Ethereum Layer 2 Expansion Solution: The Magic of Breaking the Cocoon into a Butterfly

Ethereum Layer 2 Expansion Solution: The Magic of Breaking the Cocoon into a Butterfly

Blockchain has truly changed the world of cryptocurrencies and traditional finance by leveraging the following concepts:

  • Decentralized Services (Defi, DEX, DApp)
  • Secure and permissionless/trustless transactions through smart contract rules.

Bitcoin, Ethereum, Cardano, Solana, PolkaDot, ChainLink, Polygon (Matic) and many more, crypto is seeing huge growth among investors, retailers and traders. But at the moment, the increasing popularity of crypto has also led to many technical challenges that need to be solved by the developer community, especially when it comes to Ethereum, which is the main underlying blockchain technology for hundreds of developers to build on it Decentralized application services.

The success and rise of the Defi ecosystem is the real catalyst for the birth of ETH 2.0.

Why does Ethereum need to scale?

Traditional crypto projects face many problems in terms of speed and scalability. The Bitcoin network currently handles about 3-7 TPS, while Ethereum 1.0 is 10-15 TPS, and Visa has an electronic payment network that handles about 20,000 TPS.

Ethereum Layer 2 Expansion Solution: The Magic of Breaking the Cocoon into a Butterfly

The Bitcoin blockchain network has chosen to sacrifice speed for security and decentralization to ensure that every transaction is mined, distributed and verified by a vast network of mining nodes. This process takes a long time and is difficult to scale. The “Impossible Triangle” of blockchain technology has puzzled people for a long time, but the good news is that there are now multiple 2-layer scaling solutions in the blockchain system, which are designed to overcome the speed and scalability limitations of the underlying network .

What are the popular Layer 2 scaling solutions?

The main goal of a Layer 2 scaling solution is to increase transaction speed (faster processing speed) and transaction throughput (high TPS) without sacrificing decentralization or security.

These solutions are often referred to as layer 2 protocols built on top of the main chain, these layer 2 scaling solutions increase throughput without tampering with any of the original decentralization or security features, which are the original blocks components of the chain.

There are currently a variety of Layer 2 scaling solutions available, including:

  • State Channel
  • Rollup
  • side chain
  • Parachain
  • Fragmentation

Let us briefly discuss one by one.

State Channel:

Ethereum Layer 2 Expansion Solution: The Magic of Breaking the Cocoon into a Butterfly

State Channels help improve network efficiency when it comes to managing payment transactions. It does this by allowing multiple related user accounts to use direct communication channels for cryptocurrency transactions.

Bitcoin’s Lightning Network is one of the prime examples of using State Channels.

These channels process multiple transactions, but only the initial and final transaction status is recorded on the main chain of a given blockchain network.

Trinity is another example of an implementation of State Channels that supports the Ethereum, Bitcoin, and Neo blockchain networks.


Ethereum Layer 2 Expansion Solution: The Magic of Breaking the Cocoon into a Butterfly

This is another scaling solution that executes transactions off the main chain (layer 1), but once the transaction goes through, the transaction data is recorded at layer 1. Since the transaction data is at layer 1, this allows rollups to take advantage of the immutability of layer 1 as a security barrier.

Three key properties of Rollup:

  • Transaction execution happens outside of layer 1
  • The data or proof of the transaction is at layer 1
  • A Rollup smart contract (at layer 1) can enforce correct transactions at layer 2 by using transaction data at layer 1.

These Rollups contribute to blockchain implementation:

  • Low transaction fees
  • high openness
  • Fast transaction throughput

Type of Rollup: (based on security model)

  • Zero-knowledge Rollup (aka Zk-Rollup): Run computation off-chain and submit a proof of validity to on-chain.
  • Optimistic rollup: Assuming transactions are valid by default, only run computations with fraud proofs if something goes wrong.


A sidechain is an independent blockchain that runs in parallel with the main chain (mainnet of Ethereum, Bitcoin, etc.) and can run freely as a decoupled entity with its own behavior and properties.

Ethereum Layer 2 Expansion Solution: The Magic of Breaking the Cocoon into a Butterfly

Sidechains have their own consensus algorithms such as Delegated Proof of Stake, Byzantine Fault Tolerance, etc. They will typically use a two-way bridge or 2-way peg (TWP) to connect to the mainnet of a given blockchain network.

The sidechain’s TWP protocol allows the transfer of cryptocurrency assets from the main chain to a second-layer chain that requires a certain level of third-party trust to function.

Current main sidechain use cases:

  • Plasma sidechains: for the Ethereum network
  • Liquid sidechains: for the Bitcoin network

Plasma chain:

Ethereum Layer 2 Expansion Solution: The Magic of Breaking the Cocoon into a Butterfly

A Plasma chain is a decoupled blockchain that is tied to the main chain and enables fraud proofs (such as Optimistic rollup) to arbitrate disputes.

Liquid sidechains:

It is attached to the main chain of Bitcoin and its main purpose is to solve the scalability problem by loading some verification and transaction processing processes onto another sub-blockchain.

This enables the main chain to process a higher number of transactions and expand the size of the main network.


Ethereum Layer 2 Expansion Solution: The Magic of Breaking the Cocoon into a Butterfly

The name Parachain comes from the concept of a parachain running in parallel with the relay chain. Parachain is mainly used in the Polkadot network and is popularized in this system.

Due to their parallel nature, they are able to parallelize the processing of multiple transactions and achieve the required scalability. It can process transactions with greater efficiency due to the distributed workload.

Parachains share the security of the entire network and can interact with other parachains via cross-chain messaging (XCMP).

Cross-chain transactions are resolved using a simple Merkle tree-based queuing mechanism to ensure security (trust). But parachains can still act independently to solve their specific use cases, which is the core idea behind the Polkadot system.


Sharding is a common one-layer scaling solution that involves dividing the network into different partitions, called shards. These shards are given different sets of workloads to execute, which will ultimately help expand the network’s ability to execute transactions at scale.

Sharding helps spread the workload across the P2P network, bringing more computing power from more blockchain nodes, which helps speed up the block production process.

This layer 1 scaling solution can help reduce network latency as it splits the blockchain network into independent shards. However, sharding also has some security holes, and shards are more vulnerable relative to the entire network, which needs to be taken into account.

Popular scaling solutions:

Ethereum 2.0

Polygon (formerly Matic Network, Ethereum Layer 2 scaling protocol)

Loopring (a decentralized exchange protocol using zkRollup)

Harmony (Interoperable Ethereum Layer 2 scaling solution)

OMG Network (Layer 2 Capacity Expansion Solution)

PolkaDot (sharding & parachains)

Why do you need multiple expansion plans?

Various capacity expansion solutions enable the network to have higher reliability in handling high traffic demands. They ensure speed and maximum availability.

Different solutions can coexist and function harmoniously, allowing an exponential impact on future transaction speeds and network throughput.

Ethereum 2.0 is using a suite of such scaling solutions, none of which are adequate for its larger 2.0 vision.

In addition, a variety of scaling solutions do support a variety of consensus mechanisms, and the most suitable solution can be used according to the specific use case.

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