The development and opportunity of the comprehensive dismantling of the Layer 2 track: who will be the final winner

Solutions for the expansion of the public chain are constantly being proposed. Can Layer 2 become its optimal solution? What value can Layer 2 provide? This report will start with the origin of Layer 2 expansion, analyze the development history of Layer 2 and grasp its development direction. The report exceeds 10,000 words, please arrange reading time reasonably.

1. Summary

2. The origin of Layer2 extension

1. How does Layer 2 make it onto the stage of history?

2. The meaning of Layer 2

3. Bitcoin’s Layer 2 evolution route

1. State channel: Lightning Network

2. Side chain: Liquid, RSK

4. The history of Layer 2 development of Ethereum

1. Status channel

2. Side chain




Five.Layer2 technical comparison and development pattern prediction

Six.Layer2 pattern and investment opportunities

Seven. Risk Warning

1. Summary

Evolution of Layer2:

With the widespread use of public chains such as Bitcoin and Ethereum, their own performance problems have gradually become pain points that restrict their development. For this, a series of solutions around how to expand the capacity of these public chains have been continuously proposed. One direction is the expansion of the public chain itself, that is, the expansion of the Layer1 layer, such as ETH2.0; the other direction is the solution to transfer the information that needs to be processed on the chain to the off-chain processing solution, that is, Layer2.

In 2015, the issue of how to expand the performance of Bitcoin has aroused widespread discussion, and then proposed solutions for Layer 2 of Bitcoin such as the Lightning Network and Liquid Network. Layer 2 made its debut on the stage of history; in 2017, the ecosystem of Ethereum began. With the gradual development, the digital assets built on Ethereum are very rich, and many blockchain applications, such as various DeFi projects, are also springing up on Ethereum. The vigorous development of the ecology directly makes Ethereum overwhelmed. The transfer fee has remained high for a long time, and the transfer efficiency has been so slow that it seriously affects the experience.

Although V God, the founder of Ethereum, proposed various plans for the upgrade of ETH2.0, which will solve the performance problems of Ethereum in one fell swoop, but the upgrade of Ethereum will not be late, and we cannot guarantee the upgrade to Ethereum 2.0. Does Fang really no longer encounter performance problems? Therefore, in the current situation that the expansion plan of the Layer 1 layer of Ethereum is difficult to implement, this has promoted the rapid development of the Layer 2 solution on the Ethereum . At this time, Layer 2 has gradually become a large sector that needs to be focused on.

Value discovery of Layer2:

Layer2 is an extension of Layer1, which can break through the original performance and functional limitations of Layer1. This makes Layer2 very flexible and can provide Layer1 with more rich functions and performance extensions like wearable devices. It does not affect the characteristics of Layer1 itself. In this way, in the absence of a so-called perfect public chain, a role like Layer 2 must be a very necessary role in the blockchain field.

Investment Advice:

The current DeFi market is gradually being sought after by everyone, and the popularity of Layer 2 has increased accordingly. Among them, Polygon , as the Layer 2 aggregation platform, is the absolute leader of Layer 2 , and it is the leader in terms of lock-up funds and popularity. In addition, the technological development of Layer 2 is still trying in many ways, gambling with each other, and entering the market verification stage. Judging from the current situation, ZK Rollup is likely to become the final solution of Layer 2.

However, the current development rhythm of Layer 2 is highly related to DeFi. When DeFi is dead, the performance of Layer 2 will also be affected. However, as some DeFi projects are actively exploring institutional-oriented DeFi applications, in the future DeFi will attract more funds to enter the market, and Layer2 will usher in a real test by then, pay close attention to the follow-up development of DeFi and Layer2 technology The evolution situation may be able to seize the dividends of ecological development.

progression stage:

Pre-Rollup stage : The idea of ​​early Layer 2 is basically the state channel and the direction of the side chain to explore, but the state channel cannot meet the privacy protection requirements of decentralization and anonymity, and the asset control of the side chain is off the chain. This will shake the security of the main chain assets, so none of them is an ideal Layer 2 solution.

Post-Rollup stage : With the emergence of Rollup technology, the team on the Layer 2 track that was in a bottleneck at the time was inspired. Because Rollup technology will release some data about block releases or status updates to the main chain, it improves throughput while also improving the throughput. And it overcomes the data withholding attack problem of the side chain. So many Layer 2 started to evolve different Rollup solutions around the logic of Rollup. However, some Rollup solutions still do not fundamentally solve the security problem of assets, so we believe that with the advancement of zero-knowledge proof technology, ZK Rollup is more likely to become the final Layer 2 solution .


Bitcoin’s Layer 2 track: Recently, the consensus on Bitcoin in traditional fields is getting higher and higher. Many traditional companies have considered supporting Bitcoin payment. You can pay attention to the progress of Bitcoin Layer 2 in solving payment problems.

Ethereum’s Layer 2 track: Pay attention to the leader of Ethereum Layer 2 Polygon, and the Zero-knowledge proof track ZK Rollup’s Layer 2 solution can bring its ultimate user experience and zero cost advantage without gas fees. We think ZK Rollup will be a comparison The ideal Layer 2 solution requires close attention to the technical improvements of ZK Rollup and the application development of ZK Rollup.

risk warning:

Regulatory policy uncertainties, the development of blockchain infrastructure are not up to expectations, and speculative risks are widespread.

2. The origin of Layer 2 extension

1. How did Layer2 make it to the stage of history?

The Layer2 solution is a solution that adds a second layer to the original first layer. In the blockchain field, it refers to the original blockchain (Layer1, which is the first layer, such as bit On the basis of Bitcoin, Ethereum, etc. , it provides new functions and performances without tampering with any decentralization or security features on Layer 1 .

Bitcoin is the earliest and most consensus project. As more and more people use it, its transfer speed is too slow and the performance problem of too high transfer fees has gradually become a major pain point. Therefore, many teams have begun to study the expansion plan for Bitcoin early, among which there are ways to improve the parameters or mechanism of Bitcoin itself, such as expanding the block size of Bitcoin and other such Layer 1 expansion solutions. There are also mechanisms that consider putting a large number of transactions down the chain for processing, such as the Layer 2 solution of the side chain of the Lightning Network proposed in 2015.

As a result, the term Layer 2 quietly entered the blockchain field. Although the Lightning Network has attracted considerable attention, and there are also new Bitcoin Layer 2 solutions like Liquid Network and Rootstock (RSK) that are eye-catching, but at the time, everyone did not regard Layer 2 as a huge game. Instead, these solutions are incorporated into Bitcoin’s expansion plan, with the focus on expansion, not Layer 2.

And Layer 2 continues to launch Layer 2 solutions like today, as well as applications based on different Layer 2 solutions, which can be seen as a huge track that can carry the ecology, mainly because of Ethereum. The reason for exploring Layer2 is stimulated by the development needs of the company .

Since the birth of Ethereum, its low transaction speed has been criticized; from 15 to 17 years of development, a large number of blockchain technology projects have deployed DApps on the Ethereum chain, which has caused the entire Ethereum transaction channel to become more Crowded, high gas fees make many blockchain project participants discouraged. The deepest memory is that after the emergence of the NFT’s initial project, CryptoKitties, in 17 years, blockchain investors began to flock to Ethereum to hype this NFT, and for a while, the entire Ethereum network was paralyzed.

After the bull market in 2017, Ethereum has not come up with a good solution. In 18 years, the blockchain world has been lightly traded, and the demand for Ethereum has not been so strong, so that everyone forgets the high gas fee and congestion of Ethereum for a while. The problem of trading experience.

In 2019, the entire market began to slowly return to popularity, V God began to focus on the layout of ETH2.0 solutions, but until 2020, the entire blockchain market is fully heated, ETH2.0 solutions have a relative Clear planning and path. But even so, the path of technology upgrade is still long and obstructive. Developers agree that the 2.0 upgrade will take at least 2 years or even longer. The completion of the 2.0 upgrade only solves the problem of transaction speed, but does not solve the problem. In terms of transaction scale, ETH still needs to continuously upgrade its technology and expand its capacity to solve more network development needs.

Starting in June 2020, the DeFi sector has slowly attracted the attention of the market. Because the design ideas of financial derivatives have been empowered in the field of cryptocurrency, the transaction privacy of decentralized finance has been realized, and the design of cryptocurrency and traditional finance has been opened up. The idea has enabled a broader development and application scenario in the field of encrypted assets. The DeFi market has grown rapidly from a scale of several billion US dollars in June to a scale of 100 billion US dollars in December 2020 . The rapid expansion of the application demand and the influx of traders once again experienced the main network problem of the Ethereum network. The high gas cost once reached tens of dollars, and the crowded trading channel experience returned to the human telegram period.

So BSC, Heco, and other centralized DeFi application public chains began to emerge, and soon surpassed the old DEX such as UNI in the number of transaction users and transaction scale. Although the application public chains such as BSC and Heco provide a silky transaction experience and low transaction fees, they have not achieved complete decentralization. This is the biggest criticism and the biggest pain point that is not allowed by the blockchain network.

However, ETH2.0 has not been realized for a long time, and the solution for market expansion cannot be placed on the centralized public chain, so V God began to revisit the Layer 2 solution proposed in the early development of Ethereum. On the premise that the main network cannot quickly increase the transaction speed, put the expansion plan into the chain, which is the main core technical point of Layer2 .

As a result, Layer 2 really began to enter the room, into the field of vision of most people.

2. The meaning of Layer2

2.1 The composition of Ethereum gas fee

Ethereum’s network congestion problem keeps gas costs high, especially after more and more applications are deployed on the network, this has become an important reason for restricting its development. When the market heat and volatility increase, many people are forced to bear higher gas fees to ensure that their transactions can be processed as soon as possible.

So how does the high gas cost constitute? Only by understanding the causes of high gas costs at a deeper level can we understand the meaning and role that Layer 2 can play.

According to the understanding of the Ethereum white paper, the calculation method of gas fee on Ethereum is fuel unit price (gasPrice) * gas spent (gasUsed)

The development and opportunity of the comprehensive dismantling of the Layer 2 track: who will be the final winner

GasPrice is a quotation method. You can choose the price of the quotation yourself. The gasPrice is related to the transaction speed. The gas price (gasPrice) is positively correlated with the priority of the transaction. When the transaction demand of the same complexity, the higher the gas price (gasPrice), the miners are more inclined to prioritize the processing, and the transaction speed is faster ; that is to say, the same complexity Degree of transaction requirements (here we must remind, for example, transfer 1 ETH and transfer 10,000 ETH, their transaction complexity is the same, generally this kind of transfer difficulty is calculated by pen, not by amount. Yes, this is related to bookkeeping, not to the amount of bookkeeping), the order of transactions is sorted according to the gasPrice.

So what does the level of gasUsed have to do with it? GasUsed has a positive correlation with the complexity of the transaction. The higher the complexity of the transaction, the higher the gasUsed; on the contrary, the lower it is. For example, if you perform transfer operations and leverage operations separately, the former will usually cost less than the latter because the leverage operation is more complicated.

Therefore, to reduce the high gas fee of Ethereum, two schemes can be used. One is to reduce the gas price (gasPrice), and the other is to reduce the complexity of the transaction to achieve the effect of reducing gas used . Obviously, Layer 2 transfers the transactions that need to be calculated on the main network to the chain, and then feeds the calculated results back to the main network to reduce the complexity of transactions and reduce gas costs; the solution of ETH2.0 is to reduce the main network. The unit price of gas fuel on the network, thereby reducing gas costs.

Therefore, before ETH2.0 was not implemented, Layer 2 was a nearly perfect solution.

2.2 The meaning of Layer2

So while Layer 2 reduces the complexity of transactions, that is, gasUsed, what more significance and effects can it bring to Ethereum and the entire blockchain network?

Main chain expansion performance

Layer2’s solution packs complex transaction calculations into the off-chain for calculations, and then feeds back the calculation results to the chain; by completing the calculation of complex transactions off-chain, the transaction speed is greatly improved, and at the same time, only the transaction results are calculated on the chain. , So as to achieve a low gas fee transaction result.

Huadan Polygon, the current popular leader of Layer 2 in Ethereum, has reduced the transaction speed to a few seconds, and the cost is about $0.00002 (although the price of the currency has risen a bit, but this does not affect the gas fee is still very low), greatly achieved in performance The performance of the main network is expanded.

Main chain extension function (such as smart contract function)

Since Layer2 can transfer more and more complex requirements to off-chain, due to the limitations of the previous blockchain mainnet development, some functions that cannot be realized by the mainnet can be extended off-chain through Layer2. , This is the core value point and competitiveness that the Layer 2 niche can exist after the ETH2.0 upgrade.

For example, a public chain like Bitcoin without smart contracts can realize the functional expansion requirements of smart contracts like Ethereum after the Layer 2 technology matures, such as the early Polkadot project ChainX and the popular RSK a few years ago. (Rootstock) started experimenting in this area a few years ago.

At the same time, in terms of privacy computing, the early development of Layer 1 did not consider this issue. With the fire in the DeFi field and the development needs of DEX, the privacy of transactions has been paid more and more attention. While Layer 1 cannot solve this problem well at present, Layer 2 can extend this function to be completed in the chain.

With the development of blockchain technology, more and more commercial application scenarios will be implemented, and the functional requirements of the blockchain will become more and more abundant. It is difficult to achieve substantial breakthroughs in the scalability of the main network. Layer 2 is used as The technical implementation path of off-chain function expansion will assume a very important ecological role and play a vital role in the development of blockchain technology .

2.3 The development path of Layer 2 on the Bitcoin and Ethereum networks

Although the reasons for the congestion of Bitcoin and Ethereum are caused by the sharp increase in transaction volume, the deep-seated reason is that the Bitcoin network is mainly derived from the problem of channel congestion due to the large increase in the value exchange demand of financial attributes. ; The reason for the congestion of the Ethereum network is really because the DApp carried on the entire network is widely used and led to the result of a sharp increase in transaction volume. This makes the results of the two are the same, but the focus of the route direction to be expanded by Layer 2 is different.

The direction of layer 2 expansion of the Bitcoin network is mainly in the direction of value exchange of financial attributes, that is, to solve the problem of small and high-frequency payment, etc. (here refers to the main direction. Bitcoin also has the exploration of functions such as the smart contract Layer2, but There are not many at present, you can pay attention to the progress of Bitcoin Taproot upgrade), and the direction of Ethereum Layer 2 expansion is mainly to solve the problem of performance expansion and function expansion.

3. Bitcoin’s Layer 2 evolution route

Bitcoin’s Layer 2 solution mainly includes BTC’s Lightning Network (Lightning Network) and side chain technology.

1. State channel: Lightning Network 

Since the first big bull market of BTC in 2015, the expansion of the Bitcoin network has been plagued by Bitcoin traders and users; the expansion idea of ​​the Lightning Network was originally developed by Joseph Poon. He and Thaddeus Dryja (Thaddeus Dryja) proposed in the 2015 white paper that the Lightning Network has been in heated discussions since its proposal, but at the same time it is also the most popular off-chain expansion plan; due to many controversies In terms of sexual theory, the mainnet of the Lightning Network has been dragged until its documents were proposed for 3 years, that is, in March 2018.

1.1 What is Lightning Network

The Lightning Network (Lightning Network) is a protocol that can provide a series of off-chain two-way payment channels. How to understand this concept more simply and understandably?

Here we can compare the Bitcoin network to an old city that has not undergone large-scale expansion before. The roads and traffic in the old city did not take into account the large-scale growth of traffic and people at the beginning of the construction, so the design is all It is very narrow. Generally, the main road in the old city has only two-way two-lane design in some small counties. This is like the early Bitcoin network. The block capacity is difficult to expand. So how to solve this problem?

It is difficult to widen the width of the road to solve the traffic problem in the old city to improve the road, so how to solve it? Anyone who has done urban planning knows that the first step is to divide the traffic between people and vehicles, and build a pedestrian bridge on the road so that people can walk up and down; the second step is to separate motorized and non-motorized vehicles. Motor vehicles use motorized lanes, non-motorized vehicles use non-motorized lanes; the third step is to divert vehicles according to their functions and service types, and buses and emergency vehicles use bus lanes and emergency lanes; then there may be a lot of traffic congestion after such diversion. How to solve the problem?

Build an elevated road on top of the original road, similar to the second ring elevated road that we now have in most cities, and divert traffic again.

This analogy is equivalent to the Lightning Network, and the functional channel settings for these diversions are similar to Bitcoin’s Lightning Network. Of course, this does not fully explain the working principle of the Lightning Network, because it involves the mortgage lending problem of financial payments, which is more like the circulation problem of banks and guarantee companies, as well as small loan companies . However, since the complexity of this analogy is much higher than that of the urban road diversion plan we used above, we did not make such a comparison. It is precisely because of the problem of loan and mortgage mapping that the Lightning Network is still very controversial.

1.2 Lightning Network “Two Sides of the Coin”

Although the Lightning Network has been proposed since 15 years, it is still in the development stage. Whether it can implement its functions as the developers expected in the future still needs time to test. In the book “The Essence of Technology”, it is mentioned that the development of technology needs to be supported by the perfection and enrichment of theories. We believe that the development of Lightning Network technology will be extremely possible with more and more solutions and theories. Therefore, the possible advantages of the Lightning Network cannot be ignored:

Obverse of coin

1. Fast transaction speed

If the Lightning Network officially runs successfully, its transaction speed will be as lightning-fast as its name. You don’t have to wait tens of minutes for the completion of multiple transactions, the transactions can be completed instantly. Just like the revolution of the telephone link to the telegraph machine (the previous telegraph machine needs to be transferred to the intermediate station, the intermediate station then transferred to the intermediate station of the next location, and then transferred to the corresponding receiver) the signal can be completed in an instant Links and exchanges of information. The completion of the Lightning Network may completely challenge the current traditional payment systems such as Visa, MasterCard and PayPal.

2. Low transaction fees

Since the Lightning Network is performed off-chain, the load pressure on the main network is not large, so a large amount of transaction fees can be saved, so that the transaction fees can be very low. If the transaction fees of the Lightning Network can be lower than the current financial system’s clearing and settlement fees, then we can see that large-scale cryptocurrency payment methods will become a reality.

3. High security

We know that most cryptocurrencies are not completely anonymous. When registering a wallet or exchange, we all need to perform KYC authentication, so centralized exchanges and wallets can still track transactions from one wallet to another. However, in the Lightning Network, most transactions occur outside the main network, so it is almost impossible to track all small payments made through the Lightning Channel.

4. Strong scalability

The Lightning Network’s cross-chain atomic swap has been successfully tested. Users can transfer money from one chain to another without trusting third-party intermediaries; and the Lightning Network will promote the unprecedented number of transactions per second of Bitcoin and other cryptocurrencies. The height of-the order of millions of pens per second. Once the problems of the scalability and transaction liquidity of the Lightning Network are resolved, the efficient circulation of all encrypted assets in the blockchain world will be realized , and the network value effect of encrypted assets may be truly stimulated. This may be the most attractive of the Lightning Network. Where the value lies.

The development and opportunity of the comprehensive dismantling of the Layer 2 track: who will be the final winner

The reverse side of the coin

1. High channel complexity

To talk about the complexity of the lightning network, we still need to go back to our initial comparison of the reconstruction of the lightning network to the planning and reconstruction of the old roads in the old city. For example, you need to go from point A to point C now, but now all People are jammed on the road. You can only get to point C by queuing slowly and enduring traffic jams, but now you don’t have to. If you choose to walk, you can take the pedestrian bridge to point C; if you drive a motorized vehicle, you just go. If you are taking a bus, you can use the bus lane to reach point C; if you don’t want to wait for the traffic lights, you can take the second ring elevated highway to point C; the intermediate solution is plan B. If you are a team and want to reach point C together, you need to divide dozens of channels or even more plan B to arrive, so the complexity of the lightning network is very high.

2. The positive correlation between the number of channels and the loss of transaction efficiency

We said in the initial conceptual analogy that the road planning and reconstruction of the old city is an analogy of the Lightning Network, but the actual more vivid category is the loan mortgage relationship of the bank. For example, if A wants to transfer a sum of money to E, it cannot be directly To arrive, it does not need the Lightning Network to be able to reach directly; therefore, it needs to be divided into three small payments through the three channels of B, C, and D to reach E. At this time, B, C, and D are required to have the same amount at the same time Only when the money above the amount is pledged can the transfer to E be initiated, and the transfer can be successful.

For example, now A wants to transfer 3 BTC to E and transfers to E through B, C, and D. Assuming that B, C, and D share this transfer behavior, then B, C, and D need to own at least 1 BTC before they can initiate the transaction. For E’s transfer behavior, the transfer behavior from A to E can be successful, so the transfer efficiency is 3/6=50%. This is only a problem of one channel. What if it is two layers? 3/3*3=33.3%. Obviously, we found that this is a 3/3 N-th power efficiency equation. When the number of channels that need to pass through is more, the efficiency of transaction loss is greater. This is also One of the biggest problems criticized.

3. The problem of centralization of Lightning Network nodes is serious

The largest liquidity of the Lightning Network is provided by the LNBIG team. According to 2020 data, LNBIG currently operates 25 public nodes, roughly controlling about 50% of the entire LN capacity. Since the business model of running nodes and charging routing fees is not profitable, we are concerned about the security and centralization issues of the Lightning Network .

2. Side chain: Liquid, RSK

To solve the congestion problem of Bitcoin, in addition to the off-chain solution such as the Lightning Network; there are other off-chain expansion solutions, namely side chains. There are two current side chain technologies, one is Liquid and the other is RSK.

2.1 liquid

Liquid Network is a side chain solution proposed by Blockstream in 2018. The main difference between it and the Lightning Network is that the Liquid Network focuses more on enterprise-level blockchain users, while the Lightning Network is more suitable for individual users.

The working principle of Liquid Network is equivalent to opening a central bank outside the Bitcoin network. This central bank is composed of Blockstream alliance members . Currently, there are 44 members of this “central bank” alliance, and its screening mechanism is Only those very well-known entities (such as Atlantic Financial, Bitbank, Bitfinex, BitMEX, OKCoin, Coinone and other well-known platform parties) can join.

How is the “central bank” function of the Liquid Network implemented? It means that the main chain needs to transfer money, but because the channel is congested for a long time, it is equivalent to selling a batch of goods on the main network and then transferring a sum of money, but this check cannot be cashed immediately because it is a mailed check. And now Liquid Network says that it’s okay if you don’t have any money. I have already seen your contract for this order. Our affiliate network has approved this transaction. You pledge the order check to my “central bank”, and I will give you a loan. After paying out the money, “L-BTC” was opened, and you can use it first. When you get the check and pay me back, I will unlock your order check and the loan relationship will be resolved.

This is the main working principle of Liquid Network. Because there is a “central bank” composed of a sufficiently credible alliance to endorse. This makes transactions on the Liquid Network more trustworthy and faster when transactions are off-chain. Similar to the completion of a trust transfer mechanism under the expectation configuration behavior.

Even though this is a good expansion solution that can quickly, credibly, and anonymously and privately achieve the flow of BTC, its development status is not very good. According to Liquid’s block explorer, most of the The side chain blocks are all empty, or only single-digit transactions. Although the main focus of Liquid has shifted to tokenized securities, the upper limit of circulation of tokenized assets on Liquid is very small. Therefore, Liquid Network’s solution still needs time verification and user approval, especially the approval of users from large institutions .

2.2 RSK

RSK once claimed to be the most perfect combination solution of “Bitcoin + Ethereum”. RSK realizes the two-way peg between Bitcoin and Ethereum, which combines the asset attributes of Bitcoin and the smart contract attributes of Ethereum to generate RBTC (Smart Bitcoin). Similar to Liquid, RSK also uses a federation. To ensure the two-way pegging, the members of the RSK alliance are not disclosed and are only identified by the public key.

There is not much difference between the working principle of RSK and the working principle of Liquid in essence, but there are several more functional extensions in the alliance function:

1. A Turing complete virtual machine (RVM) that allows participation in the construction of smart contracts.

Because RSK integrates the smart contract function of Ethereum, it completes the non-programmable function extension of Bitcoin in terms of performance expansion. As a general smart contract platform, RSK smart contracts are written in Solidity. RSKVM (RVM for short) is also compatible with Ethereum VM. Future versions will improve Ethereum’s EVM.

2. Increased the programmability of Bitcoin and expanded the margin of Bitcoin’s payment scenario.

As RSK integrates the smart contract programmable function of Ethereum, Bitcoin payment can become more diversified and flexible, and the flexible extension function of Bitcoin payment scene can be opened, so that R-BTC can meet more demands. Multiple payment scenarios and application scenarios.

3. Joint workload proof mining mechanism.

The joint mining mechanism can attract more miners to join the network, increase the security and stability of the network, and be more conducive to the development of the entire network.

4. The history of Layer 2 development of Ethereum

After June 2020, with the prosperity of DeFi and NFT ecosystems, the average daily gas price of Ethereum once reached a high of 710 Gwei; however, ETH2.0, as the true solution of Ethereum, is still in the foreseeable future, so it is called Layer 2 of ETH2.0’s alternative solution has once again become the main solution in the market.

It is generally believed that the Layer2 sector is regarded as the most effective expansion solution before the arrival of ETH2.0 . Looking at all the current Layer 2 solutions, the main idea of ​​its expansion method is basically the off-chain expansion, that is, the calculation and functional requirements of Ethereum Layer 1 are placed off-chain, thereby reducing the work pressure of Layer 1 and improving the efficiency of the main chain. Therefore, from the perspective of Layer 2’s overall thinking, it is an indirect way to improve the efficiency of Ethereum itself.

Since computing and function expansion are placed off-chain, Layer 2 can theoretically “infinitely expand”, and the efficiency of processing transactions through off-chain computing is greatly improved.

Although Layer 2 can greatly increase the transaction speed, the disadvantage is the sacrifice of data security, transaction authenticity and anonymity. Users who want to use the Layer 2 solution for transactions need to transfer assets from Layer 1 to Layer 2; after the transaction ends, users who want to use the assets for other purposes also need to withdraw (withdraw) the assets from Layer 2 to Layer 1. This sacrifices the security of data and the authenticity of transactions, so what is the most important problem that Layer 2 needs to solve? It is the security of data, the authenticity and anonymity of transactions, and the withdrawal cycle of assets (the time from Layer 2 to Layer 1).

At present, Layer 2 can be divided into several camps from the plan, including state channels, side chains, Plasma, Rollups, and Validum. Among them, the refinement of the Rollup program that is currently optimistic in the industry can also be divided into Optimistic Rollup (multi-round interactive Arbitrum Rollup), ZK Rollup, zkPorter, and starknet.地Analysis.

Before analyzing these technologies, we need to distinguish between these solutions who are the real expansion solutions, rather than guessing expansion solutions. Then we need to explore the premise of the Layer 2 solution? We believe that the premise for distinguishing the Layer 2 solution is the security issue on the asset side. In the final analysis, it is necessary to clarify “who controls the export of assets”. That is, whose hands the transfer rights of assets are controlled, the purpose of Layer 2 is to increase transaction speed and expand functional requirements, but the security of Layer 1 cannot be broken. When the security of Layer 1 is broken, the ownership of assets is controlled off-chain. At this time, the meaning of Layer 2 does not exist. So what is the prerequisite of the expansion plan? The expansion plan is meaningful under the premise of ensuring the control of assets.

Based on this one point, we will retort the market expansion plan.

1. Status channel

The working principle of the state channel is to open a channel under the chain. The user transfers the assets on the chain to the channel by locking the assets in the smart contract, and conducts asset interaction in the channel. Asset interaction operations in the channel will not occupy the resources of the main chain, and do not need to consume expensive transaction fees. It is suitable for some high-frequency small payment scenarios , such as game scenarios. The user settles when leaving the channel, and the assets will be transferred back to the main chain.

The development and opportunity of the comprehensive dismantling of the Layer 2 track: who will be the final winner

Although the state channel solves the problems of channel congestion, low transaction efficiency, and function expansion, it has obvious limitations. First of all, the scope of use of the state channel is limited to users who join the channel, and cannot send funds to users outside the channel; second, the assets in the state channel must have an owner at the logical level, which means that KYC authentication must be used, and it cannot be done. To the privacy protection needs of decentralization and anonymity; that is to say, on Uniswap, because its traders do not have a clear owner’s object, the state channel technology cannot be applied, and the DeFi application is currently one of the largest applications on Ethereum , Because of its privacy requirements, the state channel solution has not been adopted.

At the same time, because the off-chain transaction data is not stored on the chain, but is completed by the off-chain transaction completion feedback to the on-chain to complete, the control right export of its assets is threatened, so the state channel cannot be regarded as a real solution for Layer 2.

2. Side chain

Opinion: Strictly speaking, the side chain is not a perfect Layer 2 solution.

Similar to the working principle of Bitcoin’s side chain, the essence of Ethereum’s side chain is actually to form a separate settlement “central bank” alliance on the periphery of the main chain, which maps transactions on the chain to off-chain for calculations, and then returns the calculation results. On the chain; the details of the description method have been described in detail because of the part of Bitcoin, so I won’t repeat it here. The transaction data of the side chain is not stored on the chain, and the transaction result is returned from the chain to the chain, so the control of the capital is essentially off the chain like the state channel, which shakes the essence of the security problem of Layer 1 , And this problem has always been a big problem that side chains have been criticized, so in a strict sense, side chains are not a perfect solution for Layer 2.


Viewpoint: A special side chain, but it is still not a perfect Layer 2 solution.

In 2017, Ethereum was affected by the fierce lC0 market, and the channel congestion experience was extremely poor; at an exchange meeting, V God and Joseph Poon published a paper introducing a second-layer expansion scheme of Ethereum, which is Plasma.

Plasma was once the most popular side chain solution in Ethereum, but it is now gradually declining. The fundamental reason is that the control of its assets is off-chain, which shakes the asset security of its main chain . This is still a continuation of the dilemma of the side chain, and it is also the reason why we still believe that Plasma is not a perfect Layer 2 solution. Let me analyze the working principle of Plasma and clarify its advantages and disadvantages:

The working principle of Plasma is to first build a Plasma chain outside of Ethereum. Users transfer assets from Ethereum to the Plasma chain. This process requires the main chain assets to be sent to the smart contract that manages the Plasma chain, and the asset can enter the Plasma chain. To interact with each other. Every once in a while, the operator (verifier, operator, or node) of the Plasma chain will perform a batch processing of the transactions of the Plasma chain within this time period and generate a Merkle tree, which is equivalent to generating a block. The operator will return the Merkle root of the Merkle tree (that is, the result of the calculation) to the main chain, and will also send the Merkle branch of an asset transaction in the Merkle tree to the current owner of the asset.

The development and opportunity of the comprehensive dismantling of the Layer 2 track: who will be the final winner

According to the above working principle, we can know several problems of Plasma:

1. The exit cycle is relatively long, because assets must first be transferred from the main chain to the Plasma chain. The Plasma chain generates blocks after transactions and then returns to the main chain; when it is to be launched, the assets need to be withdrawn from the Plasma chain first. This process requires a long cycle; usually 7-14 days.

2. The security problem of Layer 1 cannot be fundamentally solved. Since assets need to be transferred from the main chain to the Plasma chain first, although the verification method uses a fraud proof method with a reward mechanism, it still cannot solve the asset fundamentally. Security issues.

3. It does not fundamentally solve the problem of transaction efficiency, because the working mechanism of Plasma is to process and generate Merkle trees in batches every once in a while. If there is an extreme market or situation, a large number of users initiate in this period of time. The extraction of assets means that a large number of results will be published on the main chain, and the congestion problem of the main chain is still facing tremendous pressure. Because fundamentally speaking, Plasma does not solve the essential problem of transaction efficiency.


Due to the inability of the Plasma solution to solve asset security (data availability) and other issues, it is gradually declining, and the more superior Rollup solution has begun to become the most concerned and most valuable Layer 2 solution.

The working principle of Rollup is very similar to Plasma, but the two are fundamentally different. Plasma does not solve the problem of asset control, while Rollup solves this fundamental problem:

Plasma essentially transfers calculations and data off-chain (that is, the assets are transferred from the Ethereum main chain to the Plasma chain) . Since Plasma returns to the Ethereum main chain the processed result (ie the Merkle root), Merkle The root is a calculated result and does not contain information about every transaction. If the operator of the Plasma chain refuses to send the underlying transaction data to the user, then there will be a problem of data unavailability, which will affect the control of assets and security issues.

The Rollup solution is to package and compress a large number of transactions under the chain, and then publish the compressed data to the main chain. All compressed data published to the main chain contains the basic information of each transaction, which ensures the availability of data ( Verifiability), which in turn can achieve trust-free operators. The verifiability of assets is realized, and then the problem of asset control is realized, but the problem of asset security is still not completely solved.

Because Rollup’s solution is to verify the authenticity of its transactions by returning compressed data packets (containing the basic information of each transaction), but we still cannot guarantee that every transaction is true, so there is still one of them The core security issue.

Therefore, there are three different solutions to this core problem, but in essence, the two solutions are ZK Rollup based on “Validity Proof”, Optimistic Rollup based on “Fraud Proof”, and Multi-round Interaction Based Arbitrum Rollup of “Fraud Proof” .

4.1 ZK Rollup

We explained the working principle of Rollup above, so we won’t go into details here; what are the essential differences that we analyze directly?

The proof mechanism of ZKRollup uses zk-SNARK or zk-STARK (“zero knowledge” zero-knowledge succinct and non-interactive proof) technology. Zero-knowledge proof means that the prover (operator) can convince the verifier that a certain assertion is correct without providing any useful information to the verifier. This result is verified by mathematical methods, and there will be no errors. That is, the security is scientifically guaranteed, and since no interactive fraud proof is required, the transfer time is greatly improved.

But its shortcomings are also obvious now, that is, because Layer2 returns the result of Layer1, it needs to be proved by calculation. Because the calculation of zk-SNARK or zk-STARK is extremely complicated, some chips with stronger calculation capabilities (such as FPGAs or ASICs) are needed. ) For support. At the same time, due to its relatively complicated technical operation, the expansion of some functions may be subject to some restrictions, and at the same time it leads to the problem of higher cost.

Therefore, ZK Rollup is not friendly to general-purpose smart contracts (such as DeFi applications), and is currently more suitable for application scenarios such as ordinary transfer transactions .

4.2 Optimistic Rollup

The difference between Optimistic Rollup and ZK Rollup is that Optimistic Rollup uses an interactive fraud proof method to ensure security, that is, when the calculation result of Layer 2 is returned to Layer 1, when the verifier believes that the result may be fraudulent, The verifier initiates a challenge, then the main chain freezes the assets, performs transaction data and record verification, and finally proves whether it is a real transaction or a fraudulent transaction. At other times, when no verifier doubts this result, the main chain defaults that these results are true, so this technology is defined as the human nature of “optimistic-Optimistic” Rollup .

The advantages of this technology are: the function expansion is very easy; the cost is relatively low.

The disadvantages are: low security (there is no fundamental protection of asset control, that is, the security of the asset is threatened); the asset will be frozen; and the withdrawal cycle is long.

4.3 arbiter Rollup

Arbitrum also uses fraud proof, which is roughly the same as Optimistic Rollup. The main difference lies in the way disputes are resolved during the challenge period.

Optimistic Rollup uses a single round of fraud proof. During the operation of Rollup, if someone questions and challenges the operator’s batch operation, then it will simulate and call the entire batch of data at one time on the main chain to verify whether There is fraud.

The Arbitrum uses multiple rounds to prove fraud, breaking large-scale controversy into small controversy, step by step to find the specific location of the dispute in a batch, and then determine then execute the contract on the part of the smart backbone Is it correct . That is, only the most critical step is executed in the Ethereum main chain, rather than the entire batch process for verification.

Compared with a single round of fraud proof, the advantage of multiple rounds of fraud proof is that it can reduce the workload on the main chain and consume less gas; the disadvantage is that multiple rounds of verification require more time; the essence of the two can be attributed to the dispute resolution The trade-off between on-chain cost and time cost.

Another advantage of Arbitrum is that it is fully compatible with Ethereum EVM. Projects on Ethereum can be deployed to Arbitrum without modifying any code (code changes are required to migrate to Optimistic Rollup), and mature foundations such as MetaMask, Chainlink, and Truffle can also be used. Facilities and services.


The mechanism of Validium is very similar to ZK Rollup. The only difference is that the data availability in ZK Rollup is on-chain, while Validium keeps it off-chain. Data availability storage on the chain limits throughput-ZK Rollup has a strict upper limit on the current Ethereum mainnet-2000 transactions per second (TPS), while StarkEx using the Validium solution is 9000 transactions per second.

The advantage is that Validium has obtained higher throughput, faster transaction time, and stronger scalability of functions.

The disadvantage is that the security is low (the control of the assets is not guaranteed, and the security of the assets cannot be satisfied), and the assets will be frozen.

V. Layer2 technology comparison and development pattern prediction

ETH2.0 cures the root cause, Layer2 cures the symptoms, and multi-technology solutions are integrated and symbiosis. ZK Rollup is the best solution. According to the classification and analysis of the above technologies, we compared the solutions of Layer2.

The development and opportunity of the comprehensive dismantling of the Layer 2 track: who will be the final winner

Through the analysis of the above Layer 2 solutions, we found that there is no absolutely perfect solution, so we still believe that the best solution is still the ETH2.0 main chain expansion plan, but this technology upgrade still requires a long time Time period and the efforts of technical talents.

In essence, ETH2.0 is a permanent cure, and Layer 2 is a temporary cure . But even if ETH2.0 is upgraded, Layer2 is not without space. Layer2 still has its ecological position, because Ethereum still has its function expansion requirements, more secure asset application scenarios, etc.; so the two are symbiotic and coexistent. , Complementary relationship.

In these Layer 2 solutions, due to security issues caused by asset control issues, many Layer 2 solutions have been gradually eliminated, such as state channels and Plasma; and other solutions that can meet this problem have gradually shown their Vitality, such as Rollup’s solutions, in which Optimistic Rollup and Arbitrum are the easiest solutions in the current technical background; but their essence still does not fundamentally solve the security problem of assets, so we believe that with zero knowledge Proving the advancement of technology, ZK Rollup is more likely to become the final Layer 2 solution.

Of course, as the technology has not completed the iteration and the commercial cost considerations, we believe that various Layer 2 solutions should be integrated and co-existed for a long period of time, just like the current situation.

Six. Layer2 pattern and investment opportunities

The combination of the number of users and functional performance is the determining factor of the market value. ZK Rollup is the most important development direction in the future.

The development and opportunity of the comprehensive dismantling of the Layer 2 track: who will be the final winner

From the current point of view, in the main project, Polygon is the absolute leader and the Layer 2 aggregation platform, which integrates the strengths of various companies to provide a broader use scenario . OMG has the most user data, but because it has only one node to support its operation, there is a serious centralization problem, so the market value is not very high; at the same time, we see that although ZKSwap currently has the least number of users, it is due to its extreme user experience And the zero cost advantage of no gas fee makes its market value rank second among these projects.

At the same time, we also see that Polygon is also actively turning to the ZK Rollup direction, indicating that the future investment direction of Layer 2 is still the most optimistic about the opportunities in ZK Rollup.

In addition, the recent consensus on Bitcoin in the traditional field is getting higher and higher. Many traditional companies have considered supporting Bitcoin payments. Many start-ups targeting crypto payments have received huge financing. Bitcoin payment may be one of the further developments of Bitcoin. For the direction, you can pay attention to the progress of Bitcoin Layer 2 in solving the payment problem.

Seven. Risk Warning

Regulatory policy uncertainty . At present, the blockchain is in the early stage of development. There are certain uncertainties in the supervision of blockchain technology, project financing and tokens in various countries around the world. Therefore, there is uncertainty in the development of industry company projects.

The development of blockchain infrastructure fell short of expectations . Blockchain is the core technology for solving supply chain finance and digital identity. At present, the blockchain infrastructure cannot support high-performance network deployment. The degree of decentralization and security will have certain constraints on high performance. Blockchain infrastructure exists. The risk of development not meeting expectations.

Speculative risks are widespread . Layer2 is still in the early stages of development, and the direction of technological development has not been determined. At the same time, the irrational factors of market participants have led to widespread speculative behavior.


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