Seeing that there's some confusion about L1 and L2, I thought to make a post explaining this once for all.

As the number of people using Ethereum has grown, the blockchain has reached certain capacity limitations. This has driven up the cost of using the network, creating the need for "scaling solutions"

The main goal of scalability is to increase:

- Transaction speed

- Transaction throughput

But without sacrificing decentralization or security: while speed and throughput are important, it is essential that scaling solutions enabling these goals remain decentralized and secure.

Let's start with the scaling solutions:

On-chain scaling.

This method of scaling requires changes to the Ethereum protocol (layer 1 Mainnet).
Sharding was the main focus of this method of scaling, but it is no longer being used to scale the L1 network, it's instead been replaced with Supercharge Rollups.

The original plan was to shard both data storage and transaction execution, but doing so turned out to be extremely complicated and could potentially be unsafe, so this plan was scrapped in favor of only sharding data storage, which is simpler and safer.

This way, shards essentially offer a scalable data storage layer to the Ethereum network, making it significantly cheaper to store data on the blockchain. Rollups can take advantage of this to pack even more L2 transactions in a single rollup batch, which will drive down the cost of individual users within rollups.

(You can read about the reasoning behind this in this discussion thread from October 2020, where Vitalik proposed a rollup-centric Ethereum roadmap, and you can see the fruition of this discussion here in this tweet from Vitalik, which shows that sharding is focused on scaling rollups, not the L1 network.) (Credits to u/jcm2606)

Off-Chain scaling solutions: L2s.

First, what is a L2?

Layer 2s handle transactions off the Ethereum Mainnet (L1) while taking advantage of the decentralized security model of Mainnet. For some solutions, L2s then batch transactions into groups before anchoring them to L1, and after they are secured by L1, they cannot be altered.

Why do we need L2?

They have increased transactions per second (Also, they reduce the congestion on the L1), and they make Ethereum more inclusive and accessible to anyone. Their updates in scalability are not at the expense of decentralization or security.

MaintTypes: Rollups, Channels, Sidechains, Validium, Plasma.

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• Rollups

They perform transactions outside the L1 and then post the data into the L1 where consensus is reached. As transaction data is included in L1 blocks, this allows rollups to be secured by native Ethereum security.

There are two types of Rollups:

- Optimistic rollups: they assume transactions are valid by default and only run computation via a fraud-proof, in the event of a challenge.

- Zero-knowledge rollups: runs computation off-chain and submits a validity proof to the chain. (ZK)

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• State Channels

They utilize multisig contracts to enable participants to transact quickly and freely off-chain, then settle finality with Mainnet. This minimizes network congestion, fees, and delays.

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• Sidechains

They are independent EVM-compatible blockchains that run in parallel to Mainnet.

These are compatible with Ethereum via two-way bridges and run under their own chosen rules of consensus, and block parameters. (ex: Polygon)

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• Plasma

A plasma chain is a separate blockchain that is anchored to the main Ethereum chain and uses fraud proofs (like optimistic rollups) to arbitrate disputes.

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• Validium

They use validity proofs like zero-knowledge rollups but the data is not stored on the Ethereum Mainnet.

This can lead to 10k transactions per second per Validium chain and multiple chains can be run in parallel.

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Do we really need all of these solutions?

Yes and NO. Multiple solutions can help reduce the overall congestion on any one part of the network, and also prevents single points of failure.

But no scaling solution is enough to fulfill the Ethereum vision.

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