Is Layer 2 the right solution to scalability?

Leo Zhang

By Leo Zhang

Scalability has long been a bottleneck for public cryptocurrency projects, especially for "dapp" platforms like Ethereum. Engineers have experimented with various ideas, mostly as they apply to Bitcoin; increasing the block size is one contentious suggestion, while other folks advocate swapping out consensus mechanisms. Still other networks like EOS have created complex game theoretic scenarios meant to lure infrastructure operators into providing network resources--for a price. It's unclear whether any of these approaches are most effective.

Cryptocurrency's "layer 2," conceptual shorthand for a faster data link layer on top of crypto networks, includes any of the direct, point-to-point protocols that implement state channels between nodes, including Lightning Network, Plasma, ETH state channels, and Truebit. The promise of these "layer 2" protocols is more throughput, and faster transactions. In the article below, Neha Narula, the director of MIT Media Lab, describes why she thinks some sort of layer 2 protocol is the only viable solutions to growing the industry built around public blockchains so far.

The importance of Layer 2
(Neha Narula)

"... Layer 2 is also off-chain computation and hiding complex scripts inside signatures, or using zero-knowledge contingent payments, because we can achieve amortization using these techniques too: a signature validation is the same cost no matter the complexity of the off-chain script. It’s also about interoperability between different blockchains. Ultimately, it’s designing applications that anchor to the blockchain as a root of trust, instead of executing every step on the chain."

In the article, Neha also discusses why she is less optimistic about certain scaling proposals, such as Ethereum's sharding:

"[S]harding solutions are quite complex and the cost of cross-shard transactions, even if there are only a few of them, can dominate the cost of the overall system."

The article received critical commentary from Vlad Zamfir, a main Ethereum researcher:

Critiques from Vlad Zamfir

Another group also believes layer 2 fundamentally weakens the underlying blockchain:

Critiques from Emin Gün Sirer

A new twist on Lightning tech could be coming soon to Bitcoin
(CoinDesk, by Alyssa Hertig)

"The tangential advantage of this system is that it increases lightning's scalability. With eltoo, each lightning node doesn't need to store all the intermediary states, rather, it stores only the most recent version and some information about the transaction itself, such as it's corresponding settlement transaction and potentially the HTLCs that spend from that settlement, the post notes."

Technical & Updates

Discussion on Decred's DAO

Question about Decred's eventual DAO from r/decred

Bitcoin data science (Pt.2): the geology of lost coins
(Dhruv Bansal)

"We estimate the boundary between these behaviors occurs between 45 to 51 months. If we make the rough assumption that most coins older than this are lost, it suggests that an upper bound of 3.8M BTC are inaccessible. Our final estimate from looking at the UTXO age distribution is that between 3–3.8M BTC are lost."

Series of EOS vulnerabilities discovered over the weekend

Ethereum Classic removed the Difficulty Bomb

News & Commentary

SEC obtains emergency order halting fraudulent coin offering scheme
(SEC Press Release)

"An SEC complaint unsealed today charges that Titanium President Michael Alan Stollery, a/k/a Michael Stollaire, a self-described 'blockchain evangelist,' lied about business relationships with the Federal Reserve and dozens of well-known firms, including PayPal, Verizon, Boeing, and The Walt Disney Company. The complaint alleges that Titanium’s website contained fabricated testimonials from corporate customers and that Stollaire publicly – and fraudulently –claimed to have relationships with numerous corporate clients."

Commentary thread on the SEC ICO lawsuit

Baidu's 'Wikipedia' now logs revisions on a blockchain
(CoinDesk, by Wolfie Zhao)

"While the Baidu spokesperson declined to address technical questions, they did say the end goal of the integration is to help ensure the encyclopedia's credibility, as, like Wikipedia, anyone can make edits to content."