Layer 2 Scaling Showdown: Who Can Solve Ethereum's Urgent Crisis?
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Ethereum has been criticized for high transaction fees and network congestion for a while now. The only way to solve this problem is scaling. Blockchain scaling solutions can be roughly divided into two categories: Layer 1 scaling and Layer 2 scaling. Layer 1 scaling refers to "upgrading" the underlying blockchain itself, commonly including block expansion, Segregated Witness, and sharding technology. Layer 2 refers to building peripheral or second-layer Trading networks outside the main chain, with the goal of moving most Layer 1 transactions to the second layer to reduce pressure on the mainnet. Based on different technical solutions, the main approaches include ZK Rollup, Optimistic Rollup, Plasma, sidechains, and state channels.
The highly anticipated Ethereum 2.0 is a Layer 1 scaling solution, improving on-chain scalability by modifying consensus and adopting sharding technology. However, at this stage, the full rollout of Ethereum 2.0 will take at least several years—a distant solution that doesn't address immediate needs. Therefore, Layer 2 scaling is viewed as the "lifeline" for solving Ethereum's short-to-medium-term scalability challenges, with Rollup standing out as the "optimal solution."
Layer 2 Current State: Rollup Dominates
The earliest Layer 2 project on Ethereum should be the Raiden Network, whose technical framework is similar to Bitcoin's Lightning Network, representing an implementation of state channel technology on Ethereum. Its core concept is to move transactions off-chain and settle them on-chain. However, state channels require all nodes to be online, and the counterparties must be clearly identified asset owners. So while proposed earliest, it has remained lukewarm throughout its development.
Sidechains were once considered the best Layer 2 solution. The core idea of sidechains is to build a completely independent blockchain with its own validators and operators, capable of transferring assets to and from the main chain, and selectively sending block header snapshots to the main chain to prevent forks. However, this raises another concern: we need to trust the sidechain's validators, and if a sidechain acts maliciously, asset security cannot be guaranteed.
Loom Network was among the earliest projects to propose sidechains. Loom sidechains use a DPoS consensus mechanism, suitable for high-frequency applications like gaming dApps, then settle back on Ethereum Layer 1, combining high performance with security.
But what we actually witnessed was the gradual decline of Loom. "Several prominent public chains, such as Solana and NEAR, can attract Ethereum assets through EVM compatibility plus bridges, then settle back on Ethereum—this is exactly what sidechains do, and these public chains have stronger development capabilities than most sidechains. Therefore, the Layer 2 sidechain concept can basically be replaced by the Layer 1 sidechains of these prominent public chains." Huabian Blockchain explained in a recent article about Layer 2.
Additionally, Plasma, proposed to solve sidechain issues, required users to store their own data records and go online every two weeks, resulting in poor user experience. Combined with its inability to support DeFi products, it was gradually abandoned.
Therefore, Rollup—which inherits and improves upon the concepts of sidechains and Plasma—has become the era's top choice for Layer 2 scaling solutions. On March 10th, Vitalik Buterin excitedly stated on the Tim Ferriss podcast that Ethereum 2.0 developers are focused on merging with Ethereum. He believes Rollup can meet medium-term demand before sharding development is complete, emphasizing that it can increase Ethereum's transaction throughput by 100x.
Rollup bundles large amounts of various transaction data into a single transaction published on-chain. Different solutions emerged to ensure data consistency and fund security during the process. Currently, ZK Rollup and Optimistic Rollup are hailed as the two giants of Rollup. ZK Rollup mainly introduces zero-knowledge proofs to prove data authenticity to the main chain, belonging to validity proofs. Optimistic Rollup abandons the zero-knowledge proof mechanism and instead adopts Plasma's punishment mechanism, belonging to fraud proofs.
The biggest advantage of ZK Rollup is speed and security. When Layer 1 interacts with Layer 2, due to the zero-knowledge proof mechanism, Layer 1 can easily trust data from ZK Rollup, enabling rapid transfers. However, its disadvantage is difficulty supporting general-purpose smart contracts. ZK Rollup developers need to independently develop smart contract modules, facing significant difficulty and workload. But with the advancement of ZK Rollup technology, its long-term potential is stronger.
Optimistic Rollup draws from Plasma and tends to assume nodes won't misbehave, resulting in higher trust costs. It takes at least a week to return from Layer 2 to Layer 1. However, due to its consideration for compatibility, it allows fully general-purpose smart contracts to run on Layer 2, making Optimistic Rollup lower in barriers and easier for developers to get started, making it more suitable for solving Ethereum's immediate needs.
Rollup Projects Worth Watching
Currently, four teams are drawing significant attention across the two Rollup research directions: Matter Labs (ZK Sync), StarkWare (StarkNet), Optimism, and Offchain Labs.
Matter Labs announced the completion of its Series A funding on March 1st, with Union Square Ventures (USV) leading the round. Current investors Placeholder, 1kx, and Dragonfly continued to participate in this round. Additionally, the project disclosed a number of heavyweight ecosystem partners, including Aave, Balancer, and 1inch, among others. Sources close to the matter revealed that ZK Sync's valuation in this round reached $120 million.
Whether from the perspective of the solution, the team, or post-implementation impact, ZK Sync is an object we need to monitor long-term. However, currently ZK Sync's functionality is relatively limited, with supported operations roughly being deposits, transfers, and withdrawals. When I donated to Gitcoin before, I used ZK Sync alongside it. Compared to Ethereum mainnet fees that often run $20-$30 or more, ZK Sync was indeed significantly cheaper.
Optimism announced it would open its public mainnet in March, allowing arbitrary contract deployment. This means popular DeFi projects on Ethereum can achieve seamless Layer 2 migration more quickly. As a partner of Optimism, Synthetix announced its mainnet deployment transition plan to Optimistic migration on January 14th.
According to StarkWare's StarkNet roadmap published on January 26th this year, StarkWare's Layer 2 scaling is divided into four phases. Phase 0's infrastructure setup is complete. Phases 1 through 3 correspond to single-operator single-application Rollup, single-operator multi-application Rollup, and decentralized-operator multi-application Rollup, respectively. By the end of 2021, StarkWare expects to achieve Phase 2 and begin Phase 3.
On March 4th, Arbitrum announced its upcoming mainnet launch. Influenced by this news, its Arbiswap testnet—Uniswap V2 running on Arbitrum Rollup—attracted large numbers of users participating in faucet testing, with many believing they might receive an airdrop by passing the test. Chainlink oracle has also launched on the Arbitrum Rollup testnet.
Currently, Optimism and Arbitrum, the fastest to launch, may quickly establish a Layer 2 ecosystem. However, many question whether Layer 2 will fragment the Ethereum ecosystem, as island issues are inevitable. With Ethereum unable to transition quickly to Ethereum 2.0, Layer 2 has become Ethereum's "lifeline." If successful, Ethereum will continue to thrive and maintain its dominance. If it fails, the blockchain world will face a multi-chain mixed battleground. Either way, we should all watch Layer 2 in 2021.
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