The miles traveled by Ethereum’s advancements over the years after its debut in 2013 is undeniable. It is a lovable investment both as a blockchain and as a cryptocurrency. Holding the keys that opened the doors to smart contracts in the crypto world, Ethereum still holds tremendous importance in the growth of digital currencies.
However, his overall progress is not without flaws. It also supports decentralized finance (DeFi), non-fungible tokens and governance tokens, which are gaining traction, constantly causing congestion on the main network. This factor causes massive scalability issues within the network, contributing to rising gas costs during transactions.
It is now important for each “revolutionary” DeFi solution to have a governance mechanism. One of those solutions shaping the future of the DeFi industry is YFDAI Finance. In order to become the most comprehensive DeFi ecosystem in the industry, YFDAI has launched its own decentralized exchange, SafeSwap.
In itself, this is a big discard for investors who cannot afford the high gas costs. How then will the network fight these obstacles that could lead to the unpopular opinion regarding Ethereum?
Likely Ethereum Network Scaling Solutions
Ethereum developers have two options for scaling Ethereum: Layer 1 solutions and Layer 2 solutions. Layer 1 scaling solutions involve changing the functionality of the base layer to improve its capabilities. performance. Suggestively, the network would limit transaction verification to fewer nodes with more mechanical power. Nevertheless, it does not hold the best result as it would sacrifice decentralization and security on the network.
This is where Layer 2 solutions come in, being protocols built above the base layer to offload the main network. The best proposed solution after Ethereum’s advancement from PoW consensus to PoS consensus would be sharding. Nonetheless, it is far from being deployed, which requires more immediate responses to the urgent problem of scaling the protocol.
That being said, here are four Layer 2 scalability solutions that every investor should be interested in:
Rollups are Layer 2 scaling solutions that allow you to transact outside the Ethereum network, compress data into a single batch, and publish it to the base layer. They depend on the security of the main network, which makes the parent chain and the rollup co-dependent.
Although transaction execution is off-chain, transaction data remains on the parent chain. In addition, a smart contract on the main network ensures that all implementations of the rollup are valid. Rollup participants must stake a bond, cut from a fraudulent or invalid submission package to the main chain.
The security measures taken to create proof of transactions are what branches group into two; optimistic rollups and zk rollups.
Optimistic rollups submit transactions to the parent chain, assuming they are valid. However, they do a calculation in the event that a participant disputes the validity of the submitted lot through proof of fraud. It is managed by state data on the blockchain which increases the confirmation period which is a downside.
The protocol reduces a fraudulent participant’s bond while reimbursing their gasoline costs for reporting fraud. Optimistic stacks support all actions that can run on the mainchain because they are compatible with EVM and solidity.
ZK rollups depend on zero-knowledge evidence to maintain the validity of the rollup transactions. They generate a cryptographic proof (SNARK), which is a proof of validity submitted to layer 1. This means that the computation runs off-chain, which makes the process faster compared to optimistic rollups. The downside is that ZK rollups do not support EVMs and require computation intensive to generate proofs of validity.
Sidechains are independent chains connected to a parent blockchain via a two-way anchor. This means that users can move their asset transactions to a different chain, relieving the pressure on the parent chain. In addition, a user can transfer the assets to the primary chain if necessary. In particular, the security and consensus mechanisms of the side chains are independent of the main chain. Smart contracts allow side chains to communicate with the parent chain, thus initiating interoperability.
Vitalik Buterin and Joseph Poon proposed this Layer 2 solution in an article, explaining it as a protocol for creating scalable solutions. Plasma allows the construction of child chains of Ethereum’s main chain, standing as its copies.
Each child channel plays an individual role while coexisting with the others. It combines the use of smart contracts and Merkle trees, with each child channel having the option of having smaller copies built on them. They differ from sidechains in that they are used exclusively for the storage of funds.
The secondary chains communicate with the parent chain in the event of a dispute. Evidence of fraud allows users to report suspicious transactions, reporting said nodes to the parent chain. During a withdrawal, the event enters a difficult period where participants of the child channel argue if they suspect a fraudulent exit. The transaction is completed or canceled depending on its validity.
State channels conduct off-chain interactions, which otherwise would have been on the main chain. Simply put, a number of participants lock a blockchain state into a multisig contract or smart contract. Depending on the transaction between the participants, they exchange and sign valid transactions with each sign added canceling the previous one.
Once all parties are happy with the transaction, they submit state changes to the parent chain. The blockchain validates the signatures of all participants and concludes said transaction.
While this Layer 2 solution offers a lot of privacy, it limits the exchange of funds to off-chain participants. In addition, state chains cannot fulfill many roles, mainly when it comes to payments.
What to expect in the future from Layer 2 scaling solutions
While this might not be an overview of everything Layer 2 scaling entails, it does give you a glimpse of what’s going on. Additionally, Ethereum’s scalability will remain a topic of discussion in town until the best solutions materialize.
The significance of these advancements within the Ethereum blockchain will be a revealing opportunity for other cryptocurrencies and blockchains struggling with scalability issues. As already established, Layer 2 solutions are the key to faster and cheaper transactions, more diverse applications, among other benefits.
Finally, it would be wise to say that these solutions will be the future to fully maximize the potential of crypto and blockchain as a whole. As an investor, take your time to grasp Layer 2 solutions projects and get a chance to invest in a growing gold mine.