What is the blockchain trilemma?
The blockchain trilemma depicts the struggle to achieve a balance between decentralization, security and scalability on the blockchain. Both blockchain decentralization and security are critical to the functioning of a blockchain network. The former refers to the distribution of computing power and consensus throughout the network; while the latter refers to a blockchain protocol’s defence capabilities against attacks.
Scaling has proven to be a major challenge for certain blockchain protocols like Ethereum and Bitcoin (and other cryptocurrencies powered by a proof of work mechanism). Scalability is the third critical aspect of a blockchain network. It represents the network’s ability to support high transaction volumes at any given time, ensuring its future growth. For example, Bitcoin processes 407 transactions per second (TPS) while legacy systems provided by payment giant, Visa, process 1,700 TPS. Therefore, it’s clear that blockchain technology must exceed the transaction processing capabilities of existing platforms in order to achieve meaningful scale and mass adoption.
Layer 2 scaling protocols offer a solution because they’re programmed to increase the speed and efficiency of the blockchain by increasing throughput without changing any of the underlying security elements of the original blockchain.
What are Layer 2 Scaling Solutions?
There are two main types of layer 2 solutions and these include Zero-Knowledge Rollups and Optimistic Rollups. In this blog, we focus on off-scale solutions, which are implemented separately from the layer 1 Mainnet, meaning that they require no changes to the existing protocol.
What are Zero-Knowledge Rollups (ZK-Rollups)?
ZK-Rollups are packets of data that are bundled up by a smart contract on the main chain that are then transmitted off-chain for processing. They can produce a block in one minute, and have the ability to process 2,000 TPS. Zero-knowledge implies that all verifiers are able to know that they have the same information without disclosing anything further. Due to off-chain storage of data, ZK-rollups perform much more efficiently relative to layer 1. In return, gas fees are lower and transactions are faster due to the decrease in processing power used for transaction validation.
What are Optimistic Rollups?
Similar to ZK-Rollups, Optimistic Rollups are also a layer 2 solution. The main difference between the two is that layer 2 transactions take longer to process owing primarily to external validations tasked with confirming merkle roots prior to any updates to the chain.
There are many more scaling solutions, including on-chain solutions, which are not discussed in this blog post. Additionally, there are several scaling solutions because multiple solutions ultimately help to reduce network congestion. Moreover, various scaling solutions can work in tandem with each other, improving transaction speed and throughput. Finally, many scaling solutions may be required to achieve any given protocol’s vision.