L2 Challenges and Limitations

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interests include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency ecosystems. 

What Are Limitations of L1?

Developers continue to construct decentralized apps (dApps) on top of Ethereum. Decentralized Finance (DeFi) apps, NFT marketplaces, Decentralized Autonomous Organizations (DAOs), blockchain gaming and virtual worlds can all be built on top of it.

But Ethereum has limitations and one major limitation is its Transactions Per Second (TPS). Take for example WAX. WAX is a proven gaming blockchain operating at speeds of 8,000 TPS. But gamers will want more.

Bitcoin tops out at 5 TPS and Eth1.0 tops out at 13-15 TPS. Solutions are needed to scale TPS for L1s to support these developing technologies and operate on par with WAX, or even Visa and Mastercard which process at about 1,700 TPS. To address this growing demand, developers have designed various solutions on how to scale up blockchain transactions.

How to Increase Blockchain Transactions?

There are two primary methods to solve these TPS bottleneck issues. The first method alters the operational constraints of the blockchain infrastructure, such as increasing the block size limit that the primary blockchain supports. Think early Bitcoin days and the BitcoinCash hard fork.

However, this creates issues regarding verification. One way to address this issue is to utilize methods such as sharding to distribute the workload across numerous nodes. This is Ethv2.0’s chosen solution that it will implement during Phase 2.0.

The second primary method reduces the processing activity that occurs on the primary chain. This method reduces the amount of work that L1 performs by shifting work “off” of the primary chain and onto the second layer L2.

To make this work, L1 includes a smart contract where the primary chain is restricted to processing deposits/withdrawals and verifying the activities performed on L2. The majority of the transactions are then performed “off-chain” on L2. How this “off-chain” transfer occurs and how L1 communicates with L2 is the subject of discussion amongst the various developers offering different L2 scaling solutions.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity whatsoever with which Thomas Wettermann has been, is currently, or will be affiliated.

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