Layer 2 Rollups

Ethereum, one of the most popular blockchains, has onboarded a large number of projects and users into its ecosystem which requires side-chains to fulfil the needs due to the load, and that is how Ethereum Layer 2 (L2) networks emerged.

Simply, Ethereum is a Layer 1, the base blockchain, while Layer 2 solutions are separate chains that are built on top of Ethereum mainly for the following purposes; scalability, transaction speed, and low transaction costs while retaining Ethereum’s security.

Layer 2 solutions considerably lower transaction costs compared to Ethereum mainnet. The screenshot below, derived from L2Fees on October 31, compares Ethereum mainnet and Layer 2 transaction fees at around 20 Gwei.

The Two Types of Rollups

Ethereum’s Layer 2 solutions can be categorized into several types with different approaches, however, we are specifically discussing the rollups.

Rollups are layer 2 scaling solutions that execute transaction processes away from the Ethereum main blockchain while posting the transaction data to layer 1. There are two types of Layer 2 rollups, Optimistic and Zero-knowledge (ZK) rollups. These rollups are protected by the same layer 1 security mechanisms as the transaction data is on layer 1.

Optimistic rollups operate in parallel to Ethereum and assume transactions are valid by default while Zero-knowledge rollups run computations of a bundle of transactions off-chain and submit a validity proof to the mainnet.

Examples of Optimistic rollups include Optimism and Arbitrum, on the other hand, StarkNet and zkSync are two examples of ZK rollups.

Below is a more detailed perspective of the Ethereum L2 scaling solutions, derived from Fiahub.

Let’s quickly look at some data (from L2Beats) about Layer 2 networks.

This graph shows the Total Value Locked (aka TVL) in USD in 25 Layer 2 networks combined from November 14, 2019, to October 31, 2022. As shown in the image, the spike in TVL started in late 2021.

From this list, dYdX, Immutable X, and Sorare are built using StarkEx, a product by Starkware, which will be introduced in the next Alpha101 article.

Thanks for reading this short intro to Layer 2 networks. To learn more about Layer 2 networks in detail, please visit the link below.

Alpha101 (α101) is a series of educational and informative articles and Twitter threads focusing on basic and mid-level knowledge about blockchain and DeFi. The first round of threads is around StarkNet and Layer 2 solutions, highlighting liquidity pools and yield protocols with a case study on zkLend.

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