One of the most used terms in the cryptocurrency community in recent years is layer-2. So what is layer-2 and what are the most popular layer-2 protocols? Here’s what you need to know about layer-2 protocols, also called layer-2…
Layer-2 refers to a secondary framework or protocol built on top of an existing layer-1 blockchain network. The main purpose of these protocols is to solve the transaction speed and scaling challenges faced by large cryptocurrency networks.
This is because popular layer-1 protocols like Bitcoin and Ethereum are still not capable of processing thousands of transactions per second (TPS). This is one of the problems that negatively affects the long-term growth of cryptocurrency projects. This is because cryptocurrency networks need to be capable of processing a higher number of transactions in order to increase their adoption and usage.
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This is where layer-2 protocols come into play. These protocols solve the speed and scalability problems of blockchain networks. Examples of the most popular layer-2 protocols include the Lightning Network on the Bitcoin network and Ethereum Plasma on the Ethereum network. Both protocols aim to increase the efficiency of these networks.
The Lightning Network is a protocol consisting of connected channels that execute transactions on the Bitcoin network and then report these transactions to the main network. The state channels are used as payment channels. Ethereum Plasma, on the other hand, essentially consists of small-scale sidechains in a tree data structure.
Simply put, layer-2 protocols create a secondary network where transactions and processes are performed independently of the layer-1 network. These protocols are also referred to as on-chain scaling solutions.
One of the main advantages of layer-2 protocols is that they increase scalability without causing any structural changes to the main network, i.e. the layer-1 protocol. In this respect, layer-2 solutions have the potential to increase efficiency without compromising the security of the network.
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While layer-1 protocols provide security, layer-2 protocols offer high efficiency by performing hundreds or even thousands of operations per second.
| Layer-2 Solutions | Useful Information |
| Polygon | Polygon is one of the most popular Ethereum-based layer-2 scaling solutions running on the platform thanks to its active partnerships and innovations. |
| Loopring | Developed by Daniel Wang, a former Google software engineer, Loopring is a layer-2 solution that aims to make trading assets on the Ethereum blockchain and making payments on the Ethereum platform faster and cheaper without compromising the security of the network. |
| Arbitrum | Founded by former US White House Chief Technology Officer Ed Felton, Arbitrum is one of the fastest growing DeFi platforms. So much so that it is predicted that Arbitrum will even surpass Polygon if it continues to grow at this rate. |
| Optimism | Optimism, a layer-2 protocol with similarities to Polygon, aims to increase the speed of Ethereum transactions and reduce costs by placing transactions on another parallel blockchain using data compression techniques. |
| Immutable X | Perhaps the most unique layer-2 protocol on this list is Immutable X. This layer-2 protocol is a blockchain platform that simplifies the creation of NFT projects for developers. |
| XDAI Chain | In existence since 2018, the XDAI Chain project uses a stablecoin called xDai as the crypto to run its blockchain network. |
| ZKSwap | ZKSwap is another unique layer-2 solution built on the Ethereum blockchain. ZKSwap is an automated market maker (AMM) type decentralized exchange powered by a zkRollup technology. |
| Skale | Skale is another open-source, layer-2 scaling solution that attempts to solve the scaling problem on Ethereum-compatible blockchains by creating flexible sidechains that decentralized applications (dApps) can use to execute their transactions. |
Of course, not all layer-2 solutions are limited to these. There are layer-2 solutions like Polkadot, which is well-known in the cryptocurrency community, and dozens of promising and emerging scaling solutions like StarkNet. You can start trading on layer-1 with Venice Swap, may soon you can trade layer-2 too.