Layer one or L1 refers to a base blockchain protocol like Bitcoin or Ethereum. These networks operate on a decentralized ledger secured by proof-of-work (PoW) mining or proof-of-stake (PoS) staking. L1 chains such as Bitcoin and Ethereum offer unparalleled security. However, during peak times, both of these chains grapple with sluggish transaction speeds and steep fees.
Developers from several L1 networks are working to improve layer one scaling through methods like increasing block size, sharding, and introducing proof-of-stake consensus. However, substantial layer one upgrades require coordination among node operators and can take years to implement. Some blockchains intend to use L2 protocols as either a temporary or long-term solution.
Bitcoin’s Lightning Network (LN) is a second-layer scaling solution designed to facilitate faster, low-cost transactions on the Bitcoin blockchain (L1). It operates on top of Bitcoin’s base layer, allowing for instant payments by circumventing the need for block confirmations
Transactions on the Lightning Network occur off-chain in payment channels between users. Only channel open and close transactions are recorded on the Bitcoin blockchain. Participants can transact multiple times within these channels, reducing congestion and fees on L1.
Critics target LN for its prevalent use of custodial wallets, as these demand users place trust in third parties to handle their money. Moreover, the off-chain method poses a risk: if nodes lack proper backup, it could trigger an irrevocable loss of funds.
Loopring uses zero-knowledge rollups (ZK-rollups) to batch hundreds of transactions off-chain and generate a cryptographic proof verifying their validity. This proof is submitted to layer one (Ethereum), avoiding the need to process each transaction on-chain.
Polygon ZKEVM also uses ZK-rollup technology to offer high throughput Ethereum transactions with lower fees. On the risk side, some believe that relying heavily on ZK-rollups can introduce centralization risks as validators and sequencers become key to the system.