The world of crypto and blockchain continues to grow every day. This is because more people and companies are using blockchain technology and cryptocurrencies. It is therefore important to be aware of everything that is happening. In this article we will tell you which layer 2 blockchain solutions we think you should keep an eye on. In our view, these solutions will bring about a positive change for the current blockchains!
What are layer 2 solutions?
With layer 2 solutions, also sometimes called layer 2 scaling solutions, we mean all projects that focus on improving layer 1 blockchain. Bitcoin and Ethereum are examples of layer 1 blockchains. These blockchains often run into scalability issues.
It is possible to develop a solution that runs on top of the layer 1 blockchain. As a result, the blockchain itself does not have to be adjusted to come to a solution, which ensures that current problems can be solved much faster. It can take a very long time to implement the solution within the blockchain itself.
For example, consider Ethereum 2.0. The team behind Ethereum has been working on solving Ethereum’s scalability issues for a long time. Due to various hard forks, Ethereum will soon switch to Ethereum 2.0, although these kinds of updates are increasingly postponed. It is also questionable whether the update will actually solve the problems. Practically speaking, this has never been tested on a large scale until now. It is therefore extra important that we can use layer 2 solutions, so that we can continue to develop crypto and blockchain projects.
Cartesi’s goal is to provide a more productive experience for dApp developers and an engaging experience for their users.
Cartesi, among other things, allows developers to program their dApps to run on the Linux operating system, which drastically reduces the cost and complexity of development and makes them transferable from one channel to another.
The first Cartesi-powered dApp was launched by the team in February 2020, and it’s called Creeps. Thanks to the underlying blockchain technology, this browser-based tower defense game resists cheating attempts, with smart contracts that determine winners and disqualify cheaters.
In addition, Cartesi’s technology is also capable of processing large amounts of financial data with complex algorithms, opening the door to financial applications known as DeFi.
Cartesi was launched on the Binance Launchpad. “The ability to easily and efficiently deploy decentralized applications is paving the way for an influx of new developers into the crypto industry, and Cartesi’s focus on gaming and finance is able to show the benefits of blockchain to users across the globe. the most pervasive areas,” said Changpeng Zhao, Binance CEO.
Cartesi’s native token, the CTSI, will play a key role for the operating system as it will be used for transaction fees. In addition, Cartesi will offer staking capabilities and block producers will be selected based on their staked token numbers.
As the second tier of Ethereum, Arbitrum is a solution to scale this blockchain, just like the Lightning Network wanted to do for Bitcoin.
While the project is still being tested, it is a solution that could help improve the speed and level of complexity of any kind of Ethereum-based smart contract, so for example also useful for all decentralized DeFi applications and perhaps also for NFTs.
The smart contracts on which Arbitrum is based thus increase the possibilities of individual dApps and significantly reduce the costs of transactions.
While Arbitrum still charges for native smart contracts on tier 1, these are low prices and only for archiving and blockchain computing, regardless of the number of resources used.
The launch of this project was so important and so felt by the crypto community that it helped lower Ethereum’s gas costs before. However, it should also be noted that recently, compared to early May, ETH trades have at least declined, also perhaps given lower prices.
As Ethereum founder Vitalik Buterin himself said, rollups like Arbitrum are a technology to quickly scale dApps, so Arbitrum could really be a way to intervene on blockchain’s commissions.
Many are waiting for the release of Ethereum 2.0. The transition to Proof of Stake on this blockchain should ensure lower transaction costs, although this will take a while. Hence, we are seeing more and more solutions to Ethereum’s problems.
This problem is deeply felt in DeFi, as decentralized applications are based on smart contracts that perform hundreds of operations per second. This makes transactions extremely expensive, which is detrimental to the developers and users of these applications. For all these reasons, new solutions on the Ethereum scale are increasingly being sought and Arbitrum could really change the destiny of the crypto market.
As with other cryptocurrencies such as Bitcoin, transactions on the Ethereum network can be traced. While this is an advantage in terms of transparency in tracing transactions and enforcing smart contracts on the blockchain, it also poses a problem in terms of privacy and confidentiality of transactions.
There are certainly instances where individuals or companies will feel the need to keep the flow of transactions about their business private. And that’s kind of the problem with blockchain technology; the transparency and full visibility of transactions on the network.
Aztec has therefore launched its privacy solution on the Ethereum network a while ago. This means that DeFi Ethereum dApps can integrate zkDai to make transactions on the Ethereum network confidential.
zkDai is similar to the Zcash privacy coin protocol (zero-knowledge proofs), a type of protocol used on private tokens like Monero to make users’ transactions untraceable. To integrate this zkDai, the startup Aztec offers its own SDK (software development kit) to install all this.
With zk-SNARKs, the conditions for a valid transaction are met, without revealing crucial information about the addresses of the persons or the amounts involved. zk-Snark stands for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge and is the protocol that allows transactions to be private. The protocol allows a person to prove to another party that a transaction is true, without revealing any public information beyond the validity of the statement itself.
In the context of smart contracts on Ethereum, it will be crucial in the future to hide transaction amounts or the parties involved. The startup Aztec wants to meet this demand and has therefore launched its application for this purpose.
The problem of transactions involving criminal activity will arise, possibly seeing an opportunity to disguise certain transactions, as is already possible with cryptocurrencies such as Monero, which are classified as effectively untraceable by Europol.
StarkWare is an Israeli project, started in 2018, that aims to develop a solution to make Ethereum scalable. This project grew out of the collaboration of several scientists and developers, including Eli Ben-Sasson, the current chairman of StarkWare, also known for his involvement in the Zcash protocol.
After releasing its white paper in 2018, the first version of StarkEx – the product developed by StarkWare – was released on the Ethereum testnet in June 2019. A year later, StarkEx is finally deployed on the Ethereum mainnet and used by several decentralized exchanges, including DeversiFi.
StarkEx uses a clever mix of zk-Rollups and zk-STARKs (an improved version of zk-SNARKS). Perhaps these terms mean nothing to you yet, although they come up a lot in the world of blockchain, and in particular layer 2 solutions.
Although different in their implementations and methods, zk-SNARKs and zk-STARKs have the same goal: to prove the knowledge of certain information, without having to reveal the details.
Applied to blockchains, these methods make it possible to prove the validity of a transaction without having to reveal its contents, be it the amount, the sender or the recipient.
Although zk-SNARKs have many advantages, it requires a parameter generation ceremony for the initial configuration. After all, if this first phase is not completely secret and its contents become known to a malicious third party, the entire anonymization system would be compromised.
It is precisely at this point that zk-STARKs represent an evolution. The “N” in SNARK, which stands for “Non-Interactive”, is replaced by a “T” in STARK, which stands for “Transparent”. This means that zk-STARKs require no initial configuration and have no single point of failure.
In addition, zk-STARKs have advantages in computational speed and size. Most importantly, these proofs can withstand quantum computers, so the future is bright.
Solution from StarkEx
In fact, StarkEx offers both scalability (via zk-Rollup) and privacy (via zk-STARKs) to enable instant and no-cost transactions on the layer 2 of Ethereum. Like other layer 2 solutions, StarkEx consists of 2 infrastructures, one outside the chain and one on the main Ethereum chain.
In simple terms, this means that the off-chain portion is responsible for processing and recording the execution of transactions. Periodically, this module communicates the current state of the system to the on-chain component, which checks the validity of the transactions and finalizes them on the main Ethereum chain.
In terms of performance, this solution can process more than 3,000 transactions per second. This means it can process 100 times more transactions per second than Ethereum’s main blockchain.
The company does not intend to stop there, however. The company is now exploring interoperability with StarkNet, a network of interconnected layer 2 solutions.
xDAIchain is a layer 2 solution designed for fast and cheap stable transactions. xDai is used for transactions, payments and fees, and STAKE is used to support the Proof of Stake consensus.
xDai is the ideal cryptocurrency for everyday payments and transactions. The fees are extremely low, payments are made very quickly and the value remains stable at $1 (USD) per xDai (like Dai on Ethereum).
STAKE is a multi-chain staking token designed to secure the payment solution. Staking allows validators on the blockchain to provide transaction consensus and receive staking rewards when they validate transactions.
xDai is a layer 2 and thus will allow the use of decentralized applications in the same way as Ethereum, but at a much lower cost and faster speed. Simply put, it is just like Ethereum, but faster and cheaper. xDai also makes it possible to use decentralized exchanges such as Honeyswap.
Boba Network (BOBA)
Boba Network recently announced the launch of its public backbone, joining a small but growing group of layer 2 solutions operating on top of the Ethereum blockchain.
“Everyone smiles when they drink boba,” Alan Chiu, founder of Boba Network and CEO of Enya, told CoinDesk at the Mainnet 2021 conference in New York, referring to the tea-based drink with tapioca pearls. “That’s what we want our users to feel when they use Boba Network. It evokes happiness.”
The Boba Network is part of a subcategory of Ethereum layers called Optimistic Rollups, which are derived from the Optimism open source codebase. However, Boba would allow users to withdraw funds in minutes, rather than days, while using Optimism.
Since the beta’s launch, Boba Network has partnered with several DeFi projects, including DODO, a decentralized exchange (DEX) with approximately $70 million in total collateral locked up, and Sake, a protocol that allows users to purchase perpetual contracts. .
Chiu said the network would increase demand for Ethereum by allowing engineers to create more sophisticated applications using a wider range of programming languages.
“We have a feature called Hybrid Compute that allows developers to create sophisticated algorithms that are too expensive to do on-chain,” Chiu said. Ethereum’s proprietary programming language Solidity “is really limiting,” he added. “Many DeFi developers have had to shorten their algorithms.”
Developed by OMG Foundation lead contributor Enya, the project also announced it would release a BOBA token to support the network’s decentralized governance.
“From a community standpoint, we are fortunate to have inherited the OMG network,” Chiu said. “We have a DAO and a token, so BOBA token holders can participate in the governance of the network. We also share the profits generated by the network with our token holders.”
LRC is the token of Loopring, based on Ethereum, and is an open protocol designed for building decentralized cryptographic exchanges.
In 2020, the average daily trading volume in the entire cryptocurrency market fluctuated between about $50 million and $200 million. Most of these transactions are conducted on centralized crypto exchanges. These are online platforms maintained by private companies that store users’ funds and facilitate the matching of buy and sell orders.
These platforms have some drawbacks that they all have in common, so a new type of exchange (decentralized exchange, also known as DEX) has emerged to try to overcome these drawbacks. However, fully decentralized exchanges are not without flaws.
The aim of Loopring is to combine centralized order matching and decentralized order settlement on a blockchain into a hybrid product that will encompass the best aspects of both centralized and decentralized exchanges.
LRC tokens were made available to the public in an initial coin offering (ICO) in August 2017, while the Loopring protocol was first deployed on the Ethereum backbone in December 2019.
What distinguishes Loopring from other layer 2 solutions?
The main idea behind Loopring is to combine elements of centralized and decentralized cryptocurrency exchanges to create a protocol that will take advantage of their unique advantages and eliminate inefficiencies.
Centralized exchanges are currently the most widely used platforms for crypto trading. While very popular and convenient, there are a number of risks associated with using a centralized exchange, the most important of which is control. Since these exchanges hold user funds between deposit and withdrawal points, these funds are at risk of being lost in whole or in part as a result of possible attacks by hackers, malicious players within the exchange or regulatory intervention.
Another major problem with centralized exchanges is the lack of transparency: the fact that transactions are not settled on the blockchain, but are stored in the exchange’s internal files, allows the exchange to manipulate prices and use user money for unauthorized purposes. to use while it is being held.
To solve these problems, a new kind of trading service has emerged in recent years: a decentralized exchange or exchange (DEX). Instead of holding users’ funds in custody and processing transactions internally, buy and sell orders can be directly linked together and transactions can be settled on a public blockchain.
While it removes the risks of custody and transparency, DEX has its own drawbacks: primarily, lower efficiency (compared to centralized alternatives) related to the limited capabilities of the underlying blockchains and fragmented liquidity.
The Loopring protocol aims to maintain the benefits of decentralized exchanges while reducing or eliminating its inefficiencies through innovative hybrid solutions. By centrally managing orders, but settling transactions on a blockchain, and combining up to 16 orders into circular transactions instead of allowing just one pair of transactions, Loopring hopes to increase order execution efficiency as well as DEX liquidity.
This makes Loopring a special layer 2 solution. It does not focus entirely on scalability, but is mainly on the scalability of the DEX. Because these are becoming increasingly popular and used more often, there is a lot of potential in the growth of Loopring.
Polygon is both a protocol and a toolkit for building and connecting Ethereum-enabled blockchains. MATIC, the token of this project, is essential for the functioning of its ecosystem. This layer 2 solution has impressive performance for a very smooth Ethereum experience.
Polygon originated from an observation. Ethereum is the world’s leading smart contract platform, but it is reaching its limits. Users and developers suffer from high transaction times and gas costs. The current architecture does not allow customization of the technology stack. Developers flee to secondary blockchains, compatible with the EVM. These do not communicate with each other, causing the network to become fragmented.
Polygon’s performance in terms of scalability and user experience therefore attracts many users and service providers. On Ethereum, a single transaction costs about $4 in fees. With Polygon, the cost is 0.00007 cents. Similarly, depositing money into a pool on Ethereum costs $30, on Polygon only 5 thousandths of a cent.
What are the functions of Polygon?
Polygon’s features are astounding, both from an end-user and developer’s point of view. The development environment is beautiful, and allows for fast blockchain implementations, while leveraging the best of Ethereum. For example, consider security.
Polyogn is fully compatible with Ethereum. It uses the same programming language (Solidity) and the same tools, such as Remix and Truffle. The system is also very scalable. This is because it is possible to deploy custom chains, choose your own consensus algorithm and use specific execution environments.
The security level is fully configurable. The developer can choose Ethereum or a set of specific validators. In fact, Polygon makes it possible to create blockchains that are completely sovereign in terms of governance or technological stack.
The protocol is aimed at interoperability. So it is possible to exchange with Ethereum, but also with other blockchain networks, thanks to the bridges. Moreover, Polygon is completely modular. These modules make it possible to develop custom networks or to interact with existing networks. A wide range of preset blockchain networks can be deployed in one click. Finally, the user/developer experience is greatly enhanced by the smooth operation for the user coupled with the ease of execution.
So there are a lot of layer 2 solutions that want to make the blockchain world a bit better. Since the technology is still very new, there are many projects that are experiencing problems. The demand for blockchain and crypto has risen sharply in recent years, while the development of these projects can hardly keep up with the demand. This makes developers lag behind, which is only logical.
It takes some time before problems can be tackled at the root. That is why more and more companies and teams are choosing to develop a solution themselves that runs on top of the blockchain of, for example, Ethereum. These are the layer 2 solutions, which do not run within the blockchain itself.
Most layer 2 solutions are focused on improving scalability. This ensures that transaction costs will decrease, while transaction time will increase. Solving these kinds of problems is quite broad, but there are also solutions that focus on a specific part of scalability. Consider, for example, the scalability of decentralized exchanges.
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com