Note: This blog post is meant for beginners. If you have experience with web3 and blockchain, you might not find this as useful, but I encourage you to maybe stick around anyway.
Hello everyone! Today, we’re going to talk about Layer 2 (L2s) solutions & Rollups. Before we get started about rollups, let’s talk about L2s and what exactly are they?
When I first got into cryptos, I never really got why some tokens were called L2s. I knew these were built upon Layer 1 tokens but never clearly understood them.
So What are Layer 2 Solutions?
Layer 2 solutions are basically enhancements built on top of a blockchain to increase its scalability and efficiency. Layer 2s are basically tech upgrades that sit on top of a blockchain to make it faster and cheaper to use. Think of it as adding express lanes to a busy highway.
There are a few main types of L2 solutions like State Channels, which allow transactions to occur directly between participants off-chain until they decide to settle the final state on-chain. Then, there’s Plasma, another method that uses child blockchains reporting back to the main Ethereum chain.
And of course, Rollups, which bundle a bunch of transactions into a single one. They handle transactions “off” the main chain (Layer 1), which helps in reducing congestion and lowering transaction fees on the primary blockchain. As you might have seen yourself how slow sometime the transactions are on etherium and how high are the fees.
An example of an L2 solution is Arbitrum, which processes transactions off-chain before finalizing them on the Ethereum blockchain, offering a faster and more cost-effective way to interact with decentralized applications.
When we perform a transaction on Arbitrum, instead of lining up on the main Ethereum blockchain, it skips over to Arbitrum’s network. Here, the transaction joins others in a batch, getting processed all together, off the main chain. This not only speeds things up but also cuts down on the fees. Once everything’s neatly processed, Arbitrum sends a single, consolidated proof back to Ethereum. This confirmation keeps the Ethereum main chain in the loop, ensuring that everything is secure and accounted for.
Rollups: Optimistic vs Zero-Knowledge
There are primarily two type of Rollups. First is Optimistic Rollups in which all the transactions are assumed legit unless proven otherwise on the other hand there are Zero-Knowledge Rollups which provides mathematical proof of validity right away with the transactions. They provide mathematical proof that transactions are correct right from the start, making them faster but a bit more complex to handle.
In Layer 2 Solutions there are a few components, like sequencers, which line up transactions neatly before they’re rolled up into batches. Then there’s the verification process that ensures everything is correct before it goes back to the main chain.
Understanding Rollups in Action
There are different stags of a Roll Ups to understand better, we will use L2beat. If you navigate to L2beat you will see a lot of L2 solutions. Next to all the L2 chains, you will see the type of rollup and the stage they are in.
Stages starts from Stage 0, which is basically the conceptual stage when ideas are shared. Stage 1 is where things get real, with working prototypes being tested. Finally, Stage 2 is the big leagues, meaning it’s all systems go for full-scale operation.
I have been hearing a lot about Blast recently, so for this demo, I am going to use it. It’s currently in Stage 0. You can also mouse over the pie chart to understand the risk analysis of these rollups. Green sections indicate good aspects like data availability and sequencer failure, while red sections highlight areas where the rollup lacks, such as exit window, proposer failure, and state validation.
If you scroll down you will see a lot more categories like:
Value Locked – Shows the total amount of money currently secured by the Blast L2 platform.
Activity – Measures user interactions and transactions within Blast to gauge its popularity and usage.
Onchain costs – Details the transaction fees involved when using Blast
Milestones – Highlights the major achievements and developmental benchmarks Blast has hit over time.
Risk summary – Provides an overview of potential risks and issues associated with using the Blast platform.
Risk analysis -Specific risks, evaluating the likelihood and potential impact of each.
Rollup stage – Indicates the current development phase of Blast, showing how mature and tested the solution is.
Technology – Describes the underlying tech that powers Blast.
State derivation – Explains the method Blast uses to maintain state consistency across its network.
Operator – Identifies who runs and maintains Blast, which can affect trust and reliability.
Withdrawals – Details the process and efficiency of moving funds out.
Other considerations – Covers additional factors that might influence a user’s decision to adopt Blast.
Permissions – Lists the permissions required by users to interact with Blast, impacting user autonomy.
Smart contracts – Discusses the role and functionality of smart contracts within the Blast ecosystem.
Rollups vs. Side Chains and Sharding
Rollups and side chains are both Layer 2 solutions, but they operate differently. Rollups execute transactions outside the main chain but rely on it for security, making them more secure but somewhat dependent on the main chain’s performance. Side chains, on the other hand, operate their own independent blockchains, offering faster and more flexible solutions but with reduced security. Polygon is a well-known example of a side chain
What is Sharding?
Sharding is a Layer 1 solution that breaks the blockchain into smaller, more manageable pieces (shards), which can work in parallel to increase throughput. Each shard processes its own transactions and maintains a portion of the network’s data, reducing the load on any single server and speeding up transaction times.
That’s it for today. In the next blog post, we will talk about how we can perform transactions on a Layer 2 solution