With the increasing number of users, Ethereum is facing issues such as slow transaction speed, high transaction fees, and deteriorating user experience. Layer2 is an effective scaling solution. This article will introduce the principles and popular projects of L2, as well as the challenges it faces.
Table of Contents:
What is L2?
Scaling Solutions
Popular L2 Projects
1. Arbitrum
2. OP Mainnet
3. Base
4. Blast
5. Mantle
Challenges for L2
User Experience
Security and Decentralization
Bitcoin Layer2
The impact of the Cancun upgrade on L2
ZK-Rollup v. Optimistic Rollup
The blockchain world has always faced the “impossible triangle” problem, where it is difficult to achieve decentralization, security, and scalability on a single blockchain. Taking Ethereum as an example, although it has achieved relatively good decentralization and security, with the growing number of users, issues such as slow transaction speed, high transaction fees, and deteriorating user experience have emerged.
In this context, Layer2 emerged as a solution to improve scalability, low TPS (transactions per second), and inefficient operations on Ethereum. It is seen as the mainstream solution for large-scale blockchain network applications.
To improve the scalability of the public chain, there are two approaches: scaling the mainnet itself (Layer1) and expanding some of the work to Layer2.
L1: Scaling the mainnet itself is called “on-chain scaling solution.” It mainly increases the transaction capacity of the blockchain itself to achieve scalability.
L2: Refers to the second-layer network outside the Ethereum mainnet, which is a scaling solution for Ethereum. It is like building a “bridge” on the Ethereum mainnet to solve the congestion and high transaction fees issues.
The drawback of L1 on-chain scaling solutions is that they need to continuously meet higher performance requirements, leading to endless development. On the other hand, L2 can effectively address current issues.
L2 is a general term for a series of off-chain scalability solutions, mainly referring to Ethereum L2. L2 processes data by reducing the burden on the base layer (ETH mainnet) and transferring some data processing from the main chain to L2, thereby enhancing the scalability of the entire network.
In the past, there have been proposed L2 scaling solutions such as sidechains, state channels, and Plasma, but these solutions failed to meet market demands in the context of the DeFi boom. Rollup has become the most promising solution so far (Rollups work by calculating a large number of transactions off-chain, then batch them into one batch transaction and send them back to Ethereum).
Currently, Rollups mainly fall into two types: Optimistic Rollup and ZK-Rollup. These two solutions have gained support from the majority of users in the current market. Below are descriptions of the current popular Layer2 projects.
According to L2beat data, the top five Layer2 projects ranked by TVL (Total Value Locked) are shown in the figure below. Here is a brief introduction to these projects.
Arbitrum is an Ethereum L2 scaling solution based on Optimistic Rollup technology. It was created by Offchain Labs, a team of well-known blockchain researchers and software engineers, in 2021. It aims to solve the congestion and high gas fee issues on Ethereum.
Among all L2 solutions, Arbitrum was the first to go live on the mainnet, giving it a certain advantage. Additionally, Arbitrum is nearly 100% compatible with Ethereum’s EVM, allowing applications on the Ethereum network to seamlessly migrate to L2. When it went live, 74 projects, including Uniswap V3, were deployed on Arbitrum.
In October 2022, Optimism launched OP Stack, an open-source development stack that supports the OP mainnet. It introduces the concept of superchains, a set of L2 blockchains (OP chains) built on top of OP Stack. This stack aims to simplify the process of building L2 blockchains and consists of various code libraries that can be used to create highly customizable L2 blockchains.
Base is a Layer 2 solution based on OP Stack launched by Coinbase. It aims to provide an ideal blockchain development environment for developers. Base is closely integrated with Ethereum, relying on its security and benefiting from Coinbase’s support and optimization practices, ensuring that users can switch freely and securely between Coinbase, Ethereum L1, and other interoperable blockchains. Base plans to become a decentralized and permissionless Layer 2 chain to promote the development of the crypto field.
Blast is an L2 project based on OP Stack, launched by the founder of Blur, Pacman, on November 21, 2023. Users can deposit Ethereum into Blast to earn staking rewards and additional points, which will be prepared for subsequent token distributions. Blast aims to solve the high gas fee issue on Ethereum and the fund deposition problem of Blur Bid.
Mantle is a new modular Layer 2 network designed to enhance the scalability of Ethereum while maintaining a high level of decentralization and strong security. The modular design of Mantle has the potential to change the game rules of the Layer 2 race. By separating the three key layers to allow independent optimization, this design makes the network more flexible and improves scalability without compromising security or decentralization. One of Mantle’s highlights is its focus on improving user experience, especially in the field of blockchain games and GameFi. With its high scalability, lower transaction costs, and faster transaction speed, Mantle is expected to completely change the landscape of GameFi.
Optimistic Rollup requires users to wait for 7 days to withdraw funds from L1 to L2, which may result in a poor user experience. On the other hand, ZK-Rollup networks can process withdrawals immediately, but they are still in the early stages of development and are often more prone to crashes than older L2 networks with longer usage time. Additionally, the fees are higher compared to the OP system. However, the Metis team is building a “hybrid” L2 network, allowing users to choose between an instant ZK network or a 7-day waiting period for Optimistic Rollup.
The complexity of L2 technology may introduce new security vulnerabilities that attackers can exploit. Furthermore, L2 challenges the core principles of decentralization and trustlessness in transaction execution. Although L2 solutions are becoming increasingly popular due to their improved scalability, they often sacrifice decentralization to some extent by adopting centralized sequencer nodes for transaction processing, which raises concerns about potential censorship or human intervention.
Deep Dive: What can we learn from Ethereum L2 for the next step of Bitcoin Layer2?
During the gaming frenzy, the transfer fees of Bitcoin will increase rapidly, affecting the normal transfers of Bitcoin. Moreover, if there are more application scenarios, it will further cause network congestion and long-term high miner fees. As a result, the gaming frenzy quickly spread to the Bitcoin scaling track, opening up another hot track – Bitcoin Layer2.
The Bitcoin Layer2 projects are flourishing, and among them, “Mezo” completed a $21 million Series A financing on April 9, adopting HODL Proof as the consensus mechanism.
Bitcoin Layer2 projects have a variety of options, and “Mezo” is one of them. It completed a $21 million Series A financing on April 9 and uses HODL Proof as the consensus mechanism.
Bitcoin Layer2 projects are diverse, and there are many options such as Optimistic, Arbitrum, zkSync, etc. The gas fees of these projects have become relatively cheaper compared to Ethereum L2, but there is still a gap to the ultimate goal. This article will briefly analyze their differences, their respective advantages and disadvantages, and the reasons why zkSync’s gas fees are still relatively high.
Although Vitalik has long recognized that zkEVM Rollup is the future, Optimistic Rollup is still the absolute mainstay of the current Rollup ecosystem, with an 80% market share in Layer2 and occupying half of the top ten Layer2 solutions.
Optimism is preparing for the future, and Bedrock is the foundation of the future. It is not about building the best Optimistic Rollup or the best ZK Rollup, but about building the best Rollup. We don’t just say it; we designed it from the beginning.
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After the Cancun upgrade: What are the performance bottlenecks for Rollups?
Base founder Jesse Pollak also explained why gas fees for Base increased instead of decreasing after the Cancun upgrade. He stated that EIP-4844 has significantly reduced DA costs at the Layer1 level, and gas fees should have decreased. However, due to the more than fivefold increase in network transaction demand and the 250 gas/s limit on the blocks above the Base network, the demand exceeds the supply, resulting in increased gas fees.
After the Cancun upgrade, the Blob is mainly used to reduce the cost of data storage on L2 (data storage costs previously accounted for over 90% of gas consumption in L2 transactions), thus reducing gas fees for Ethereum L2. Its impact on gas fees on the Ethereum mainnet is relatively small, which has led to great optimism in the market regarding the future development of L2 networks such as Optimism and Arbitrum.
ZK-rollup and Optimistic-rollup: A comparative analysis of their advantages and disadvantages, and the reasons why zkSync gas fees are still relatively high.
Although gas fees for L2 tracks such as Optimistic, Arbitrum, zkSync, etc., have become relatively cheap compared to Ethereum, there is still a considerable gap to the ultimate goal. This article will briefly analyze their differences, their respective advantages and disadvantages, and the reasons why zkSync’s gas fees are still relatively high.
Layer2: OP or ZK? We still need to pay attention to the second-generation Optimistic Rollup.
Although Vitalik has long recognized that zkEVM Rollup is the future, Optimistic Rollup is still the absolute mainstay of the current Rollup ecosystem, with an 80% market share in Layer2 and occupying half of the top ten Layer2 solutions.
Optimism’s core developer: The Bedrock upgrade makes seamless transition between Optimistic and ZK possible.
Optimism is preparing for the future, and Bedrock is the foundation of the future. This is not about building the best Optimistic Rollup or the best ZK Rollup, but about building the best Rollup. We didn’t just say it, we designed it from the beginning.