Scalability issue, in the cryptocurrency world occurs when when a blockchain network reaches certain capacity limitations. Just like when you get stuck in traffic when there’s congestion on the road ahead, in the crypto space, it happens when too many people are on the network trying to transact at the same time. The solution? Layer 2 that aims to solve the scalability problem.
You have horizontal scalability, which refers to network nodes. This is the process where more nodes are added to the network, increasing the amount, of tasks it can handle. You also have vertical scalability, which is about adding more power to machines that operate within the network.
Why does Layer 1 Have Limitations?
There are issues with both types of scalability options mentioned above, specifically with Layer 1. Every transaction has to be processed by every node. This means that horizontal scalability offers no benefit. Essentially, adding more nodes to a network does not make it faster. This has shifted the process of scaling to a vertical approach. This increases the size of the blocks, which puts more pressure on each node. Several blockchains can handle thousands of transactions a second, by simply adopting this approach. This does have its drawbacks though. The nodes have to put in more work, which means more powerful devices are required. These might not be able to function as required within the network. The end result, vertical scalability has less validating nodes, leading to centralized mining.
Trade-Offs
Look at the blockchains below to see an example.
- Ripple XRP is speedy but not as secure as other options
- Bitcoin is secure and has the benefit of being decentralized, at the cost of speed
- Ethereum is decentralized and secure, but again, at the cost of speed
- EOS is not decentralized, and it’s not as secure, but it is speedy.
So some have opted to compromise security, favoring speed. Others have sacrificed decentralization. Take EOS for example, currently, it has 21 validating nodes, and it can handle hundreds of transactions a second, but at a huge cost.
The Solution? Layer 2
Layer 2 is another option for those who desire scalability. They are built on a secure blockchain and they are able to achieve very high output without compromising things such as security. Layer 2 leaves the base layer alone, but instead, builds protocols on top of it. It’s possible to add an insecure layer on top of a secure base layer, but not vice-versa. This second layer can maximize the usefulness of blockchains to the public. Interactions can happen off-chain, but they can still be referred back to the base layer if this is required. Some examples of how Layer 2 has helped include Raiden, Plasma Cash (ETH), and the Lightning Network for Bitcoin. A common denominator is that they all use the certainty from the public blockchain as a solid foundation when scaling the application. This makes the blockchain much more useful while also maintaining the core values that it has to offer. This would primarily be security and decentralization.
Layer 2 has a lot of potential and if it can be used correctly then it would certainly change the landscape as we know it.
