Every type of technology must adapt to the emerging requirements of users. Think of smartphones, which are evolving consistently in terms of designs and features. The need for improvement in blockchain networks offered the ideal foundation for creating layer 2 protocols for blockchain networks. What is Layer 2 when you think of blockchain? The simple answer would point to the fact that layer 2 protocols run parallel to the layer 1 network or the main network.
One would obviously wonder why layer 2 protocols emerged in the first place. The following discussion helps you find the reasons for introducing layer 2 blockchain protocols and networks. You can also learn more about the basic concept of layer 2 protocols alongside the popular layer 2 protocols. Furthermore, the post also dives into the benefits of layer 2 protocols along with an overview of their future.
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What is a Layer 2 Blockchain?
The definition of layer 2 blockchain generally focuses on the theme of improvements in blockchain networks. Do layer 2 solutions imply the development of new and independent blockchain networks? Rather than seeking out confusing perspectives on blockchain layers, it is important to look for simple definitions. The layer 2 protocols work over another blockchain network as the secondary protocol. Layer 2 protocols are independent of the base layer or the layer 1 blockchain. The secondary protocols offer support for verifying transactions alongside minimizing the tasks managed on the base layer.
The simple answer to “What is a Layer 2 Blockchain?” shows a comprehensive impression of their role in streamlining blockchain transactions. You can notice how the lesser load on the layer 1 blockchain helps in faster transaction processes. As a result, layer 2 protocols offer the support of accommodating many users in the network. Why did anyone have to come up with layer 2 protocols in the first place?
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The necessity of Layer 2 Protocols
The review of notable layer 2 blockchain projects can help you find the exact reasons behind their popularity. Blockchain transactions are slow due to the requirement of different verification and validation mechanisms. When the number of users on a specific network increase by substantial margins, the network ends up with massive levels of congestion.
The layer 1 blockchain generally takes care of all these aspects related to transaction validation. On the other hand, it also affects the processing speed of the blockchain network while also posing concerns regarding scalability and experience. The layer 2 blockchain could provide the support required for layer 1 blockchain by taking away certain tasks from the latter.
A few years ago, the notion of layer 2 protocols might have seemed unnecessary. Blockchain networks were primarily associated with cryptocurrencies and featured adequate capabilities for managing user traffic. On the other hand, the scenario in the blockchain market has changed considerably over the past years.
Users are drawn more toward crypto, while solutions in DeFi and NFTs are gradually bringing blockchain into the discussion. Therefore, the blockchain networks have been congested with more people using them for different transactions. Developers improvised on the blockchain layers to ensure favorable resolution of the issues. For example, the secondary blockchain could help in resolving the problems of network congestion.
The importance of layer 2 blockchain projects right now would refer to the functionalities associated with reduced transaction fees, no restrictions on capacity, and improved transaction speed. All of these advantages in layer 2 protocols facilitate the assurance of better efficiency for layer 1 blockchain networks. Quick and cost-effective transaction processing, also referred to as scaling, plays a crucial role in blockchain technology advancements.
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Common Layer 2 Protocols in Blockchain
The significantly evident value advantages perceived in a layer 2 blockchain list also account for notable pointers for proving their importance. Blockchain technology adoption is increasing, and layer 2 protocols must evolve accordingly. An overview of the common layer 2 protocols can shed more light on how they can be a notable milestone in the evolution of blockchain. Here is an outline of the popular layer 2 protocols you can find today.
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Nested Blockchain
Nested blockchains are one of the first examples of layer 2 protocols in blockchain networks. The structure of nested blockchains basically involves a main chain alongside a few secondary chains. The effective design of nested blockchains ensures that a chain can easily operate in tandem with the other chain. In this case, the main chain works on assigning tasks while taking control over the parameters. The secondary chains work on performing different transactions of the main chain and reporting for feedback and approvals.
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Sidechains
Sidechains are also one of the top names you would find in discussions on layer 2 blockchain protocols and networks. As the name suggests, it is a side blockchain associated with the primary chain by leveraging a two-way peg. You can think of a forest where the trees serve as the side chain, with the forest being the primary chain. The basic objective of sidechains focuses on handling a massive batch of transactions. A sidechain could support the primary chain in validation of different transactions on blockchain networks. As a result, the primary chain finds adequate time for resolving security issues.
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State Channels
The next addition in the layer 2 blockchain list refers to state channels, which allow parties to engage directly on the blockchain network. State channels facilitate the option for conducting transactions without considering the primary chains. As a result, miners could spend less time in verification, thereby contributing to improvements in processing rates.
State channels don’t depend on transaction verification on the layer 1 blockchain and use smart contracts for the same. Once a transaction is completed successfully, the state channels ensure storage of the resulting state on primary layer. The documentation of the final transaction details on the ledger leads to vulnerabilities due to public visibility of the ledger.
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Rollups
The list of layer 2 blockchain projects would be incomplete without adding rollups to the list. Rollups are layer 2 protocols with the facility of computations outside the primary chain. The transfer of transaction details happens after a specific time interval, thereby providing support for record maintenance.
In addition, rollups can help in managing transactions without any interferences in the primary layer. As a result, rollups can easily ensure higher throughput for blockchain transactions while ensuring cost reductions. The two common types of rollups include optimistic rollups and zero-knowledge rollups.
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Advantages of Layer 2 Protocols
The discussion on blockchain layers would also draw references to the benefits facilitated by layer 2 protocols. Here is an outline of the advantages you can discover with layer 2 protocols in the modern blockchain ecosystem.
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Better Security
The foremost advantage of blockchain layer 2 protocols is the assurance of improved security. Generally, layer 1 blockchain solutions have to rework their base layer protocol to facilitate better scalability. Layer 1 networks achieve scalability through introducing blocks in the chain network, alongside improving the speed for validating new blocks. Layer 2 protocols in blockchain help in avoiding problems emerging from changes in blockchain architecture. Layer 2 solutions are compliant with the primary blockchain layer, thereby avoiding any changes in the base layer or the underlying protocol.
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Improved Scalability
The next important value advantage associated with layer 2 protocols points to the scope for improving scalability. Layer 2 protocols have been designed to ensure higher throughput, thereby driving the opportunities for scalability. Higher throughputs can help in scaling blockchain applications with ease to facilitate effective user experiences.
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Lower Transaction Fees
Layer 2 protocols also come up with a solution to another crucial problem with the conventional blockchain systems. Miners take responsibility for validating transactions in a blockchain network and use the cryptographic algorithms of the blockchain for verifying transactions.
The conventional process involved requirements of massive computing power with users joining the blockchain network. The value of layer 2 protocols has contributed to a reduction in processing resources required for validating transactions. As a result, layer 2 blockchain projects can help in lowering the transaction fees on blockchain networks.
Even if Bitcoin and Ethereum dominated a major share of the crypto and blockchain space in recent times, new blockchain networks are coming up with significant benefits and use cases. You can witness many DeFi ecosystems emerging in the blockchain space alongside various decentralized applications. Layer 2 solutions can help in coping with the demand that would arise from the evolution of the blockchain ecosystem.
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Bottom Line
The different value advantages of layer 2 blockchain protocols and their working principles show how layer 2 is essential now. Layer 2 solutions are an innovative approach for resolving any concerns regarding scalability of existing blockchain networks. The use of blockchain technology is growing substantially with every passing day while bringing in a diverse assortment of new offerings.
Therefore, layer 2 solutions and protocols would be an important part of the future of blockchain technology. Layer 2 can introduce the possibilities for new blockchain networks with distinct advantages and utility for users. Start learning more about layer 2 protocols and solutions in the blockchain ecosystem.
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*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
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