Ethereum (ETH) can currently only process 15 transactions per second. Although this problem is to be solved by ETH 2.0, experts suspect that it will not be expected until the end of 2022. That is why ETH developers are working on other so-called Layer 2 scaling solutions. Today we take a look at the four most promising approaches.
Scaling Ethereum is one of the most talked about topics in the crypto space. Since the start of the Ethereum network, developers have been working on possible solutions. Whenever there are periods of heavy network traffic, the scaling debate heats up again. One of these types was the ICO boom and the emergence of the CryptoKitties in 2017. At that time, the hype overloaded the entire ETH network. As in the last few days and weeks, transactions could only be carried out with extremely high fees.
At the moment, the ETH blockchain is being pushed to its limits primarily through decentralized finance (DeFi) applications. But what solutions are there for this problem?
When it comes to scaling blockchain in general, there are basically two options. On the one hand, the scaling of the so-called base layer, i.e., the main chain of a blockchain network, or the scaling of the network by outsourcing part of the transactions to layer 2.
But what exactly is Ethereum Layer 2 scaling solutions all about? What different approaches are there, and when can implementation be expected?
Channels are one of the first ideas that came up in order to scale ETH. They are comparable to the Bitcoin Lightning network. Channels allow participants to carry out almost any number of transactions off-chain, while all they have to do is transmit the end result to the main chain. This scaling solution can easily perform several thousand transactions per second.
The main project that deals with this form of Ethereum scaling is Raiden. It is already possible to exchange any ERC-20 token on the Raiden platform, as long as the respective channels hold enough capital for transactions. At the moment, there are only a few channels and the volume of the platform is manageable.
The biggest problem with this scaling solution is therefore that users have to curl their tokens in the channels in order to carry out transactions. As a result, it is not possible, for example, to scale smart contract applications to Ethereum. This form of scaling could only prove useful in the future for exchanges or the direct exchange of Ethereum tokens.
Plasma is a scaling solution suggested by Vitalik Buterin and Joseph Poon some time ago. It enables a framework to be built that allows transactions to be outsourced to copies of the Ethereum mainchain. Applications can also be built from scratch on this framework. These so-called child chains allow cost-effective and fast transaction processing. Overall, this could significantly relieve the Ethereum mainchain.
A major disadvantage, however, is that plasma users have to wait a long time if they want to bring tokens from the child chain back to the ETH mainchain. Therefore, with the help of plasma, it is not possible to comprehensively scale smart contract applications, which are often used in the DeFi sector in particular. The main projects currently involved in the development of plasma are OMG Network(OMG) and Matic Network (MATIC).
Sidechains are blockchain attachments that are compatible with the Ethereum blockchain. In contrast to a child chain, which is only a copy of the Ethereum mainchain, sidechains are completely independent of Ethereum. By using the same virtual machine as Ethereum (EVM), sidechains can communicate with the main chain.
This makes it possible to outsource smart contract applications directly to sidechains, which would theoretically make it possible to make DeFi platforms scalable. The best-known project that deals with this innovative scaling approach is xDai STAKE. There are already some smaller Ethereum applications, which outsource transactions on the sidechain of xDai Stake.
Rollups enable Ethereum to scale by combining multiple transactions or smart contracts on sidechains into a single one. They then generate a cryptographic proof called Zero Knowledge Proof (ZK) and transmit this alone to the Ethereum mainchain. This makes it possible that the Ethereum mainchain only needs to save the transaction data, which can save considerable costs.
There are currently two different types of rollups, namely ZK Rollups and Optimistic Rollups. ZK rollups are faster and cheaper than optimistic rollups. But they are not an easy way for existing smart contracts to switch to a sidechain. Optimistic rollups, on the other hand, already use the Ethereum Virtual Machine (EVM) and are therefore compatible with existing smart contract applications.
For this reason, Optimistic Rollups are currently probably the most promising scaling solution for existing Ethereum smart contract applications. Rollups are basically also compatible with Ethereum 2.0 and could be scaled even higher, especially through the next phase of Ethereum 2.0, in which sharding will be introduced.
Many of the best known DeFi applications plan to implement Optimistic Rollups in the coming months. For example, the decentralized exchanges Uniswap and dydx Optimstic Rollups are planning to use them as soon as possible. Vitalik Buterin also hopes for a lot through rollups and emphasized their importance for solving the scaling problem in a blog post.