Layer 2 What Is It and Why Does Blockchain Need It?

Current Ethereum Congestion Issues

Ethereum is the leading platform with the most diverse smart contracts and DApps, and the highest transaction volume in the market. However, this explosive growth also presents a major challenge: the network is becoming increasingly overloaded. Even during quiet market periods, users still face high gas fees and network congestion, significantly reducing transaction experience. This is why the cryptocurrency community is seeking scalability solutions.

What is Layer 2? Basic Concepts

To address scalability issues, the community has developed two main approaches: on-chain improvements (Layer 1) and off-chain solutions (Layer 2).

Layer 1, also known as ETH 2.0, involves direct upgrades to the base blockchain. It uses technology transitioning from POW to POS and sharding mechanisms, allowing nodes to process data more efficiently without storing the entire chain data. However, this approach requires a long deployment timeline, and currently, there is no clear roadmap.

Layer 2 is a completely different method. Instead of modifying the main blockchain, layer 2 operates as a parallel processing layer outside the main chain. Transactions are processed off-chain, but the final results are verified and stored on the main blockchain. This approach enables rapid processing of large volumes of transactions at much lower costs.

If Ethereum is compared to a highway, as traffic increases, it becomes more congested. Layer 2 is like building “overpasses” on this road, helping to divert traffic and enhance the overall system capacity.

Main Technical Approaches of Layer 2

State Channel: State Channel

This model works similarly to Bitcoin’s Lightning Network. Two parties create a private channel on the chain to exchange funds; after completing all necessary transactions, only the final result is submitted to the main blockchain.

Raiden Network is the first State Channel project on Ethereum. However, this solution has many limitations—it requires both parties to have long-term transaction needs, so it has not been widely adopted and remains stalled.

Plasma: Independent Side Chain

Plasma is one of the earliest solutions proposed by Vitalik Buterin. It functions as an independent side chain, but periodically submits hash data of processed blocks to a contract on the main chain for verification. This allows hundreds or thousands of transactions to be processed simultaneously, while only a few dozen bytes of data need to be stored on the root chain.

However, Plasma has a significant weakness: it relies on the assumption that Plasma nodes are honest and always submit accurate data. To protect users from risks, they must wait 7 to 14 days before withdrawing funds, creating a major challenge for practical adoption.

Rollups: The Hottest Solution Today

Rollups are considered the most promising layer 2 method and are widely supported by the community. Some argue that the success of Rollups will directly determine the sustainable future of Ethereum.

Unlike Plasma, Rollups record detailed data of every transaction (sender, receiver, amount) on Layer 1, providing higher security. To achieve scalability, Rollups use data compression techniques. Instead of storing full transaction information, they record only essential elements using tree structures in contracts. As a result, original data over 100 bytes is reduced to 10 bytes when transmitted to the main chain.

To ensure data consistency, two technical approaches have developed from Rollups:

Optimistic Rollup: Based on the “optimistic” assumption that all uploaded data is accurate and free of fraud. If an issue is detected, users can challenge it, but must wait about a week to withdraw funds. This approach is quite similar to Plasma.

ZK Rollup: Uses zero-knowledge proof technology, allowing smart contracts to verify data accuracy through mathematical proofs. The advantage is that users can withdraw funds quickly without waiting for challenges. However, generating zk proofs requires very powerful computational resources.

zkSync is a project applying ZK rollup, currently being deployed on the Ethereum mainnet.

The Future of Layer 2

Rollups are emerging as the leading solution for layer 2 scalability issues. More and more new layer 2 projects are being launched, including the development of cross-chain bridges to connect different blockchains.

It is important to remember that layer 1 and layer 2 are not mutually exclusive solutions. Instead, they complement each other, combining their respective advantages to enhance processing capacity and overall performance of the Ethereum network.