It’s been a few years since the blockchain landed on the front page of newspapers. As a fast-developing industry, there were countless attempts to use blockchain as a technical solution to all kinds of problems. Some of these solutions have been successful, while others have run up against some of the blockchain’s native limitations.
In the process of commercialization of blockchain technology, especially in the field of cryptocurrency payment, speed and security is everything that matters, while being one of the most secure systems in the world, blockchain is not effectively fast enough to support any day-to-day activities. Using Ethereum as an example, it only supports about 15–20 transactions every second.
There are other issues such as high gas prices as well. Root blockchains could theoretically implement changes that solve these issues, but it would almost always come at the cost of decentralization — the raison d’etre for using blockchain in the first place.
Processing time aside, there are other problems as well: high gas price and privacy issues are the two leading problems when talking about the blockchain’s commercialization. Products and technology are trying to solve the above issues but almost all of them are sacrificing decentralization to achieve those goals.
So how do we implement blockchain solutions for speed, and cost-effectiveness without sacrificing decentralization?
That’s where Layer 2 technology comes in.
What is Layer 2?
Layer 2 technology is often called an “off-chain” solution. It was created to scale up the blockchain transaction capacity while retaining the decentralization benefits of a distributed protocol.
Layer 2 connects to say, Ethereum, and rely on Ethereum as a base layer of security and finality. In other words, instead of changing Ethereum, we add another “layer” on top of it to interact with “off-chain” activities. In this way, layer 2 tech moves most of the workload away from the main chain onto layer 2 platform, thus, the blockchain can handle more transactions throughput and the still retains the same level of decentralization and gas price as the public chain.
Essentially we want to build a blockchain ecosystem that can match the speed and capacity of well-established, centralized systems like Visa, with Layer 2 technology developing with unprecedented speed, we will be able to implement blockchain to almost any industries with high data processing needs.
Layer 2 technology will extend the capacity of blockchain technology and open new use-cases that in turn will bring Ethereum, Bitcoin and other technologies into the hands of the next billion people.