Layer 1 vs Layer 2 Blockchains
Layer 1 is the fundamental part of blockchain architecture. For instance, BTC, ETH, and LTC are some layer 1 solutions. Layer 2 on the other hand is a network that is on top of the fundamental blockchain architecture. Layer 1 is the native blockchain for performance, while layer 2 is the third-party protocol that integrates with layer 1 to increase transaction throughput.
Layer 1 settles the transactions on itself.
Layer 2 settles transactions on another chain.
Here are four layer 2 scaling solutions:
Nested blockchains(Plasma) are a blockchain built on top of a layer 1 blockchain. The layer 1 blockchain sets the main parameters, while the nested blockchain takes the processing burden off of the main chain. This has a parent-child relationship. Which can be infinite, creating a tree/merkle tree.
Example: OMG Network
State channels are a two way communication between a blockchain and off-chain transactional channels, to improve speed and transaction capacity. The off-chain is not based on any validation by the nodes of the layer 1 network. It is based on multi-sig or smart contracts. When transactions are completed, the final state of the channel is then recorded to the layer 1 blockchain.
Examples are: Celer Network
Sidechains are blockchain adjacent transactional chains that are used for large batch transactions. They operate independently and in parallel to the ethereum mainnet. Sidechains transactions are public to participants, and a breach on one side chain does not affect any other sidechain or the mainchain.
Examples are: Polygon
Rollups are scaling solutions that execute transactions outside of layer 1 and then post the transactions on it. Transactions are broken down into two parts, data and execution. When a transaction is posted on the blockchain, it rollups execute the transaction on layer 2, then posts the transaction data on layer 1. There are two different security models, optimistic rollups (OR) and zero-knowledge rollups (ZKR). Which is explained later…
OR Examples are: Arbitrum, Boba Network
ZKR Examples are: Loopring, ZKsync, Immutable X
The Scalability Trilemma
The three corners of the triangle are:
Scalability — the chain can process more transactions than a singular node can verify
Decentralization — the chain can run without any trust
Security — the chain can resist a large percentage of participating nodes trying to attack it (ex: 51% attack)
The three ‘easy solutions’ are:
Traditional blockchains — every participant has to run a full node that verifies every transaction. This is secure and decentralized, but not scalable
High-TPS chains — small number of nodes (10–100), maintaining consensus, with users trusting the majority. This is scalable and secure, but not decentralized.
Multi-chain ecosystems — ‘scaling out’ by having different chains and using cross-chain-communication protocols to communicate between them. This is decentralized and scalable, but not secure.
Sharding gets you all three: by processing more transactions through scalability, having no dependencies to super nodes through decentralization, and by not storing all the information on a single node through security.
