What is Layer2 Blockchain?
Layer 2 blockchains are the Scalability solution for the layer 1 blockchain. As when it comes to the blockchain, the only thing we got first is Security, Decentralization and Scalability. But unfortunately, we can achieve any two of them on a single blockchain as per the solution to this problem, the Layer 2 blockchain concept works.
The Layer 2 blockchain is actually an additional layer on the primary blockchain which uses the security and decentralization of the layer 1 chain and scalability of the layer 2 chain to increase throughput. In simple words, the solution to problems faced on the main chain or layer 1 is fixed on the layer 2 blockchain.
Why do we need Layer 2?
Let's understand this with an example. In real life, we go to a store where we buy something and then pay cash at the counter. In the early morning, there are a small number of customers, our transactions flow faster. What if we visit the store in the middle of the day? There are a small number of customers and just a few cash counters, it will take time to process the customer's transactions. The same case is with Layer1.
If the chain is busy you need to wait and pay more in fees, but what if the transaction is processed in a separate department that manages only the number of transactions and speed of processing? That will reduce the cost of the transaction as well as the time taken in processing. This is what we call layer 2 or scalability transaction.
Actually, Layer2 is the primary need for decentralized trading. In decentralized trading, we release and accept funds after confirming the transaction, which means for 1 trade, first we need to release funds there. The blockchain is going to cost us fees, and then after moving funds from the wallet, we need to swap funds.
There are also small fees charged by the DEX, so imagine only buying some assets for the trading is costing 2 times the fees and if layer1 blockchain is busy it is going to cost us 50$+ fees, latest example is ETH DEXs. Actually, there is an essential need for Layer2 for small transactions and daily traders to reduce the gas fees charged by the blockchain.
Layer2 vs Layer1?
Layer2 is the solution to the layer1 scalability problem and layer2 is different from layer 1 due to the increased throughput but actually not much different from layer 1. Because layer 2 still uses the Decentralization and Security of Layer1. Let’s learn from a simple question: does layer 2 exist without layer1? The answer is the explanation of everything as No, layer 2 is nothing more than the extension of layer 1.
Layer 1 is Decentralized and Secure. On the other hand, Layer 2 is scalable and responsive and provides the user with attractive features such as low transaction fees and faster transfers.
L1 projects such as Bitcoin, and ETH are based on the POW transaction system, whereas the L2 or Scalability Solution projects are based on the POS transaction system. The POW on L1 provides the Decentralization and security on the network, whereas the L2 POS provides the Scalability and cheap transactions as Matic.
L1 Scalability Solutions of Layer 2:
L1 scalability solutions or L2 projects are alternatives for users to avoid high and slow transactions. As ETH is the L1 Network, for this reason, the developed ecosystem of ETH causes high traffic and gas fees, which is too annoying for the users, especially for small transactions.
Scalability Solution projects such as Matic or SOL provide more effective results in faster transaction processing and lower transfer fees due to their TPS volume. And Polygon or L2 projects on the ETH projects Optimism, Boba network are far more preferred for the cheap transaction and in the early time of 2021 to 2022 Q2.
Roll-Ups:
Roll Ups are the smart contracts that serve as the transaction processing agents outside the main chain. Roll-ups execute the transaction on the second level layer to increase the scalability.
To understand roll-ups, let’s take an example. Roll-ups serve as relays to connect both layers. If the main layer is capable of 20 TPS, the rollups on layer2 are able to provide a TPS of 1000 or as much as you need. This is what we call the increased scalability solution.
Examples of Rollups on the ETH Chain are the ZkRollup & OptimisticRollup.
Layer1 to Layer2 Switch
After understanding all the things, there comes a basic question: how can we transfer funds from one layer to another layer? Blockchain Bridges are used to transfer funds from layer to layer bridges. The switch of funds or digital assets from network to network is the basic need of the users to enjoy the solution features and, for that, a smart bridge works in processing and transferring funds from one network to another.
Blockchain Bridges
Bridges on Blockchain are the same bridges in the real world to move on from one point to another in a similar way. Blockchain bridges use the same formulae to transfer digital assets from one layer to another layer or from one blockchain to another as well.
Actually, on the bridge, when we move from one chain to another chain or from one layer to another layer, the bridge holds the funds of the chain or layer the user is transferring and provides the equivalent funds of the other chain or layer to the users and vice versa.
There are two types of bridges over here. One is called trustless and the other is trust-based bridge. As Trustless Bridges are decentralized DAO / Smart Contract, based bridges where the custody of the bridge is independent, such as the Arbitarium Bridge and Optimistic Gateway, are Decentralized bridges on ETH. On other hand, the Trust-based bridges are those where the funds or transfer custody is under the control of specific organizations such as Binance Bridge is under the control of the Binance Exchange.
Layer 2 Features
Layer 2 on any blockchain is more scalable and more efficient in the transaction processing speed. Layer2 greatly reduces the network fee for blockchain use, which attracts investors and users to move on to layer2 for better services.
Layer2 is cheaper and more efficient in faster transactions as compared to the base or main blockchain. Layer2 is capable of more transaction processing as compared to Layer 1, which allows users to have faster communication with the blockchain. In Decentralized Finance, Layer2 plays an important role in accessing Defi services.
How layer2 Transaction fees are Low?
As explained above, the layer works with the roll-ups to increase the scalability of the main chain when a user uses layer2. The TPS on layer2 is far more than the main chain, which reduces the traffic load and provides low transaction fees.
Layer 2 Projects on ETH
Thorium is one of the most developed ecosystems in terms of decentralized finance and services. This dominance led ETH to being the busiest and most expensive chain for users. The ETH layer2 solution was introduced in 2021 with the proper launch. There was a great need for these projects to utilize the ETH network ecosystem cheaply.
Arbitarium
Arbitarium is the optimistic rollup which is the scalability solution project for the ETH. Arbitarium uses ETH network security and decentralization but the scalability of the L2. Arbitarium provides faster transactions and lower fees for network utilization by users.
The Arbitrium's ecosystem is far more wide and rich as NFT marketplaces, Swapping, DAOs, NFT Tools, and Yields Optimization
OP
Optimism is the Faster, More Secure, and Cheapest L2 Scalability solution for the ETH based on the EVM, partially equivalent to the optimistic rollups. The Optimism L2 ecosystem is based on the Optimism Bridge and major popular DEXs and bridges on ETH such as the Uniswap and Hope.
Boba Network
Boba network is an L2 Scaling project that offers faster transfers compared to the L1 and is much cheaper for the instant. For example, it provides 1000X, and lower transaction fees, like lightning-fast transaction speed.
Conclusion
According to my point, L2 is a better option for regular users' transactions as to avoid higher transaction or communication fees. But there are drawbacks to the L1 to L2 switch of funds as this is only done by, the bridges and bridges are the riskiest places to move, as funds may get compromised by hacking attacks due to an un-secure environment, as data is moving from one layer to another layer, so here the hackers try to find bugs to vanish user funds. Except
For the Bridges, Drawback L2 is actually more useful for the regular use of blockchain as it reduces the cost of usage.
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