L2 solutions for blockchain scalability
It is well known that one of the main problems of the main cryptocurrencies, Bitcoin and Ether among all, is the slow transactions, from minutes to hours, up to days, as well as the cost which can reach tens of euros even to transmit a few euros. We are talking about 7-10 transactions per second (tx/sec) for Bitcoin and a maximum of 20 for Ethereum. Nothing compared to the 60,000 tx/sec of the most widespread electronic payment method, the Visa circuit.
It is therefore difficult to present itself as a widespread alternative means of payment, or for hoarding value (Bitcoin) or even as a global virtual machine for financial transactions (Ethereum).
So what? No way of practical use for cryptos?
In fact, some solutions – or better workaround – are under development or even already operational.
Solutions for blockchain scalability
The basic logic is trivial: if we cannot write on the main blockchain (Bitcoin, Ethereum etc.) then a lateral or second level is created, from which L2 (Layer-2), and then they somehow realign.
All free? As often happens, even in this case there are no free meals. There is a trade-off to manage between speed and throughput on the one hand and complexity and security of the L2 chains on the other. The key to the solution is in fact to intervene on the consensus criteria and on the transaction block processing parameters. The trade-off, however, becomes reasonable if you plan to use them mainly for transfers of limited amounts. In fact, except for sporadic cases that still exist, the large movements of Bitcoin by the so-called whales are carried out on the main blockchain and not on the L2 networks. In fact, spending a few tens of euros more or waiting a few minutes is not a big deal when you move thousands of Bitcoins (tens of millions of euros), what matters is the safety of the operation.
In the case of Bitcoin, the most famous L2 is the Lightning Network, created in 2015. Let’s imagine the Bitcoin network as a busy highway where everyone checks and records transactions, causing delays and congestion. The Lightning Network, on the other hand, acts as a network of secondary roads that connect directly to the highway, allowing for smoother and faster transactions without impacting the main thoroughfare. In practice, let’s say Lightning Network, it opens a communication channel between the two counterparts. The latter can carry out all the transactions they want within the channel, without them being written in the blocks. When counterparties decide to close the channel, the full settlement of transactions on the main chain is made
There are many L2 solutions for scaling Ethereum, at least a few dozen, and they all use different approaches to the problem. The best known are Plasma, Polygon, Optimism, Arbitrum.
But how do you use these L2s? Simple. Everything goes through a compatible wallet. There are several available for Android and iOS for both the Bitcoin Lightning network and for Ethereum.
One last thing. The most recent blockchains try to solve performance and scalability problems natively, without the need to rely on L2 solutions. One of these is Solana, one of the so-called Ethereum Killers, which competes with the cadet Crypto, making its advantages available (e.g., smart contracts) and without suffering from performance problems.
The related Generative Artificial Intelligence question is posted in the dedicated gallery: Is the blockchain technology a potential threat to the financial system?