Layer-two scaling solutions solve enterprises’ public blockchain challenges

At the tip of 2019, analysis agency Forrester and Big Four agency Ernst & Young, or EY, published a report surveying the adoption of public blockchains by enterprises. Findings revealed that 75% of respondents had been doubtless to make use of a public blockchain sooner or later.

Although this was the case, the report additionally discovered that the majority enterprises had been nonetheless utilizing non-public blockchains to make sure safety, privateness and scalability. What was additionally famous within the survey as the highest three issues relating to public blockchain networks had been an absence of maturity, safety and privateness points.

Fast ahead to 2021 — these issues stay. Meanwhile, superior solutions are within the strategy of being applied to fight these points for the enterprises contemplating public blockchain networks.

For instance, some of the necessary developments for enabling the leverage of public blockchains is called layer-two scaling solutions. While layer-two networks will not be a brand new idea, many layer-two scaling solutions geared towards enterprise necessities are presently being developed.

Tas Dienes, ecosystem assist for the Ethereum Foundation and chair of the Enterprise Ethereum Alliance Mainnet working group, informed Cointelegraph that layer-two scaling solutions are primarily supposed to deal with the transaction throughput limitations of decentralized blockchains, on layer-one networks:

“Instead of conducting all of your transactions directly on the blockchain, you can run on top of a Layer 2 instance which can handle a lot more transactions per second at a much lower cost per transaction. But the key thing is that Layer 2 is secured by Layer 1, so you still get many of the same security assurances that are provided by the underlying blockchain.”

Layer-two scaling resolution for enterprise wants

According to Dienes, the obvious good thing about a layer-two resolution is that an utility operating on the community is now not subjected to the throughput limitation of the underlying blockchain. This is extraordinarily necessary, because the Ethereum blockchain network has been criticized over time for its means to course of only a few transactions per second.

This resolution was additional commented on by Anna Frankowska, chief business officer of Aventus Network — a layer-two blockchain protocol for Ethereum transactions — who informed Cointelegraph that Ethereum’s present throughput of 15 transactions per second isn’t practically sufficient. To put it in perspective, “The Visa network alone handles approximately 17,000 transactions per second,” she stated.

With layer-two solutions, Dienes defined that enterprises now have the most effective of each worlds due to “high throughput and low transaction cost, as well as the strong security of a public chain and the ability to interoperate with other applications built on it,” he remarked. This is a step up from the earlier leveraging of personal blockchain networks carried out by enterprises, as a result of semi-centralized chains which can be able to dealing with extra transactions per second than absolutely decentralized public chains.

Dienes additional talked about that layer-two solutions may also assist deal with different points enterprises have with public blockchains. For instance, privateness is without doubt one of the best issues organizations face with regards to leveraging a public blockchain community. In truth, 50% of the respondents surveyed within the EY and Forrester 2019 report listed privateness as their foremost concern.

Certain layer-two applied sciences have been developed to particularly deal with this, Dienes famous, stating that enterprises can now deploy a non-public layer-two occasion that retains delicate data away from layer-one networks. This will increase privateness, and among the interoperability and safety advantages of a layer-one community may also stay. He additional commented that this, mixed with zero-knowledge proofs, is much more highly effective for enterprises utilizing layer-two solutions on public networks like Ethereum, which has become a popular platform for business use cases.

In regard to safety, layer-two solutions can deal with enterprise challenges like information locality, which is one other main concern for enterprises contemplating public blockchains. For instance, Dienes commented that enterprises storing information in a selected location for compliance functions can use a layer-two server to run that information in a identified location by a identified entity.

Uncovering totally different layer-two solutions

While layer-two solutions can solve most of the challenges enterprises face in regard to public blockchain adoption, Frankowska talked about that layer-two solutions may also assist ease organizations into utilizing non-public blockchain in public networks, including:

“They can start with a permissioned Layer 2 chain, with natively implemented business logic, and gradually open it up to the public. Most enterprises want to dip their toes into Layer 2 waters before they dive in completely.”

This is a vital level, as many enterprises at the moment are nonetheless leveraging non-public blockchains and could also be hesitant to modify to open networks. It’s additionally essential for enterprises to grasp that there are nonetheless many layer-two scaling solutions being applied and developed. As such, there isn’t a “one-size-fits-all” resolution for an enterprise’s wants

Despite the hesitation, hybrid layer-two solutions are additionally rising. “There are new developments almost every week in this rapidly evolving field,” Dienes stated, that are in a position to mix among the finest properties of assorted applied sciences collectively.

He additional defined {that a} layer-two class gaining traction with many organizations these days is “rollups.” According to Dienes, rollups “roll up” a batch of transactions on layer-two networks and write the transaction description information to layer one:

“By computing the transactions on L2, and using L1 only for storing the transaction descriptions and ensuring that the computation was done correctly, the total throughput of the system can be increased by a couple of orders of magnitude.”

The creator of the Ethereum white paper, Vitalik Buterin, additionally just lately said that rollups are coming to the Ethereum ecosystem soon, noting that this might enhance Ethereum’s transactional throughput by 100 instances.

Different kinds of rollups are being developed for numerous cases, Dienes talked about. This is the place zk-Rollups and Optimistic Rollups use totally different mechanisms to implement transaction correctness, enabling totally different tradeoffs in issues like transaction latency and withdrawal delays.

Moreover, there are a variety of layer-two scaling solutions that use layer one for safety, however retailer transaction information off-chain, or not on layer one. “Validium, plasma, and state channels are the major ones. Because they don’t write as much data to L1, they can provide much higher throughput than rollups, at the cost of decentralization,” Dienes remarked.

Challenges navigating the huge layer-two ecosystem

While it’s notable that so many layer-two developments have been made, the huge ecosystem could also be difficult for enterprises to navigate.

Dienes defined {that a} foremost problem for newcomers is that there are loads of totally different layer-two applied sciences, every with its personal distinctive strengths and weaknesses. As a consequence, the businesses creating the layer two should tailor it to the wants of every applicant, with a purpose to preserve a degree of safety and success.

For instance, Dienes talked about that off-chain information scaling solutions — like Validium, Plasma and state channels — could very properly be suited to sure kinds of enterprise functions the place it’s acceptable to belief a identified entity to retailer this information. “This category of solutions has other enterprise-friendly characteristics such as the potential for greater privacy compared to rollups, greater isolation from the resource demands of other applications (like CryptoKitties), and control over where data is stored,” he remarked.

While Dienes’ suggestions could also be useful, understanding the capabilities of what layer-two solutions can present for sure use circumstances remains to be not easy for a lot of organizations. Fortunately, because the house matures, this might grow to be simpler over time, as extra solutions could finally be highlighted for enterprise requirement

This could also be simpler stated than carried out, nevertheless, as Frankowska identified that there’ll all the time be steady safety issues, points round volatility, uncertainty relating to the regulatory panorama, and scepticism relating to what can seem to be a panacea. “That’s why not all Layer Two solutions are created equally. On top of scaling, you need to address the issues of price stability, interoperability and security, too. One missing pillar and the temple crumbles,” she commented.

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