Thread by @daolectic

#Layer2 Scaling is a concept that is used in the #Ethereum communities with some believing it represents $ETH future.

What does this truly imply? 🤌🏼

How does it operate and why do we need it? 🧐

Today we will deep dive into non-custodial solutions ⬇️

1/ Over the past years, #Ethereum popularity has resulted in a massive rise in transactions and, therefore, #network traffic.

With several users competing for faster #transaction processing, a bidding war occurs, resulting in very expensive gas fees for each user.

Once new scaling solutions arise in the #blockchain space, it is always necessary to consider:

- how much they inherit #Layer1 #security and network characteristics

- if they impose stricter user requirements compared to the underlying #Layer1

3/ L2 is a set of tool designed to help #Ethereum scale, cheaper and faster.

They are separated into:

1. #Sidechains - contain a distinct validator set, enabling anybody to use the network

2. State channel - presume a fixed set of users where everyone serves as #validator

Today the focus will be on #sidechains that can either be:

1. #Custodial - assets are transferred to a parallel chain that has its own #consensus and #security.

2. Non-custodial - assets are maintained and the state is protected by #smartcontracts on #Ethereum

A non-custodial example is the #Rollup that operates by batching and processing transactions on a separate #blockchain (L2) directly linked to the Ethereum main net (L1)

The validation techniques vary based on the #rollup implementation type: optimistic or zero-knowledge.

4/ #Optimistic #rollups are named after the happy path situation, in which rollup data is automatically checked optimistically and no further processing is required.

Any user may challenge the data's validity and demand proof to protect data security.

5/ Zero-knowledge rollups (#ZKR) assure their validity using #cryptographic proofs.

It is efficient since it does the processing on L2 and only returns to the mainchain the #SNARK proof (succinct non-interactive argument of knowledge).

@loopringorg

6/ #Plasma is a further framework for creating non-custodial sidechains.

Unlike custodial #sidechains, Plasma chains' security comes from the main chain (#Ethereum).

Plasma ensures #block headers (balance snapshots) on $ETH.

7/ #Validium works like #ZKrollups, except that data is kept off-chain and users must trust an operator to make it available when needed.

#Offchain data storage provides various advantages, such as faster #transaction times and more client privacy due to the private tx nature

8/ To compare:

#Rollups put data on the layer one blockchain itself, using on-chain data availability.

#Validiums leverage off-chain data availability, posting validity proofs on-chain while keeping data off-chain.

The main Layer 2 with optimistic rollups is @arbitrum, followed by @MetisDAO and @optimismPBC

Looking at #ZKRollups, @dydxprotocol & @loopringorg are the two protocols with the highest TVL

Validium ones are growing with @Sorare and @Immutable

Below the #tvl from @l2beatcom

#Rollups are expected to be the most popular scaling method in the future. 

Given how far away the release of $ETH 2.0 is, it's likely they'll be around for a long time.

While L2 solutions benefit users by lowering #fees, they also allow for separate execution environments.

Recently, developers waited to see which #L2 solutions gain popularity before deciding which platform to deploy on.

In the future, the integration of one or more #Layer2 will be crucial, affecting $ETH the network effects and the larger smart contract platform environment.

Find out more insights in our latest Medium story!

Let us know below if you want more details on specific #protocols for the next report!

#layer2 #blockchain #crypto #ETH

@l2beatcom @sassal0x @bkiepuszewski @zeroknowledgefm @liamihorne @defiprime @maurelian_ @PiotrSzlachciak