Last year, there was a surge in demand for the use of Ethereum block space. Recent attention has caused the Ethereum network’s transaction fees (ie ETH gas price) to sometimes rise to painful levels.

On the bright side, this shows that the foundation layer of Ethereum is very useful, and many people bid against each other to process transactions in a timely manner.

On the contrary, in order for Ethereum to continue to evolve into the mainstream, it needs to scale up so that it can provide instant and cheap transactions and meet the needs of billions of users, not just thousands of users.

The good news, then, is that an ecosystem of Layer 2 (L2) expansion solutions has flourished around Ethereum and provides the public with ways to expand Ethereum in many ways. We say “Layer 2 (L2)” because these innovations work by attaching to Ethereum from the periphery of the blockchain, rather than modifying the base layer of this smart contract platform.

Therefore, we now look to the future, Ethereum will use a series of different L2 solutions to serve the public. Next, in today’s article, let us investigate the most popular L2 solutions so far and examine the current development status of Ethereum’s most promising L2 projects.

Quickly understand L2

In the next few years, Ethereum will eventually expand L1 (ie, the base layer) through sharding, thereby dividing Ethereum’s activities into 64 main chains instead of one.

However, the implementation of sharding will take time. The expansion advantage of this innovation can work with L2 tools. Therefore, during the critical transition period of the network, as projects race to help Ethereum expand, we have seen the L2 field truly flourish in recent months.

So far, we have seen three main L2 modes:

State channel

Side chain

Rollup

Among them, Rollup can be divided into:

Optimistic Rollup (ORU)

zkRollup (ZRU)

Plasma

Validium

State channel

State channels reduce the burden on the foundation layer of Ethereum by facilitating off-chain transactions. The state channel requires users to deposit a snapshot of the Ethereum state into a multi-signature contract (different from the way users deposit Bitcoin into the payment channel of the Lightning Network). This state will contain key data such as the amount of ETH held by the address at a given time. Such a system allows free off-chain transactions with instant certainty and superior privacy.

Side chain

The side chain is an independent blockchain with its own independent consensus rules, which can transfer Ethereum transactions in a custody mode to reduce the burden on the Ethereum main network.

Rollups

Rollups is similar to an advanced non-custodial side chain, which can broadly expand the throughput capacity of the Ethereum mainnet. So far, Rollup has four main directions: Optimistic Rollup (ORU), zkRollups (ZRU), Plasma chain and Validium chain.

You can deal with data storage on-chain (ZRU, ORU) or off-chain (Plasma, Validium) according to these four directions, and whether they pass zero-knowledge validity proofs (ZRU, Validium) or deposit penalties Fraud proof (ORU, Plasma), compare them.

List of mainstream Ethereum L2 projects

Connext

Category: Status Channel

TPS: unlimited

Connext is a state channel project that not only aims to be the L2 solution of Ethereum, but also the cross-link routing center for many L2 solutions of Ethereum. In the early L2 field, one of the concerns was that these L2 projects were too isolated. Connext’s new cross L2 transmission system can play a key role in ensuring that this problem will not become a serious problem in the future.

xDai chain

Category: Side Chain

TPS: 70

The xDai chain is an EVM-based side chain, which is designed to facilitate transactions in an extremely fast and stable manner. The project is based on its STAKE token, which the consensus provider pledged to ensure the security of the side chain. Due to its efficiency, xDai has become more and more popular in recent weeks.

POA Network

Category: Side Chain

TPS: 70

Like xDai, POA Network is an EVM-based sidechain, which relies on a set of trusted validators to promote fast and cheap transactions. This solution is suitable for supporting anything from blockchain games to community currencies.

Optimism

Category: ORU

TPS: +20,000

Well-known projects using this scheme: Uniswap, Compound, Synthetix

Optimism is an ORU implementation that is gaining early attention among some large DeFi players like Synthetix. Optimism established OVM, which is an EVM based on L2, which enables projects to enjoy all the benefits of Ethereum L1 smart contracts on L2. Moreover, Optimism is already in the process of facilitating the launch of its mainnet, so the benefits of L2 are coming.

Fuel

Category: ORU

TPS: +20,000

With the launch of the first version of Fuel on December 31, 2020, Fuel became the first ORU implementation to enter the Ethereum mainnet. The great prospect of this L2 solution is super fast and super efficient token payments. In fact, the goal of the project is nothing more than to become a “value exchange layer on earth.”

zkSync

Category: ZRU

TPS: +20,000

Well-known projects using this scheme: Curve, Gitcoin, Balancer, Argent

The zkSync created by Matter Labs is a ZRU-based L2 scaling solution that uses zero-knowledge proofs to provide high throughput and high security. Ethereum projects that have been integrated with zkSync include Gitcoin and Golem.

Loopring

Category: ZRU

TPS: +16,000

Loopring is the first zkRollup project deployed to Ethereum and has been running on the mainnet for more than a year. Loopring’s ZRU-based technology is currently focused on expanding decentralized exchanges (AMM and order books) and payments. This technology is available in Loopring 3.6 version, which also includes Loopring Exchange and Loopring Wallet products.

StarkEx

Category: Validum

TPS: +20,000

Well-known projects using this scheme: dYdX, DeversiFi, Paraswap

StarkEx works similarly to zkRollups, the main difference is that StarkEx’s Validium-based system handles off-chain data storage. Compared with a pure ZRU system, this dynamic characteristic makes the project have a higher throughput capacity.

in conclusion

Various L2 solutions will form the expansion pattern of Ethereum in the future. These solutions are taking shape before our eyes, so that by 2021, the scale of expansion around Ethereum may be more than we have seen before. These projects will not be zero-sum, but can work together so that Ethereum can process millions of transactions per second, not just dozens of them. Therefore, the L2 solution will become a way for Ethereum to win mainstream users and become a popular international settlement system.

Author/ Translator: Tae Kon Jung