Ethereum Layer 2

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6 Jan 2023
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Ethereum layer 2 refers to technologies that operate on top of the Ethereum blockchain in order to increase its scalability and improve its performance. These technologies aim to address the problem of Ethereum's limited transaction throughput, which can lead to high fees and slow processing times for transactions.

One of the main approaches to Ethereum layer 2 is the use of off-chain transactions. Off-chain transactions allow users to conduct transactions without having to include them in the Ethereum blockchain itself. Instead, they are recorded in a separate data structure that is anchored to the Ethereum blockchain at periodic intervals. This can greatly increase the number of transactions that can be processed, as it reduces the burden on the Ethereum blockchain itself.

One example of an Ethereum layer 2 technology that uses off-chain transactions is the Lightning Network. The Lightning Network is a payment protocol that operates on top of the Bitcoin and Ethereum blockchains. It allows users to create channels between themselves in which they can conduct unlimited, off-chain transactions without having to wait for them to be included in the blockchain.

This can greatly reduce the time and cost of conducting transactions, as well as increasing the overall scalability of the Ethereum network.
Another approach to Ethereum layer 2 is the use of side chains. A side chain is a separate blockchain that is connected to the Ethereum blockchain through a process known as "pegging." This allows users to move their assets onto the side chain and conduct transactions there, before moving them back to the main Ethereum blockchain. This can also increase the scalability of the Ethereum network, as it allows a portion of the transaction load to be moved off of the main blockchain.

One example of an Ethereum layer 2 technology that uses side chains is the Plasma framework. Plasma is a set of smart contracts that allow users to create their own "child" chains that are connected to the Ethereum main chain. These child chains can be used to conduct transactions, and the results of these transactions can be "merged" back into the main Ethereum chain at periodic intervals. This allows users to conduct a large number of transactions on the side chain, while only requiring a small number of transactions to be processed on the main Ethereum blockchain.

Overall, Ethereum layer 2 technologies offer a way to increase the scalability and improve the performance of the Ethereum network. They do this by allowing a portion of the transaction load to be moved off of the main Ethereum blockchain, either onto separate data structures (such as in the case of the Lightning Network) or onto separate blockchains (such as in the case of Plasma). This can help to reduce fees, increase the speed of transactions, and make the Ethereum network more accessible to a wider range of users.

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