Ethereum is one of the most widely known blockchain networks, and has been making waves in the cryptocurrency space for several years. With the rise of decentralized finance (DeFi), Ethereum has become a key player in enabling this new paradigm of financial systems. However, as the network grows, it faces challenges in terms of scalability and transaction fees. This is where Ethereum Layer 2 (L2) solutions come in to play. In this blog post, we will explore the difference between Ethereum Layer 1 (L1) and Layer 2 (L2), and how they work together to create a better user experience on the Ethereum network.
Ethereum Layer 1 (L1)
Ethereum Layer 1 (L1) refers to the main Ethereum blockchain, which is the base layer upon which all other Ethereum-based systems operate. This is where all transactions on the network are processed and recorded, and where the Ethereum Virtual Machine (EVM) executes smart contracts. Ethereum L1 is a public blockchain, meaning that anyone can access it and participate in its network by running a node.
One of the main benefits of Ethereum L1 is its security. The network uses a consensus algorithm called Proof-of-Work (PoW) to secure its transactions, making it extremely difficult for any one entity to control the network. However, this level of security comes at a cost: scalability. As more users join the network, the number of transactions that can be processed per second becomes limited, resulting in high transaction fees and slow transaction times.
Ethereum Layer 2 (L2)
Ethereum Layer 2 (L2) refers to solutions built on top of Ethereum L1 to improve its scalability and user experience. These solutions are designed to alleviate the congestion on the main Ethereum network by moving transactions off-chain, and settling them in batches on the main blockchain. This reduces the amount of data that needs to be processed on the main Ethereum network, resulting in faster and cheaper transactions.
There are several types of Ethereum L2 solutions, including state channels, sidechains, and rollups. Each solution has its own unique characteristics and trade-offs, but they all share a common goal: to provide users with a better experience on the Ethereum network.
State Channels
State channels are a type of L2 solution that allow users to transact with each other off-chain, and settle their transactions in a single batch on the main Ethereum blockchain. State channels are like a two-party escrow system, where users can exchange assets with each other without having to broadcast each transaction to the main Ethereum network. This results in faster and cheaper transactions, since they are settled off-chain.
Sidechains
Sidechains are a type of L2 solution that run parallel to the main Ethereum blockchain, and allow users to transact with each other on a separate chain. Sidechains are like their own mini-blockchains, with their own rules and consensus mechanisms. Users can move assets between the main Ethereum blockchain and a sidechain, and then settle their transactions in batches on the main Ethereum network. This allows for faster and cheaper transactions, while still maintaining a level of security and decentralization.
Rollups are a type of L2 solution that bundle multiple transactions together into a single transaction, which is then settled on the main Ethereum blockchain. Rollups can either be optimistic or zk-rollups. Optimistic rollups rely on the assumption that most transactions are valid, and only require an on-chain transaction if there is a dispute. zk-rollups use zero-knowledge proofs to validate transactions, which allows for more complex smart contracts to be executed off-chain. Both types of rollups provide a significant improvement in transaction speed and cost.
Ethereum L1 and L2 solutions work together to provide a better user experience on the Ethereum network. While Ethereum L1 provides a high level of security and decentralization, it has its limitations in terms of scalability and transaction fees. Ethereum L2 solutions offer a way to alleviate these issues by moving transactions off-chain and settling them in batches on the main Ethereum blockchain. This results in faster and cheaper transactions, while still maintaining a level of security and decentralization.
As the Ethereum network continues to grow, the importance of L2 solutions will only become more apparent. With more users and applications joining the network, the demand for fast and affordable transactions will only increase. This is why developers are working on new and innovative L2 solutions, such as Optimism, Arbitrum, and zkSync, to further improve the scalability and usability of the Ethereum network.
Overall, Ethereum L1 and L2 solutions work together to provide a robust and decentralized platform for the development of decentralized applications and the execution of smart contracts. By understanding the differences between L1 and L2, and how they work together, users and developers can make informed decisions about how to best utilize the Ethereum network to achieve their goals.
Sources and other useful links:
https://blog.1inch.io/diving-into-blockchain-layers-l1-and-l2/
https://creatoreconomy.so/p/curious-beginner-guide-to-l2-and-l1-chains
https://dailyhodl.com/2021/07/29/decrypting-the-vast-world-of-ethereum-layer-1-layer-2-and-beyond/
https://cointelegraph.com/learn/a-beginners-guide-on-blockchain-layer-2-scaling-solutions
https://ethereum.org/en/layer-2/
Let’s be friends!
https://www.twitter.com/ANMARGO_
Medium: https://www.medium.com/@yesha.jerina
