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Scaling blockchains

If blockchain systems are to compete with their centralized counterparts, they need to be at least as performant as them. Realistically, though, they'll probably have to perform even better to incentivize developers and users to switch over to blockchain-based platforms and applications.

This means that when compared to centralized systems, using blockchains needs to be faster, cheaper, and easier both for developers and users. Not an easy feat to achieve while maintaining the defining characteristics of blockchains we've discussed earlier.

With the popularity of crypto and blockchain is growing exponentially, and so is the number of users and transactions. The concept of layers is not an ethereum specific concept, other blockchain such as bitcoin also use it extensively.

Layer 1

It's known as the parent chain or root chain such as ethereum and bitcoin. Layer-1 blockchains are simply the main network that a layer-2 scaling solution attaches to in order to improve the scalability and transaction throughput of the main chain (layer-1).

Scalability is a system's capacity to grow while accommodating increasing demand, it has always been a challenge. Public blockchain networks that are highly decentralized and secure often struggle to achieve high throughput.

Throughput capability is a vital element of a blockchain. It's a measure of speed and efficiency that shows how many transactions can be processed and recorded within a specific timeframe. As the number of users increases and the number of simultaneous transactions goes up, a Layer 1 blockchain can become slow and expensive to use.

Other layer-1 blockchain includes

• Polkadot
• Harmony
• Near
• Flow
• Avalanche
• Solana

Layer 2

It refers to a secondary framework or protocol that is built on top of an existing blockchain system. Layer 2 refers to networks built on top of other blockchains. It is built on top of layer 1 using its existing properties such as smart contract. It also leverages the security of layer 1 by anchoring its state into layer 1. So if Bitcoin is a Layer 1, the Lightning Network that runs on top of it is an example of a Layer 2.

Polygon is one example of a Layer 2 scaling solution for Ethereum. The Polygon network regularly commits checkpoints to the Ethereum mainnet to update it of its status.

Bitcoin and Ethereum are good examples of Layer 1 networks with scaling issues, both secure the network through a distributed consensus model. Bitcoin and Ethereum are still not able to process thousands of transactions per seconds.

These layer-2 solutions usually offer much better transaction fees, they rely on the consensus mechanism and security of the main chain. They can perform operations independent of layer-1, this is why they are sometimes referred to as off-chain solutions.

While the main chain can provide the security inherent to a blockchain, layer-2 can provide the speed.Since transactions on layer 2 are happening on a different chain, a connection is periodically opened to move these transactions onto the main blockchain. This connection is sometimes called a bridge, or a channel.

Therefore, a major consideration for a layer 2 solution is how transactions are validated and confirmed before being moved to the main chain.

Layer-1 Scaling Solutions

There are several options available to Layer 1 blockchains that can increase throughput and overall network capacity. In the case of blockchains using Proof of Work, a transition to Proof of Stake could be an option to increase transactions per second (TPS) while reducing processing fees.

Scaling solutions on Layer 1 networks are typically introduced by the project's development team. Larger changes, like increasing the Bitcoin's block size, require a hard fork. This creates two versions of the blockchain, one with the update and one without.

Another option to increase a network's throughput is sharding. This splits a blockchain's operations across multiple smaller sections that can process data simultaneously rather than sequentially.

Sharding is a popular layer-1 scaling solution used to increase transaction throughput. The technique is a form of database partitioning that can be applied to blockchain distributed ledgers.

SegWit

One example of a layer-1 solution for scaling is Bitcoin's SegWit (segregated witness). This increased Bitcoin's throughput by changing the way block data is organized (digital signatures are no longer part of the transaction input). The change freed up more space for transactions per block without affecting the network's security.

Layer-2 Scaling Solutions

There are two main dimension where layer-2 scaling solutions differs from each other, Transactions execution and Data availability

Transactions execution strategies deal with how transactions are run, where they are run, what the trust environments are, what the security and decentralization environment are etc.

Examples of transaction execution scaling solution includes:

• State channels
• Side chains
• Rollups
• Plasma

Data availability strategies deals with whether or not the layer-2 solution makes their transaction data available on the main chain or not.

Examples of data availability scaling solution includes:

• Validiums
• Volitions

Layer-2 scaling is a collective term for solutions that help with increasing the capability of layer-1 by handling transactions off-chain. it can greatly reduce gas fees