Why do need Layer 2 solutions on the blockchain?

Being the common solution that many firms find ideal, blockchain has become one of the most happening technologies today. I’ve discussed it at length in my blogs here, so I’m going to skip to an aspect I haven’t delved quite as deep into.

Bblockchain has its limitations too, scaling being a major one.

Even classic blockchains such as Ethereum can only handle up to 30 transactions per second. Classic blockchains could make a few tweaks but at the sacrifice of either lack of decentralization or security. Both of which are the main benefits of blockchain.

Vitalik Buterin; the creator of Ethereum, coined this problem as; blockchain trilemma and is working on this with Ethereum 2.0. The solution to the scaling problem lies within the Layer 2 blockchain which I’ll discuss here.

What Is Scalability and Why Is It Important?

The efficiency of an entire network can degrade by an increase in users joining the peer-to-peer (P2P) network. Right now, this appears to be a deterrent problem that is restricting blockchains from achieving and improving their accessibility and cost. This is the main problem in basic words.

We need to understand the blockchain dilemma in detail and how it’s adversely impacting the main purposes of blockchain technology before we make any statements.

Scalability in blockchains pertains to the process of the power of a network to increase as the number of transactions or the throughput of the network grows.

The scaling issue was discovered by Bitcoin users long ago. There is a vast and progressing number of consumers of blockchain. This makes it difficult for the bandwidth to manage such considerable amounts of transactions while also validating each transaction. All of this also requires a lot of storage space.

Further, these limited transactions of blockchain could prevent the mainstream adoption of blockchain. Scalability is also a fundamental requirement for companies as the nature of their business is mainly on a larger scale.

Achieving scalability in the blockchain is extremely important for decentralized networks to keep up with quick-paced centralized networks.

Introduction to Layer 2

Layer 2 blockchain technology aims to balance transaction volumes of the current blockchain system while maintaining the feature of decentralization.

The way this works is by processing data in a manner that reduces the pressure from the root layer of blockchain technology. By unloading data from the root chain to Layer 2, the entire blockchain network can bear higher transaction volumes overall.

Why Do We Need Layer 2 Solutions?

Layer 2 solutions (or off-chain solutions) help blockchain networks in improving their scalability and efficiency.

The lag during transactions is what brings layer 2 into the picture. A great example to understand the importance of layer 2 solutions is that Bitcoin can only process around 4 to 7 TPS or transactions per second while on the other hand, centralized payment networks like Visa have the capacity of processing around 1,700 transactions per second.

Layer 2 solutions ensure the utilization of blockchain networks is resourceful. To unravel these matters, layer 2 solutions are undoubtedly required. Layer 2 solutions would mean that block sizes or other measures are no longer needed. These measures would not interfere with the security nor decentralization of blockchain.

Layer 2 Solutions

Now let me come down to what Layer 2 solutions have to offer for blockchain technology. An incredible achievement of Layer 2 is the ability to process far greater transactions per second (TPS) which is the primary issue for blockchain networks.

Simply put, Layer 2 solutions deliver a base protocol for blockchains and cryptocurrency by enabling them to increase scalability along with robust security without sacrificing decentralization!

To counter the “trilemma” a project called Algorand will be introduced soon in Ethereum’s blockchain. Algorand will be purely Proof of Stake (PoS). This is a consensus protocol that will not increase the cost of the transaction by the number of users trying to process the payments.

Conclusion

To wrap it up, the implementation of Layer 2 solutions into blockchain technology will boost its adoption worldwide since its scalability limitations are the main drawback. Now, both Layer 1 and Layer 2 solutions can remove the burden of costly transactions and refine the TPS rate. This way, blockchains, and cryptocurrencies will improve and also enhance user-friendly performance.

A blockchain enthusiast and entrepreneur’s musings on the next big revolution since the Internet.