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The Ethereum network, similar to other broad blockchains, has a long history of network congestion issues that frequently led to high gas fees. For example, back in December 2017, Cryptokitties, a collection of crypto assets representing unique digital cats, clogged the Ethereum mainnet.
The cat-trading game became so popular in a short amount of time that it practically clogged Ethereum and slowed down transaction times to unprecedented levels. The outcome was that 30,000 transactions were stuck, waiting to be processed.
After the catfight was over, Ethereum managed to remain one of the most popular blockchains within the crypto community with a market cap of more than $200 billion. With each year passing, the demands of users and the crypto market continued to grow. More and more decentralised applications (Dapps) had to be built on top of Ethereum. It was evident that the base layer was not able to function seamlessly with this number of users and transactions without sacrificing scalability.
Unfortunate events like this one kick-started debates on how to avoid similar incidents in the future, leading to the birth of Layer 2 scaling solutions to resolve clogging of the network, high gas fees, and the creation of Dapps.
If you are not familiar with the term Layer 2, we suggest reading this article first: ‘Crypto Basics: What is Layer 2 and how does it work?’.
Layer 2 scaling solutions such as Arbitrum, Optimism, zkSync, and Polygon were all created to tackle Ethereum’s main points of breaking. Designed to solve issues that plague blockchain networks in general such as scalability, transaction throughput, and transaction speed while keeping up with a high degree of security, Layer 2 delivered off-chain processing.
Scaling solutions in general aid in liberating a blockchain network by taking transactions off the main chain and offloading them to a second layer. Transactions are then returned to the base layer. Off-chain processing ensures more scalability, lower gas fees, and higher transaction processing capacity.
All of these off-chain solutions come with the same promise – addressing all Ethereum’s challenges and providing increased scalability in a variety of ways. If you are a frequent reader, you probably remember that we mentioned some of them in our ‘Top Layer 2 Projects to Consider in 2023’.
You probably wonder which one resolves these problems in the most efficient way and what are the key differences between these Ethereum scaling solutions. In this article, we are going to tackle these four solutions from particular aspects – gas usage, connections, and creating Dapps.
Created back in 2021 by a team of blockchain researchers and engineers behind the Offchain Labs company, Arbitrum came along with promises of solving the network congestion and high fees without sacrificing security.
This scaling solution utilises Optimistic Rollups that enable Ethereum smart contracts to scale by transferring data between smart contracts on the main chain and those on the second layer. Optimistic Rollups assume that all transactions accommodated within a rollup are valid – the outcome is that multiple transactions are confirmed at once.
If there is a potentially fraudulent transaction, the Optimistic Rollup technology relies on fraud proofs. In simple terms, if someone states that data is invalid, allegedly invalid transactions will be checked and verified through cryptography. This is also one of the main drawbacks of this solution – long waiting times for on-chain transactions in case of potential fraud challenges.
One of its good sides refers to the platform's EVM compatibility. In other words, it allows developers to run unmodified Ethereum Virtual Machine (EVM) smart contracts and transactions on Layer 2 while benefiting from the main chain’s degree of security.
Arbitrum also lays down its own virtual machine - the Arbitrum Virtual Machine (AVM) which serves to execute Arbitrum smart contracts and automatically converts Ethereum-compatible smart contracts to run on it, reducing its dependence on the EVM solely.
On average, daily gas fees are approximately ten times cheaper when compared to Ethereum. Looking at the past year, daily Arbitrum gas prices have been trending between highs of $4.57 and lows of $0.42.
The platform uses ArbGas to keep track of execution costs. ArbGas is Arbitrum’s base unit of computation or user’s transaction uses. Each Arbitrum Virtual Machine instruction contains an ArbGas cost, along with the cost of a calculation of the total value of ArbGas fees compared to the gas limit on Ethereum.
However, there is no hard ArbGas limit for the second layer solution. Fees that are much cheaper when compared to Ethereum are usually charged to compensate chain validators and for proof-checking every instruction by the virtual machine.
The main idea about paying fees on a second layer is that it presents an economically designed system where you are paying for two things at once – Layer 1 and Layer 2 native resources.
Based on the Optimistic Rollup technology, Layer 1 resources you are paying for are basically Ethereum’s calldata. For example, you pay the size of raw data in your transaction times.
Layer 2 resources refer to the computation activity your transaction is doing Arbitrum such as storage or execution. This value is represented by multiplying the Layer 2 gas price by the amount of ArbGas.
The issue here with Arbitrum and other Ethereum’s scaling solutions, is that second layers contain fees that are two-dimensional while the Ethereum platform was created primarily for a main layer whose fees can be represented in a single dimension.
In simple words, this means that the current structure consists of crypto wallets, developer libraries, and so on, and assumes transaction formats in which fees are a single gas unit and price.
In June 2022, Arbitrum’s computational gas skyrocketed as a direct cause of Odyssey’s activities. Odyssey was an interoperability initiative launched to enable users to claim exclusive non-fungible tokens (NFTs).
The initiative went live on June 21 and only a few days later something happened – gas fees on Layer 2 became higher than that of the main chain.
The team behind Arbitrum claimed the rise in fees was due to the Odyssey event as participation exploded with the launch. They decided to put Odyssey on hold to allow Layer 2 to function normally.
If you want to use Arbitrum, you can access it through decentralised applications or connect your crypto wallet to the Arbitrum Bridge.
Arbitrum Bridge is a tool designed to establish a link between Arbitrum and the Ethereum blockchain. It allows users to transfer their crypto assets between these two chains.
The bridge itself is formed of multiple smart contracts that create a chain link between two layers. It also arbitrates the Roll Up protocol, ensuring the efficiency of the second layer.
To connect your wallet to Arbitrum visit the Arbitrum Bridge and click ‘Add L2 Network’ in the top right corner and confirm it in your wallet. Once that is done, the wallet should be connected.
Arbitrum’s solution is a good ground for implementing Dapps since many of them have been integrated within the Arbitrum system. This can be explained by Arbitrum’s benefits for developers such as a substantial degree of performance, fraud-proof mechanism, ease of implementation, and high security.
Taking into account that Arbitrum is fully compatible with the Ethereum Virtual Machine, any developer can easily build Dapps within the Arbitrum network without having to use a new coding language apart from the Solidity language.
Therefore, there are plenty of Dapps on Ethereum Layer 2, either DeFi or NFT-related. Some popular Dapps on Arbitrum involve Uniswap, Stargate, SushiSwap, and GMX. When it comes to NFT Dapps, popular choices are Stratos and tofuNFT.
Created in 2019 by Benjamin Jones, Jinlang Wang, and Kevin Ho, Optimism became another Ethereum scaling solution focused on providing easy-to-use scalability, lower fees, and increased transaction throughput.
As Arbitrum, Optimism uses Optimistic Rollups to process transactions and reduce network congestion and fees. As mentioned above, Optimistic Rollups assume that all transactions are valid, aggregate multiple transactions together, and move the batch to the main layer without the need to validate transactions. In case a suspicious transaction occurs, a fraud-proof verification model is set in place.
Optimism has its own virtual machine – the Optimistic Virtual Machine (OVM). The technology in question closely resembles Ethereum’s, enabling all Ethereum smart contracts can be deployed on Optimism to take advantage of lower transaction costs and higher transaction speed.
While scalability upper hands are clearly visible when it comes to Optimism’s roll-up technology, it comes with a single trade-off. In its current version, Optimism is the only party responsible – known as the sequencer – for sending transaction data to Ethereum's mainnet. While Optimism states that it is not allowed to alter any transactions, a part of the crypto world thinks of it as an element of centralisation.
As stated by the Optimism team, to understand how fees work you need to know what makes up a transaction fee. A fee is made of roll-up costs or the cost of rolling up transactions into batches and Layer 2 execution costs.
Instead of paying Ethereum gas prices for the full transaction execution, Optimism laid down the convenience of only paying those prices for the part of the transaction data that is submitted to the main chain. This includes calldata and a fixed overhead cost as an additional processing required to add another transaction to the batch.
Transactions executed on Optimism basically use the same amount of gas as a similar transaction would use on the Ethereum main chain, but the standard cost for gas on Layer 2 is much lower.
Just to compare – when it comes to simple transactions such as Ethereum transfers, Optimism gas fees are about 5 times cheaper, but for more complex activities such as options trade or a perpetual swap, Layer 2 can be more than 200 times cheaper.
Despite Optimism being a Layer 2 chain connected to the Ethereum blockchain, it also represents a separate system. In other words, if you want to transfer data from one blockchain to another, you need to use a bridge as these two are separate blockchains.
For ordinary transfers such as moving tokens across blockchains, you can use Standard Token Bridge. It is a smart contract created by Optimism that encompasses all the features needed to transfer tokens between Optimism and Ethereum.
In the beginning of 2023, Pheasant Network, an optimistic bridge network, was implemented within the Optimism ecosystem to deliver the concept of bridge architecture and address interoperability challenges. The implementation is claimed to enable transfers beyond current network limits with better security and lower costs.
There has been a rapid development of Dapps on the Optimism platform, especially in the area of decentralised finance. Some of the most popular choices include Sonne, Curve, Synthetix, Velodrome, and others.
Launching the native token and airdrop events turned out to be a key to attracting developers and users to the platform. The Optimism team even announced a whole season of airdrops to boost community participation.
Another vital factor that contributed to a rising number of Dapps has been the Optimism Foundation’s focus on aligning token rewards with governance privileges and promising a decentralised decision-making process.
This is probably an answer to the ongoing issue of centralisation and multiple accusations of Optimism being a centralised entity disguised as one of decentralised layer 2 solutions.
The zkSync project was launched in June 2020. Created by the Matter Labs start-up, the team behind zkSync has been working on a Layer 2 scaling solution sometime before the official release.
This Layer 2 protocol is based on the ZK Rollup architecture. ZK stands for Zero-Knowledge, a cryptographic term for one party being able to prove to another party that something is true, without the need to reveal any additional information.
Therefore, ZK proofs encompass proactive cryptography. In simple words, ZK rollups follow a ‘trust me on this’ approach.
The term Rollup, as explained above in parts about Arbitrum and Optimism, refers to a scaling solution that performs transaction execution outside the main chain.
The Zero-Knowledge (ZK) Rollup technology bundles hundreds of transfers off-chain and creates a cryptographic proof of validity known as SNARK (succinct non-interactive argument of knowledge). A high transaction throughput of over 100,000 transactions per second was made possible by zkPorter, a protocol that combines ZK Rollups and sharding.
ZK-proof solutions provide a higher degree of on-chain processing because there is no waiting period during which a transaction can be disputed, but they include a lot more computing power making them more suitable for Dapps with a lot of on-chain activities.
In contrast to Optimistic Rollups that run smart contracts on the Ethereum network directly, ZK Rollups do not. One main component of zkSync is zkEVM, a virtual machine that executes smart contracts in a manner that is compatible with ZK-proof computation.
One of the main advantages of zkSync is the low gas fees on Layer 2. They can be up to 100 times lower when compared to Ethereum while maintaining the mainnet’s security.
As stated by the team behind zkSync, the fee model resembles Ethereum’s where gas is charged for computational cost, storage effects, and cost of publishing data on-chain. On the other hand, zkSync or zkSync Era after the rebranding, sets out additional costs for publishing on Layer 1 and proof generation.
The Layer 1 gas price for publishing data is volatile making the amount of required gas for Layer 2 variable. The zkSync sequencer defines dynamic parameters for the gas price.
Similar to Ethereum’s model, the most expensive activity is storage update while the execution of arithmetic operations is cheap because it involves computation solely.
The team behind zkSync claims that ZK Rollups have a competitive advantage over Optimistic Rollups because they don’t publish all transaction data to Layer 1 and include a cost-effective contract deployment.
The easiest way to access zkSync is by connecting to the zkSync wallet. It is supported by many Web3 wallets such as Metamask, Trezor, Ledger, Coinbase wallet, Portis, and others. Additionally, you can connect your Layer 1 Ethereum wallet using the Wallet Connect or Argent Wallet features.
By interacting through a wallet, you can check your balances, contacts, transaction history, and NFTs.
In particular, you can interact with the zkSync network through two other features: the Block Explorer and zkCheckout. The Block Explorer provides the possibility to examine all transactions and blocks on the network, while zkCheckout is presented by the team as a fast and cost-efficient solution.
Until zkSync transitioned to the zkSync Era it was not possible to build Dapps on the platform. Therefore, zkSync is a new player in the Dapps game. With the rebranding, it became possible to take existing Layer 1 smart contracts and transfer them to Layer 2.
This scaling solution supports something called Account Abstraction which turns every account into a smart contract that has its very own logic. In other words, everyone can have an account adapted to their needs.
Popular projects on the platform include Curve, ZigZag, Yearn Finance, and the Taker Protocol. According to the zkSync team, there are approximately 100 projects in creation.
Polygon, formerly known as Matic, was created in 2017 by three Indian entrepreneurs. Matic was rebranded to the Polygon network at the beginning of 2021 as it upgraded from a scaling protocol to a multi-chain ecosystem.
To scale Ethereum, Polygon uses Zero-Knowledge (ZK) solutions. In short, Polygon is a Layer 2 scaling solution that obtains scalability by utilising sidechains for off-chain computation and a network of Proof-of-Stake (PoS) validators.
Sidechains can be defined as separate blockchains that run around the main chain with the purpose of improving it. They usually contain their own consensus mechanism to enable the creation of blocks. Communication with the main chain is made possible through bridges.
On the other hand, there is a particular risk associated with the sidechain technology – if their consensus mechanism fails when it comes to producing blocks, all funds on the chain can be lost.
Polygon is made of three layers – Polygon smart contracts on the main blockchain, the Proof-of-Stake layer and the block producer layer. As mentioned above, Polygon utilises sidechains. These sidechains further use different scalability techniques including ZK Rollups, Plasma chains and Optimistic Rollups.
Based on recorded fees, Polygon has generally cheaper and faster transactions than Ethereum. Usual transaction costs on Polygon vary between 0.1 and 0.5 MATIC, while Ethereum costs are approximately $2.5 and $20 in an equivalent value of ETH. Take into account that these numbers may vary due to high demand and network congestion.
As Polygon grew in popularity, gas fees have risen. It is not uncommon for the Polygon network to even experience higher gas surges than Ethereum. Such spikes make it a bit difficult for ordinary users to estimate prices.
The team behind Polygon partnered up with Blocknative to provide a gas estimator. By using the Polygon gas estimator, any user can see real-time gas prices.
Polygon managed to achieve its promised milestone of carbon neutrality by joining forces with KlimaDAO, a group of decentralised environmental activists and entrepreneurs.
The group analysed, in partnership with Offsetra, Polygon’s energy footprint to identify emissions’ hotspots such as emissions from staking node hardware, the energy consumption of staking operations, and contracts interacting with the main chain.
The final report highlighted that 99% of the carbon emissions on the platform are released at checkpointing and bridging activities involving transactions on the Ethereum mainnet.
Polygon is supported by many popular crypto wallet choices similar to other Layer 2 scaling solutions. Wallets can be connected to Polygon’s mainnet and testnet.
To interact with Dapps and other tools on the network, you need to transfer your assets. This is where the Polygon bridge jumps in. The Polygon Bridge can be defined as a cross-chain transaction channel between Polygon and Ethereum.
There are two bridges – the Proof-of-Stake (POS) Bridge and the Plasma Bridge. Both assume the same role of transferring assets, but they include different degrees of security.
While the POS bridge uses the POS consensus algorithm to secure its network and supports the transfer of most tokens, the Plasma Bridge is more suitable for developers and users that need a higher degree of security.
Polygon is a popular platform for creating Dapps. In August 2022, the Polygon team stated that Polygon experienced a 400% increase since the beginning of the year, along with a higher figure of developer activity.
Polygon hosts Dapps from a long list of well-known projects in the crypto world such as OpenSea, SushiSwap, Sandbox, Decentraland, Aave, and Animoca Brands.
The reason behind such popularity lies in the sidechain technology. Developing teams can easily import their Dapps and make them ready to use across Ethereum for a tiny cost when compared to using Ethereum directly.
Apart from EVM compatibility, other benefits include a high degree of interoperability and eco-friendliness as Polygon’s structure demands less energy.
Taking all this into account, it is evident that Polygon enables Dapps to take advantage of Ethereum’s features without suffering from its limitations. Polygon includes approximately 19,000 Dapps, outperforming Ethereum in numbers.
However, Polygon has its own set of limitations as well. Compared to Ethereum, it has a limited resell support and therefore cannot support any auctions. Additionally, transactions on Polygon are considered less secure than those on the Ethereum blockchain.
By comparing all these solutions, it can be said that they all deliver on scalability. Each of them tackles Ethereum’s issues in its own authentic manner. Taking on different technological paths, they all end at the promised destination.
Looking at the comparative analysis, it is evident that each of them consists of particular advantages and flaws. Therefore, when choosing a second layer, especially when it comes to business, it is important to use an individual approach.
The best choice mainly depends on various factors such as the specific requirements of your crypto project. The golden rule is to identify your main objectives and priorities, and what kind of solution aligns with them. When that is finished, go on and choose your fighter!
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