Since the network's inception, one of the most widely discussed subjects has been Ethereum scaling. After a time of significant network congestion, the scaling argument always heats up. One of the earliest instances of this occurred during the 2017 crypto bull market, when infamous CryptoKitties and ICOs were able to jam up the whole Ethereum network, resulting in a significant increase in gas fees.
Because of the popularity of DeFi and yield farming, network congestion increased even more in 2020. There were times when even high gas fees of 500 Gwei or more would not have your transaction validated for a long time. Scaling Ethereum or bockchains in general may be accomplished in two ways: scaling the base layer (Layer 1) or scaling the network by delegating some of the work to another layer (Layer 2).
Layer 1 is our consensus layer, which is where almost all transactions are now finalized. Layers are a notion that isn't exclusive to Ethereum. Other Blockchains, such as Bitcoin, make considerable use of it.
Layer 2 is an additional layer that sits on top of Layer 1. There are a few key points to be made here. Layer 2 does not necessitate any changes to Layer 1, since it may simply be constructed on top of it utilizing existing pieces like smart contracts. Layer 2 takes use of Layer 1's security by anchoring its state in Layer 1.
On its base layer, Ethereum can presently handle roughly 15 transactions per second. The number of transactions may be substantially increased by using Layer 2 scaling. We're talking about processing between 2,000 and 4,000 transactions per second, depending on the solution. So, what about Ethereum 2.0?
Proof of Stake and sharding are included in Ethereum 2.0, which will greatly enhance transaction throughput on the base layer. It doesn't imply that when Ethereum 2.0 is released, we won't require Layer 2 scaling since, even with sharding, Ethereum will need Layer 2 scaling in the future to process hundreds of thousands or perhaps millions of transactions per second. This is also where the well-known Scalability Trilemma enters the picture. In principle, we could just ignore Layer 2 and concentrate on scaling the base layer instead. To accommodate the increasing traffic, more specialized nodes would be required, resulting in increasing centralization and, as a result, a decrease in network security and censorship resistance.
Layer 2 scaling refers to a group of technologies that assist increase Layer 1's capabilities by managing transactions off-chain. Transaction speed and transaction throughput are the two key qualities that may be increased. Furthermore, Layer 2 solutions can significantly minimize gas fees. When it comes to real scaling solutions, there are a variety of choices available right now that can boost Ethereum network throughput in the short to medium term, while others are aimed at the medium to long term. Some scaling solutions, such as payment channels, are application specific. Optimistic roll-ups, for example, can be utilized for any arbitrary contract execution. Let's look at some of the most prominent Layer 2 scaling solutions to better understand these distinctions.
One of the first extensively mentioned scaling solutions is channels. They allow users to trade transactions many times off-chain while only sending two transactions to the base layer. State channels and its subtype payments channels are the most common types of channels. Although channels have the ability to execute thousands of transactions per second, they have a significant disadvantage. They don't allow open participation; participants must be identified ahead of time, and users must lock their funds in a multisig contract. Furthermore, this scaling solution is application-specific and cannot be utilized to scale smart contracts in general. Raiden is the primary Ethereum project that makes use of state channels. Bitcoin's Lightning network makes considerable use of the idea of payment channels.
Joseph Poon and Vitalik Buterin first suggested Plasma as a Layer 2 scaling solution. It's an Ethereum framework for creating scalable applications. Plasma makes use of Merkle trees and smart contracts to allow for the production of an infinite number of child chains, or replicas of the parent Ethereum blockchain. Transactions from the main chain are offloaded into child chains, allowing for quick and inexpensive transactions. One of Plasma's disadvantages is that users who want to withdraw funds from Layer 2 must wait a long time. Plasma, like channels, can't be utilized to scale smart contracts for general use. The OMG network is based on MoreViable Plasma, which is their own Plasma implementation. Another platform that uses an altered version of the Plasma framework is the MATIC network.
Sidechains are Ethereum-compatible blockchains that have their own consensus models and block parameters. The use of the same Ethereum Virtual Machine allows for interoperability with Ethereum, allowing contracts deployed to the Ethereum base layer to be deployed straight to the sidechain. A good example of a sidechain is xDAI.
Scalability is achieved by combining or rolling-up sidechain transactions into a single transaction and creating a cryptographic proof, commonly known as a SNARK. The base layer receives only this proof. All transaction state and execution are handled in sidechains using rollups. Only transaction data is stored on the main Ethereum chain. ZK Rollups and Optimistic Rollups are the two varieties of rollups.
Although quicker and more efficient than optimistic rollups, ZK rollups do not give an easy way to move current smart contracts to Layer 2. Optimistic rollups use OVM, an EVM compatible Virtual Machine that allows smart contracts to be performed in the same way they are on Ethereum. This is critical because it makes it simpler for current smart contracts to maintain their composability, which is especially crucial in DeFi because all of the big smart contracts have already been battle tested.
Despite the availability of a variety of Layer 3 scaling options, it appears that the Ethereum community is settling on a strategy of primarily scaling through rollups and Ethereum 2.0 phase one data sharding. This strategy was also confirmed in Vitalik Buterin's latest post, which he named a "roll-up centric Ethereum roadmap."
