Technology keeps improving with an increase in user demands, requirements, and concerns. Therefore, to cater to these constant changes, any technology must adapt and ensure it meets whatever its users require. It is not surprising to see that cryptocurrencies across the globe are also adapting. Blockchain networks need improvement and the layer 2 protocol helps.
The Layer 1 Protocol
Before finding out what layer 2 protocol is in blockchain, how about finding out what layer 1 refers to? This is the foundation of all cryptosystems. It is also the technology in charge of transaction validation in the networks. Some of the problems of this base protocol are; congestion, hence low processing speed of the blockchain, high transaction fees, and scalability concerns.
Examples of cryptocurrencies under the layer 1 protocol are Ethereum and Bitcoin. They are not efficient in scaling. What does this mean? Their processing speed of transactions is slower, and the gas fees are higher. Remember, though, that blockchain has 2 more features; its decentralized nature and security. The good thing is that Bitcoin and Ethereum do well in the other two areas, making them unique cryptocurrencies. It is no wonder they keep topping in the industry.
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What is Layer 2 Protocol?
The growing number of blockchain users brings in a need for improvement in the network. Unlike in the past when the traffic was low, the current number of blockchain users is exponentially growing. This high traffic leads to congestion which results in slow processing time and high transaction fees.
The good thing is that when developers and designers notice a problem, they work toward a solution to their system. Blockchain developers aren’t any different. What did they do? They introduced the layer 2 protocol as the resolution to the emerging issues. What is it?
This is a technology of a secondary blockchain that coordinates or runs parallel with the main one to enhance its efficiency by reducing its load, increasing the processing speed, and reducing the gas fees. Nonetheless, the second layer aids in transaction verification. Therefore, the layer 2 protocol is here to enhance scaling, one of the dominant features of blockchain. It not only saves on cost but also encourages time-saving.
Also, layer 2 ensures the storage of numerous small-value transactions as a single record in the main protocol. Notably, an increasing number of layer 2 solutions keep emerging. This is something to watch out for in the crypto industry.
Examples of Layer 2 Protocol Methodologies
As already mentioned, layer 2 coordinates with layer 1 to offer solutions to end-users. These are some of the methods it uses to interact with layer 1 protocol;
1. Nested Blockchains
Their structure involves the base blockchain and secondary blockchains. They have an effective design which ensures the operations within chains are easy. Moreover, the base layer is in charge of assigning tasks and taking control while the secondary layers are in charge of the transactions occurring within the base network. Nonetheless, the nested chains report to the base chain after task completion for approval.
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2. Rollups
In this method, there is computation out of the base layer. Also, there is a time interval after which transaction transfer occurs. The good thing with this is that it makes it easy to document and keep the records.
An advantage of rollups is their ability to manage transactions without interfering with the main layer. What does this result in? the throughput time will be higher and helps reduce costs.
These are the common types of rollups; optimistic rollups and zero-knowledge rollups.
3. Sidechains
These are separate blockchains that are channelled to the main layer all at once. Therefore, no chain waits for the other. They are concerned with taking care of huge amounts of transactions through validation. This way, they assist in handling security concerns.
4. State Channels
In this case, there is direct engagement in the network by the parties involved. the channels keep track of several payments between two users of the blockchain. This means that they only record 2 transactions on the base layer. The good thing is that they can conduct the transactions without having to consider the main chains. The crypto miners can then save time in transaction verification, and this, in turn, enhances the processing rate.
Notably, channels do not have to rely on the main ones for the verification of transactions. This is because they use smart contracts. They handle how the transaction storage on the primary layer takes place upon completion. There is the protection of the transaction details. However, the documentation process is left on the ledger, is visible and can be publicly accessed.
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Why Does Blockchain Need Layer 2 Protocol?
Layer 2 protocol is important in a blockchain because of the following reasons;
- For improved security; the layer 2 blockchain improves the efficiency of layer 1 by evading issues resulting from the structure of the blockchain. The good thing is that it complies with the base layer to avoid any change in the network.
- For improved scalability; Scalability is important in a blockchain and layer 2 protocols are designed to increase the throughput. Once a blockchain achieves this, the chances of scaling are higher.
- To help reduce the transaction fees; Very high gas fees are among the major problems of conventional systems in the blockchain. Thankfully, the introduction of layer 2 in blockchain decreased the number of resources needed for transaction validation. The miners take advantage of cryptographic algorithms rather than use the massive computing power and have the users join the blockchain. In turn, there is less congestion in the blockchain and this helps lower the transaction fee.
Any Future Expectations?
What does the future hold for layer 2 protocol in blockchain? This secondary layer has to evolve to offer maximum solutions to the users. Once this happens, the system will greatly evolve. We can look forward to a future where layer 2 protocol highly increases the scalability of cryptos. However, no blockchain meets all its elements at once: scalability, decentralization, and security. There must be a compromise, and more cryptocurrencies will keep focusing on two features for efficiency.
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