According to the numbers, by 2030 the global blockchain market will rise to $1,431.54 billion, at a rate of 85.9% between 2022 and 2030. This means blockchain is the future and will continue to grow. Stating the fact that in this tech-led world where everything is moving towards digitization to alleviate their burden and ease their work, the introduction of blockchain has even made complex things easier and simpler along with less time consumption and more productivity.
When talking about productivity in work, it is also important that it should be scalable enough so that any business firm or organization is intended to grow, they can plan its future blueprint with the analysis of the scalable data.
What is Blockchain Technology?
You might have read the definition of blockchain numerous times, but let us help you understand what blockchain is in simple terms. It is a network of systems where you can upload and store all the digital data and assets in the form of blocks, which are visible to everyone i.e. transparent but are immutable and this is where it holds its grip and stands out from the rest in the industry.
Immutable in terms of blockchain technology implies the ledger of digital data that can neither be changed, hacked, or deleted that is stored in the blockchain network.
It is decentralized in nature and is open-source with no intermediaries, which also helps in cost reduction when any business moves forward with blockchain development. It also helps a business secure all the data which might affect the business and its reputation when leaked or destroyed.
Blockchain has been playing an important role, especially in the Banking and Finance sector. It has helped the banks and other financial institutions to make the transactions secure and encrypted with cryptography so that no one can hack or manipulate digital information or other important details of the customers.
What is Layer 2 in Blockchain Technology
One important advantage of Blockchain is its ability to support higher transactions that are scalable and can be utilized for future growth. To improve the scalability and efficiency of the blockchain technology, layer 2 operates on a key blockchain protocol. Also, note that it is called Layer 2 because the code that is written does not affect Layer 1 of the blockchain technology.
It is a part of a crypto coin also referred to as an “off-chain” solution, that is strategically designed to enable faster transactions to adapt to the fast-growing user base. In other words, it is a secondary framework built on the existing blockchain technology which aims to solve the issues that are faced by most cryptocurrency networks.
Ethereum’s Plasma, Polygon, etc are some of the examples of Layer 2 solutions of blockchain technology.
The different layer 2 solutions of blockchain technology are:
- Plasma (Nested Blockchain)
- Rollups
- Parachains (Parallel Chains)
- State Channels
- Side Chains
- Plasma - Also known as “Nested Blockchain” it facilitates providing or adding multiple layers, which are linked through a parent-child relationship to the main blockchain.
- Rollups - It is also a layer 2 scaling solution that serves the purpose of executing transactions off-chain or outside the primary blockchain, making the data still stay on the layer 1 blockchain making it secure. There are two different types of rollups used for scaling solutions, optimistic rollups, and zero-knowledge rollups.
- Parachains - Short for “Parallel Chains”, they run in parallel within the Polkadot ecosystem that have similar characteristics and security and are connected. The key feature of this solution is that it can run independently, which leads to improved scalability for layer 1 blockchain.
- State Channels - It is a process where the users can conduct transactions with one another outside the blockchain network i.e. off-chain, to minimize the use of on-chain operations. It helps in improvising the overall capability of the blockchain network to be scalable by facilitating bilateral i.e. two-way communication and is secured with “multi-signature smart contracts”.
- Sidechains - It is a “blockchain-adjacent” solution, just like state channels. It is mainly used with large batch transactions, which helps in improvising the processing speed and scalability of the transactions and allowing the main chain to sustain security.
Importance of Layer 2 Blockchain
Layer 2 blockchain technology heightens the capability of layer 1 by handling the transactions off-chain. It mainly serves to enhance two main capabilities of blockchain i.e. transaction speed and transaction throughput (number of transactions that are handled by s system per second), which also results in lowering the transaction fees.
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An important reason why people use blockchain is that it provides a rich user experience irrespective of the total number of users, which enhances its core value of being “Scalable”.
Bitcoin has been struggling with scalability issues since its inception, and with time as the users increased the processing speed came down, which is why blockchain focused on delivering scalability and unmatched speed of processing to its users.
With layer 2 solutions, it effectively offloads the transactions to another system architecture and then handles the processing load which is later sent to layer 1 for the final result, which also subtracts the network congestion.
Additionally, L2 solutions provide absolute decentralization, transparency, and enhanced security along with more scalability to the blockchain network.
Conclusion
Although, the Ethereum blockchain is the most used blockchain network along with amplified scalability. The pressure for blockchain to be scalable enough mounts when the demand for cryptocurrency users increases, and as we know everything has shortcomings so it should be innovated with time.
Also do not forget that layer 1 and layer 2 are both independent of each other, they still work together to provide a rich user experience to their users.
