Delin Capital Research Institute: Analysis of Ethereum Layer-2 Expansion Solutions

Editor's Note: This article comes fromDealean Capital Research, reprinted by Odaily with authorization.

Editor's Note: This article comes from

, reprinted by Odaily with authorization.

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The first heated discussion on the issue of expansion occurred in the "bull market" of the global encryption market in 2017. The famous "CryptoKitties" and ICO together caused the congestion of the entire Ethereum network, and the Gas fee increased sharply in a short period of time.

This year, due to the popularity and popularity of the DeFi market, network congestion has become more and more serious. Users sometimes even need to pay gas fees as high as 500+ Gwei, and even then, transactions cannot be verified in a short time.

In general, when considering blockchain or Ethereum scaling solutions, there are two main approaches: scaling the base layer itself (layer 1) or scaling the network by offloading some of the work to another layer (layer 2).

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Comparison of Layer 1 and Layer 2

Layer 2 is another layer built on top of Layer 1. It is worth noting that Layer 2 does not require any changes to Layer 1, it can use its existing elements. For example: smart contracts are only built on top of Layer 1; Layer 2 can also take advantage of Layer 1's solid security by pinning its state to Layer 1.

Currently Ethereum can process about 15 transactions per second on its base layer "Layer 1". Layer 2 expansion can significantly increase the number of transactions processed within the same time limit. According to different existing solutions, we believe that the ideal processing speed should be 2000-4000 tx/s.

Ethereum 2.0 introduces proof-of-stake and sharding mechanisms, which will significantly increase transaction throughput on the base layer. Even with the sharding mechanism, Ethereum still needs Layer 2 expansion to handle hundreds of thousands or even millions of transactions per second in the future. Without sacrificing security and decentralization, Ethereum may leave the combination of Layer 1 and Layer expansion to the community and the future.

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Layer 2 expansion solution

state channel

Raiden is one of the main projects on Ethereum utilizing state channels. Additionally, the concept of payment channels is also widely used by the Bitcoin-based Lightning Network.

• Plasma

Raiden is one of the main projects on Ethereum utilizing state channels. Additionally, the concept of payment channels is also widely used by the Bitcoin-based Lightning Network.

• side chain

Sidechains are Ethereum-compatible, independent blockchains that have their own consensus model and block parameters. Sidechain interoperability with Ethereum is made possible by using the same Ethereum Virtual Machine, so contracts deployed to the Ethereum base layer can be deployed directly to the sidechain. xDai is an example of such a sidechain.

• Rollups

Plasma is a Layer 2 scaling solution, originally proposed by Joseph Poon and Vitalik Buterin. This is a framework for building scalable applications on Ethereum. Plasma utilizes smart contracts and Merkle trees to create an unlimited number of child chains—copies of the parent Ethereum blockchain. It offloads transactions from the main chain to subchains and allows fast and cheap transactions. One downside of Plasma is that users have to wait a long time to withdraw funds from the second layer. Similar to channels, Plasma cannot be used to scale general-purpose smart contracts. The OMG Network is built on their own implementation of the Plasma chain called MoreViable Plasma. And the Matic network is another example of a revamped platform using the Plasma framework.

side chain

Sidechains are Ethereum-compatible, independent blockchains that have their own consensus model and block parameters. Sidechain interoperability with Ethereum is made possible by using the same Ethereum Virtual Machine, so contracts deployed to the Ethereum base layer can be deployed directly to the sidechain. xDai is an example of such a sidechain.

Rollups provide scalability by bundling or "rolling up" unilateral transactions into a single transaction and generating a cryptographic proof (also known as a SNARK - shorthand for Non-Interactive Argument of Knowledge), only this cryptographic proof is committed to the base layer. With Rollups, all transaction state and execution is handled in sidechains. The Ethereum main chain only stores transaction data.