Ethereum Layer 2: Explained
If you are an active member of the Ethereum community, then you will likely have heard catchphrases like ‘going bankless’, ‘banking the unbanked’, and ‘permissionless finance’. This is the bright future that is promised by blockchain, but the current state of the ecosystem is the complete opposite of that dream.
You may remember the 2017 bull market frenzy when Ethereum became overwhelmingly congested for the first time, spiking gas fees to unprecedented highs. In 2020, we saw gas fees skyrocket even higher, thanks to DeFi. It somehow became ‘normal’ to pay $50 for a single transaction, which made it start to feel like DeFi on Ethereum was a playground for the rich. Eventually, the community saw the need to scale the network, or the dreams of equity and access that blockchain promised would never see the light of the day.
There are two ways in which the Ethereum community is endeavoring to scale the blockchain:
- Scale the Ethereum base layer i.e. scaling L1; and
- Scale the network (L2 solutions)
At the moment, most transactions are settled on L1, which currently operates at a throughput of 15 tx/sec. L2 solutions will amp that up to about 3k-4k tx/sec, reduce gas fees and increase transaction throughput, and thereby generate avenues for more use-cases, ultimately enhancing the end user experience.
