January 2024 marked Ethereum’s record-setting 2 million daily transactions. It is clear that Blockchain technology is expanding rapidly across multiple industries, which is a good sign. However, the success doesn’t come without pain. Congestion is commonplace within widely-used networks, such as Ethereum or Bitcoin, leading to horrible transaction speeds and outrageous fees. If solving this scalability problem could be achieved, it would greatly help blockchain adoption as the technology begins reaching a wider audience.

Many blockchains face this ‘trilemma,’ which is a combination of Scalability, Security, and Decentralisation. Security and Decentralisation tend to be prioritized, leading to stagnant growth for scalability. Imagine having all three—enhanced transaction speed, better scalability, and efficient cost. Layer 2 scaling solutions economically achieve all, and so they claim.

Why Blockchain Needs to Scale

Directly using Layer 1 blockchains, say Ethereum, narrows down anything to working block space, And everyone else is trying to get it. This scramble drives up gas prices during peak times as users try to ‘bid’ for higher priority transactions.

This poses a challenge for the average blockchain user. Think about trying to do a simple transaction of twenty dollars but paying fifteen dollars in fees. It becomes illogical from a money perspective. Slow and expensive transaction speeds, with their fees, make it less appealing for services that need to be performed often. 

Real-World Impact: The Case of Online Services

The impact of high fees and slow transactions is particularly evident in interactive online services. Take the online entertainment industry, for example. Many platforms have begun embracing cryptocurrency payments, but the experience varies dramatically depending on the underlying technology.

The online gambling industry has been at the forefront of cryptocurrency adoption, recognizing early how blockchain technology could transform their business model. Betting with crypto has given players unprecedented opportunities to expedite transactions, enhance privacy, and eliminate traditional banking hurdles. These services require numerous small-value transactions that need processing within seconds – a player placing multiple bets can’t afford delays or excessive fees. The best crypto betting sites have capitalized on this technology to offer instantaneous deposits and withdrawals, enhanced identity protection, and valuable bonuses that traditional payment methods simply can’t match. However, these benefits were often undermined by Layer 1 blockchain limitations during periods of network congestion.

When Layer 1 networks become congested, these services essentially grind to a halt. Players abandon platforms, operators lose revenue, and the promise of blockchain-based services remains unfulfilled. This is precisely why many gaming platforms and crypto betting sites have been early adopters of Layer 2 solutions.

What Are Layer 2 Scaling Solutions?

Layer 2 scaling solutions are systems built on top of existing blockchains to significantly increase transaction throughput while also lowering costs. They process transactions off the main chain and securely connect back to it through a simpler version of it.

To put it concisely, Layer 2 Solutions index a number of transactions that happen on the main blockchain (Layer 1) somewhere else, and then bundle and process those transactions outside the main chain, sending only the final output back to the main chain. This keeps the original chain’s security intact whilst increasing its capacity greatly.

The changes observed have been great. Layer 2 solutions currently handle between eleven and twelve times more transactions than the Ethereum main chain. This growth has reduced the average cost of each transaction from dollars to cents and lowered average confirmation times from minutes to seconds.

The Key Models of Layer 2 Solutions

There are multiple ways to achieve Layer 2 solutions. Here are the primary ones that you will most likely meet: 

While rollups have become the most popular form of Layer 2 solutions, especially for Ethereum, they execute the transactions off-chain and post only the transaction details back on the chain. There are two main types: 

The Optimistic rollups, such as Arbitrum, Optimism, and Base, assert that all transactions are valid until proven invalid, at which point verification is performed, usually within a week-long dispute window. They are easy to integrate within existing Ethereum applications, which is a plus for developers. 

Starknet is a validity rollup (commonly known as ZK rollup) which utilizes state-of-the-art cryptography to validate the transaction. They offer quicker finality and stronger security due to the absence of challenge periods. New advancements have cut down the expense of transactions—some Starknet transactions go under two cents.

Direct connections are made possible by state channels which facilitate multiple transactions that don’t require the use of the main blockchain. They are perfect for very frequent interactions because only the opening and closing transactions have to be recorded on the blockchain. A great example enabling close to instant payments with little fees are side chains, the Lightning Network for Bitcoin payments.  

Practical Benefits and Uses

The changes that come with scaling with layer two are not just utopian; they are changing the way people interact with blockchain technology. 

Greatly reduced costs: Many transactions on Ethereum’s main chain could cost up to $10-15, but on Layer 2, that same transaction would only cost a few cents. This also makes previously unexploitable use cases reasonable.  

Almost immediate confirmation: Rather than waiting for minutes, or even hours, transactions on Layer 2 confirm in a matter of seconds. This is extremely useful for games, exchanges, and financial services as it enhances responsiveness.

Enhanced user experience: Users are able to receive the speed and ease of use they get from more traditional applications, which is a step forward toward achieving mainstream adoption. This, and many other applications to come, makes these major changes for the benefit of the big picture.

Conclusion

Layer 2 solutions have fundamentally transformed what’s possible in the blockchain. All industries now have the tools required to revolutionize the way business is done. DeFi exchanges can now provide trading experiences that compete directly with their centralized counterparts. Minting and trading NFTs on various marketplaces has become affordable for creators and collectors alike. And, yes, crypto betting services can now offer real-time, low-cost experiences that were previously impractical on congested main chains. What once seemed like insurmountable limitations have been overcome, opening doors to innovation across the entire ecosystem.