The demand for Ethereum is getting higher, from NFTs to DeFi, there is a seemingly never-ending amount of use cases and applications for the Ethereum Decentralized Network.
The cons of Ethereum are that its flaws are on full display. This creates an opportunity for competitor chains and platforms to take a crack at taking ETH down.
BitBoy dived into Ethereum Layer 2 solutions and why this is one of the top areas people should be looking at for gains, including examples of promising crypto projects on Layer 2 protocols. Layer 2 protocols aim to solve ETH’s problem by solving Ethereum fee and scalability issues. There are different types of second layer solutions which include Rollups, Channels, Plasma Validium, Sidechains and Hybrid solutions (4:15). Ben looked at each and projects that use the solutions.
Ethereum layer 2 Rollups
Rollups are solutions that perform transaction execution outside layer 1, but post transaction data on layer 1. As transaction data is on layer 1, this allows rollups to be secured by layer 1. Inheriting the security properties of the main Ethereum chain (layer 1), while performing execution outside of layer 1. There are two types of rollups with different security models namely Zero Knowledge (ZK) and Optimistic. They are useful for reducing fees for users, open participation and fast transaction throughput (4:44). The top crypto project that uses optimistic rollups to drive down the cost of interacting with the Ethereum network and one to look out for in the spotlight is Cartesi (CTSI)
Ethereum layer 2 channels
Channels allow participants to transact x number of times off-chain while only submitting two transactions to the network on chain. This allows for extremely high transaction throughput. There are two types of channels right now namely State channels and Payment channels. They are useful for lots of state updates, when number of participants is known upfront, when participants are always available (6:18) One of the main projects that run channels is called Raiden Network (RDN).
Plasma chain is a separate blockchain that is anchored to the main Ethereum chain, and uses fraud proofs (like Optimistic rollups) to arbitrate disputes. OMG Network (OMG) and Polygon (MATIC) are plasma chain based projects (7:03)
Validium use validity proofs like ZK-rollups but data is not stored on the main layer 1 Ethereum chain. This can lead to 10k transactions per second per validium chain and multiple chains can be run in parallel. Loopring (LRC) uses Validium (7:39)
Sidechains are separate blockchain which run in parallel to the main-net and operate independently. It has its own consensus algorithm (Proof of Authority, Delegated proof-of-stake, Byzantine fault tolerance, and so on). It is connected to the main chain by a two-way bridge. Skale Network (SKL) and POA Network (POA) use Sidechains (8:09)
Hybrid Solutions combine the best parts of multiple layer 2 technologies, and may offer configurable tradeoffs. Binance launchpad project Celer Network (CELR) uses the solution (8:47).
This episode premiered on March 16th, 2021.