics, the common transaction price in October 2023 for rollups was presently between 3% and 10% that of Ethereum.
Supply: Common Fuel Price
These figures underscore the rising reputation and utilization of Layer 2 networks, highlighting their potential to alleviate congestion and improve scalability on the Ethereum blockchain.
Improvements in Layer 2
Within the dynamic panorama of blockchain expertise, main Layer 2 options reminiscent of Optimism, zkSync, and Arbitrum are actively pursuing modern approaches to deal with persistent challenges whereas sustaining a give attention to interoperability. These outstanding gamers keep a speedy tempo of innovation, together with expertise and software, regularly striving to remain forward and retain their aggressive edge out there.
The Superchain, proposed throughout the Optimism ecosystem, is a community of rollup networks that share a standard codebase known as the OP Stack. This framework goals to determine an interoperable surroundings the place numerous layer 2 networks can talk and transact with one another, just like how the web permits communication between units. By offering horizontal scalability, the Superchain addresses challenges related to conventional multi-chain architectures. These challenges embody differentiated safety architectures amongst parallel chains, which may result in elevated systemic danger as extra chains are added, and the price of establishing new nodes for every extra chain.
Supply: Superchain – OP Stack Docs
In June 2023, zkSync launched “Hyperchains“, a novel community that operates as fractal-like cases of zkEVM. These Hyperchains run in parallel with a shared settlement on Layer 1, providing the flexibleness of functioning as Layer 2 networks alongside zkSync Period or as Layer 3 Validiums. Hyperchains throughout the zkSync ecosystem may be developed and deployed by anybody with out the necessity for permission. To make sure belief and seamless interoperability, every Hyperchain have to be powered by the identical zkEVM engine obtainable on the ZK Stack. GRVT, a hybrid crypto change combining centralized and decentralized change advantages, would be the first hyperchain within the zkSync ecosystem. Its closed alpha model is predicted to launch in November 2023, adopted by the mainnet launch in Q1 2024.
Supply: Structure – GRVT
Arbitrum Stylus, launched by Arbitrum in August 2023, permits good contract growth in a number of programming languages reminiscent of Rust, C, and C++ on their Layer 2 community. Along with Solidity, builders can now write good contracts in languages appropriate with WebAssembly (WASM). WASM permits working code from languages like Rust and C++ on the internet, and with Arbitrum Stylus, on the blockchain as effectively. Stylus introduces a second, co-equal digital machine that’s absolutely interoperable with the EVM, providing a brand new strategy to writing good contracts.
Narratives in Layer 2
Layer 2 itself has emerged as a outstanding narrative within the cryptocurrency area since 2022. Inside the realm of Layer 2, narratives have performed a big function in shaping public notion and subsequently influencing market actions. These narratives present insights into the way forward for Layer 2 and Ethereum as a complete.
- Absolutely on-chain video games. These video games make the most of the blockchain as a substitute for centralized recreation servers, incorporating each side of the sport on-chain, together with belongings, logic, state, and storage. Starknet and COMBO(stay on testnet presently) have positioned themselves as a outstanding supporter of absolutely on-chain video games throughout the realm of public chains.
- Modular blockchains. Initially, blockchains have been designed with a monolithic strategy, the place a single blockchain dealt with all duties. Nonetheless, the idea of modular blockchains emerged to focus on particular features slightly than making an attempt to cowl every little thing. Celestia is the primary modular blockchain community. It’s able to launch and unveiled the airdrop and launch plans in October 2023.
- Zero fuel price. Fuel charges have been a big hurdle for the mass adoption of Ethereum. To deal with this ache level, GasZero(stay on testnet presently) has emerged as a Layer 2 blockchain community that provides a novel answer: it prices zero fuel charges for trusted finish customers. On GasZero, customers can work together with decentralized networks and good contracts with out the necessity for any tokens prematurely of their wallets.
- Layer 3. The idea of “Layer 3” within the blockchain trade doesn’t have a broadly accepted definition in the intervening time. Vitalik Buterin, co-founder of Ethereum, believes that it’s untimely to determine definitive definitions as a result of the structure of the multi-rollup ecosystem remains to be evolving, and most discussions are theoretical in nature. Nonetheless, Buterin has shared three visions of what Layer 3s might doubtlessly characterize sooner or later.
- Layer 2 is for scaling, and Layer 3 is for custom-made performance, for instance, privateness.
- Layer 2 is for general-purpose scaling, and Layer 3 is for custom-made scaling.
- Layer 2 is for trustless scaling (rollups), and Layer 3 is for weakly trusted scaling (validiums).
Challenges Confronted by Layer 2
The rising reputation of cost-effective and environment friendly Layer 2 networks as alternate options to the congested Ethereum community has gained appreciable consideration. It’s essential to keep up a sturdy base layer whereas cautiously increasing sure elements of its capabilities. Inside the Ethereum neighborhood, the evolution of expertise and purposes is inspired, however sustaining a fragile steadiness between user-friendliness and the advantages of decentralization is of utmost significance, as emphasised by Vitalik Buterin through the Ethereum Hong Kong Hackathon in October 2023.
Layer 2 networks face 4 important challenges of their quest for scalability on Ethereum in accordance with Buterin.
- Proof system safety and decentralization. Validity (ZK) proofs and fraud proofs are employed to exhibit the legitimacy of transactions with out requiring processing on the primary Ethereum chain. Nonetheless, validity proofs face centralization issues as a result of their reliance on particular {hardware}.
- Sequencing decentralization. These sequencers confirm, order, and compress transactions for switch to Layer 1. Nonetheless, this centralized setup has drawn criticism for its potential as a single level of failure, censorship vulnerability, or susceptibility to shutdown by authorities.
- Cross-L2 wallets. They allow seamless interplay with a number of Layer 2 options with out the necessity for pockets switching.
- Knowledge availability. It refers to on-chain knowledge availability, the problem of storing a full copy of the blockchain knowledge to validate transactions. It’s price noting that options like Validiums and Optimiums aren’t sometimes categorized as Layer 2s as a result of they don’t publish knowledge on Layer 1. As an alternative, they introduce extra belief assumptions on high of Layer 1.
As well as, as we talked about earlier, no particular person Layer 2 presently surpasses Ethereum when it comes to throughput. It’s pressing to develop the ecosystem inside every community.
- Ecosystem and dApps. At present, Layer 2 networks host numerous protocols of their ecosystems, with nearly all of them being within the DeFi area. By bringing in phenomenal dApps, Layer 2 networks can broaden their ecosystem and entice extra customers, encouraging them to remain.
Ending Phrases
In conclusion, Layer 2 networks are propelling Ethereum one step nearer to mass adoption by successfully tackling the scalability and value challenges which have hindered its progress. These networks provide modern options that improve transaction throughput and cut back charges, making Ethereum extra accessible and inclusive for a wider viewers.
Moreover, past Ethereum’s Layer 2 networks, opBNB has emerged as BNB Chain’s response to the scalability problem. In September 2023, opBNB efficiently accomplished the general public launch of its mainnet. Certainly, the responses and future instructions of different public chains within the face of those challenges are equally tantalizing. The important thing emphasis stays on ecosystem growth and person attraction. The huge expanse of prospects stretches out earlier than us, as every chain embarks by itself distinctive path in direction of scalability and mass adoption.
