Expanding an ecosystem of more than $500 billion: Layer 2 and other Ethereum scalability solutions and their current solution landscape

Author: Andreas Freund, member of the EEA Mainnet Interest Group

The following is the current state of the Ethereum scalability ecosystem mini-report, which is longer and more in-depth than a typical blog post.

Many companies have abandoned private blockchain alliances due to several factors: the lack of meaningful network effects in the implementation of private blockchains-which often makes them more expensive and troublesome than shared database systems in alliances of competing entities- —As well as the lack of accessibility of the DeFi ecosystem, its new and fast-growing asset class is therefore very profitable. The Ethereum layer 2 (L2) scalability solution provides an opportunity to integrate the square pegs of the Ethereum mainnet into the hole of corporate security, privacy, and compliance requirements, because many L2 solutions actually have Centralized database for smart cryptography. They can also provide access to the world of DeFi asset classes, allowing mainnet network effects to spill over to enterprise solutions through these DeFi asset classes. Through asset and user growth, this establishes a new, symbiotic relationship between enterprise use cases on L2 and the Ethereum mainnet.

Introduction to Ethereum Layer 2 and other scalability solutions

The Ethereum mainnet has become a victim of its own success because it is currently a major bottleneck in the development of its ecosystem; due to the high transaction fees and the limited number of transactions allowed per block, network problems have appeared, endangering Ethereum-based The economic viability of agreements, start-ups and other companies with good business models. Although the next version of Ethereum, Eth2, promises to increase transaction scalability by 100 times and significantly reduce transaction fees, its launch is 12 months or more away. If Ethereum wants to maintain its leadership as the most popular and commonly used blockchain network in the world, it needs to solve Ethereum’s scalability challenges today.

In the past 2 to 3 years, several solutions to the expansion and transaction cost challenges have emerged. What they have in common is that in various forms of centralized or decentralized computing environments, heavy transaction processing is performed outside the Ethereum main network (ie off-chain), and the main network takes various forms as security and Anchor point for data integrity. These solutions are colloquially called Layer 2 (L2) because they are solutions on the Ethereum mainnet (also commonly referred to as Layer 1).

The following is a brief overview of the main scalability solution categories, followed by a brief description of the characteristics of each solution category:

  • State channel
  • Side chain
  • Summary
    • Optimistic summary
    • Zero knowledge (zk) summary
    • plasma
    • verify

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