Decoding Layer 2 Blockchains

In our lives, we often come across some very beautiful people.

A radiant face, a healthy body and a glowing skin.

We marvel and wonder what’s the secret of such beauty.

Readers, the answer lies in a healthy lifestyle and a strict skincare routine.

There are layers of skincare components that work towards giving an ethereal glow to the skin.

Cleanser, toner, moisturiser, serum and sunscreen — each layer adds a level of protection and glow to your skin. 

Cheri, cheri lady 

Layers of foundation

You might be wondering whether you are reading a finance blog or a beauty blog 😄

But fret not.

Blockchain technology is something we are obsessed about and today, we are going to talk about layer-2 blockchain.

We have already written about layer-1 blockchains in detail in a previous blog.

If you haven't checked it out, we suggest you read it and then come back to this piece. 

Recommended Read: What Are Layer 1 Blockchains?

Coming back to blockchain technology, there is a significant development around building layers.

To tackle data congestion and slowing speeds, the developers introduced blockchain layers so that different functions of a project get distributed among different layers.

This way, a blockchain can manage to process a large volume of data swiftly and efficiently. 

So, what is a Layer-2 Blockchain?

We already know that a layer-1 blockchain is the foundational layer of a blockchain network.

So, what is a layer-2 (or L-2 as we will refer to it afterwards in the article) blockchain?

L-2 is a blockchain that is built on top of a L-1.

It improves the scalability and efficiency of the underlying blockchain, while accessing security from L-1 itself.

To understand it simply, let’s take the example of makeup.

At first, you apply primer and foundation to your face, and then you add other layers of makeup.

If the primer and foundation are applied properly, other layers naturally give a shine to your skin.

Similarly, if L-1 is efficient and secure enough, L-2 can ensure much-required scalability to the blockchain network.

While L-2 brings in scalability, it still depends on L-1 for security.

It means that all the data existing on L-2 is verified by the same set of nodes who verify L-1 transactions.

L-2s aim to resolve the blockchain trilemma according to which out of scalability, security and decentralisation, one needs to be sacrificed by a blockchain in order to grow on the other two fronts. 

In some ways, L-2s have indeed secured the goal.

How Does L-2 Blockchain Work?

As an L-2 blockchain is built on top of an L-1 blockchain, its functioning is split across two layers.

While its transactions get quickly processed on L-2, its smart contract exists on the underlying blockchain.

For each transaction to be verified, L-2 must offer a cryptographic proof to L-1.

Didn’t we mention above that the data on L-2 is verified by the same set of nodes who verify L-1 data?

This way, the burden of extra data on a blockchain is handled and taken care of by L-2.

Types of Layer-2

The main types of L-2 blockchain are:

• State Channel: A state channel is a type of L-2 that lets multiple parties execute transactions in such a way that there is no requirement to inform the whole blockchain network.

• Sidechain: A sidechain is a type of L-1 that allows for transfer of assets among different chains. However, several experts don’t really considered sidechain to be L-2 as it has a distinct smart contract than that of L-1.

   

• Nestled Blockchain: A nestled blockchain is a type of L-1 that is made up of a main chain and other complementary chains. While the main one takes care of task delegation and resolution, the other ones take care of executing transactions.

   

• Rollup: A rollup is a type of L-2 that allows for transactions to be processed outside the main blockchain. 
  It allows for faster processing of transactions at economical costs. 
  The two types of rollups are Optimistic rollups and Zero Knowledge rollups (ZK-Rollups).
   

Layer 1 vs. Layer 2

Why is L-2 Blockchain Important?

It is crucial for a blockchain network to become popular among emerging Web3 projects. For this purpose, it needs to work on enhancing its efficiency, speed and capability.

This is where L-2 comes in.

It steps in to take care of a load of data so that L-1 can take care of more important stuff.

With L-2 taking care of transactions, L-1 can focus on the main ethos of blockchain technology such as decentralisation, scalability and security.

Let us look at the key benefits offered by L-2s:

• L-2 solutions enable the processing of a large number of transactions quickly at economical rates.
• L-2s decongest the blockchain network by taking care of a huge load of data.

L-1 and L-2 therefore complement each other and strengthen the blockchain network, making way for more and more projects to onboard a network.

L-2 blockchains are helping blockchains execute programmes quickly and efficiently. Though an early-stage development, L-2s are bound to grow in use across the Web3 ecosystem.

It is recommended for you to stay informed about L-2 blockchains as several crucial cryptocurrencies are blockchain projects built on L-2 protocols.

You can now well understand how important an L-2 is in the realm of blockchain technology. Keeping yourself informed about it can help you make well-informed trading decisions.

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