How Layer-Two Solutions Can Help Solve the Blockchain Trilemma

Understanding the blockchain trilemma

As blockchain increasingly becomes a mainstay of next-generation technology, its underlying concept faces a unique problem known as Blockchain Trilemma. Essentially, the blockchain trilemma is the problem of the inability to balance security, decentralization, and scalability in blockchains.

Decentralization is the ability of blockchains to distribute data and computing power to the many computers in their network. This is what ensures that the data is always secure and that no entity can hack into a blockchain network to obtain the data hidden there. In a sense, decentralization is the pillar on which the blockchain itself is built.

Security is not a new concept. It encompasses all the defense mechanisms of a blockchain network against threats and malicious actors who might want to take advantage of other computers on the blockchain in one way or another. With decentralization, security is a must for blockchains in today’s competitive industry.

But the third characteristic is where the problem really lies: scalability. Like any other network of computers, a blockchain must be scalable. It must support the influx of users that flock when it becomes popular, and it must be able to handle high transaction volumes.

While not necessarily as important as security and decentralization, scalability is essential because it represents the only way for blockchains to compete with traditional networks. Blockchains can support multiple transactions due to their scalability, and they are better suited to today’s fast-paced financial world.

Take Bitcoin for example. The Bitcoin network operates 24 hours a day, processing between 4 and 7 transactions per second – according to data from Blockchain.

On the other hand, VISA, one of the most popular traditional payment processors, handles up to 1,700 transactions per second. To compete with these systems, blockchains will need to match these levels of scalability.

Scalability continues to be an issue

Unfortunately, the scalability problem continued to grow. Blockchain is becoming more and more popular, with its adoption even surpassing that of cryptocurrencies themselves.

Worse yet, some blockchains have gotten much worse in terms of scalability. Ethereum is the most popular blockchain in the world due to its ability to support smart contracts. It’s not the only blockchain to have smart contract functionality, but it was the first to put this functionality in the spotlight. Thanks to this tenure, Ethereum continued to grow.

Today, most decentralized applications (dApps) in the industry rely on Ethereum. From non-fungible token markets (NFT) to decentralized finance protocols (DeFi?), Ethereum is the go-to source.

As a result, Ethereum’s scalability suffered. The blockchain doesn’t handle as many transactions and its gas costs have skyrocketed. According to data from BitInfoCharts, gas fees on the Ethereum blockchain have jumped more than 2,000% since June.

How Layer-Two Solutions Help

While blockchain developers are doing their best to make things better, one recommendation seems to be more effective than others – layer two solutions.

To understand Layer Two solutions, you also need to know Layer 0 and Layer One. Layer zero is made up of components that essentially make the blockchain work. This layer includes components such as hardware, the Internet itself, and other connections.

To continue, the first layer is the fundamental layer. This layer controls consensus, blockchain time, scheduling, and conflict resolution processes, all of which ensure that fundamental blockchain functionality is maintained.

Then there are layer two solutions. These are networks that are built on the primary later. Their job is to optimize scalability by removing some of the interactions that need to be handled on the base layer. As a result, the smart contract on the blockchain will only process withdrawals and deposits, ensuring that all transactions are legitimate.

So what makes Layer 2 so different from Layer 1? The blockchain itself acts as the first layer of the entire decentralized system. On the other hand, layer two is a third-party integration that works with the core blockchain. Layer two ensures that more computers can join the network and that it can operate faster, especially when it comes to transaction processing.

Optimizing the functionality of the blockchain in several ways

Several scaling solutions have been built recently. The Bitcoin blockchain has the Lightning Network, while Ethereum has big names like the Arbitrum Network. Arbitrum allows Ethereum users to settle transactions outside of the blockchain, increasing speed and efficiency.

Arbitrum uses a different consensus model and data compression to achieve faster transactions while keeping fees low. It bundles multiple smart contracts together as a single object on its chain, which therefore means a lot easier to use. In fact, from a user’s perspective, working with Arbitrum is pretty much the same as Ethereum.

With Ethereum facing huge scalability issues, layer two solutions have also allowed developers to build better with blockchain. DeFi protocols have started to feature on some of these Layer Two solutions, with Arbitrum now supporting Arbis Finance – a yield aggregation platform that seeks to take on DeFi giants like Yearn Finance and more.

Layer two scaling solutions provide many benefits. Even as Ethereum and other legacy blockchains continue to work to achieve greater scalability on their main chains, these layer two solutions will remain important to them.

With layer two, blockchain can truly become the transformative technology it was meant to be. This is especially important now, as the demand for better data management and transaction efficiency is skyrocketing.


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