At the end of 2019, the research firm Forrester and the Big Four Ernst & Young or EY, published report mapping the acceptance of public blockchains by businesses. The findings revealed that 75% of respondents are likely to use a public blockchain in the future.
Although this was the case, the report also found that most businesses still use private blockchains to ensure security, privacy and scalability. The survey also found that the three main concerns regarding public blockchain networks were the lack of maturity, security and privacy.
Fast forward to 2021 – these fears persist. Meanwhile, they are in the process of implementing advanced solutions to combat these problems for companies considering public blockchain networks.
For example, one of the most important developments enabling the use of public blockchain is known as the second layer scaling solution. While Layer 2 networks are not a new concept, many Layer 2 and Layer 2 scaling solutions are currently being developed to address enterprise requirements.
Tas Dienes, ecosystem support for the Ethereum Foundation and chairman of the Enterprise Ethereum Alliance Mainnet, told Cointelegraph that tier two scalability solutions are primarily designed to address the throughput reduction of decentralized blockchain transactions in tier 1 networks:
“Instead of performing all your transactions directly in the blockchain, you can run on top of a Layer 2 instance that can handle many more transactions per second and a much lower transaction cost.” However, the key is that layer 2 is secured by layer 1, so you still get many of the same security guarantees that a basic blockchain provides. “
Layer-two scaling solution for enterprise needs
According to Dienes, the most obvious advantage of the second layer solution is that the application running on the network is no longer subject to the throughput limitation of the underlying blockchain. This is extremely important because The Ethereum blockchain network has been criticized over time for its ability to process very few transactions per second.
Anna Frankowska, Aventus Network’s chief commercial officer – the second-tier blockchain protocol for Ethereum transactions – commented on the solution, telling Cointelegraph that the current throughput of Ethereum of 15 transactions per second was not enough. To put it bluntly, “Visa alone processes approximately 17,000 transactions per second,” she said.
With second-tier solutions, Dienes explained that businesses now have the best of both worlds because of “high throughput and low transaction costs, as well as strong public chain security and the ability to work with other applications built on it.” he noted. This is a step away from the previous use of private blockchain networks by companies, thanks to semi-centralized chains that are able to process more transactions per second than fully decentralized public chains.
Dienes added that tier two solutions can also help solve other problems faced by companies with public blockchains. For example, privacy is one of the biggest concerns organizations face about using a public blockchain network. In fact, 50% of respondents surveyed in EY and Forrester 2019 cited privacy as their main issue.
Certain Layer 2 technologies have been developed to specifically address this, Dienes noted, noting that businesses can now deploy a private Layer 2 instance that keeps sensitive information off the Layer 1 network. This increases privacy and also retains some of the benefits of interoperability and security of the first tier network. He added that this, combined with zero knowledge, was even stronger for companies using tier two solutions on public networks, such as Ethereum, which become a popular platform for business use cases.
When it comes to security, tier two solutions can address enterprise challenges such as data locale, which is another major issue for businesses considering public blockchains. For example, Dienes stated that companies that store data in a specific location for compliance purposes may use a tier two server to run that data in a known location by a known entity.
Revealing different solutions of the second layer
While tier two solutions can address many of the challenges businesses face in adopting a public blockchain, Frankowska mentioned that tier two solutions can also help organizations facilitate the use of private blockchain in public networks, adding:
“They can start with a legitimate Layer 2 chain with natively implemented business logic and gradually open it to the public.” Most businesses want to dip their fingers in Layer 2 water before they dive completely. “
This is an important point because many businesses today still use private blockchains and may hesitate to switch to open networks. It is also crucial for businesses to understand that they still exist many second layer scaling solutions are implemented and developed. So there is no one-size-fits-all solution for business needs
Despite hesitation, hybrid solutions of the second layer also appear. “There are new developments in this fast-growing field almost every week,” said Dienes, who can combine some of the best features of different technologies.
He further explained that the second-tier category, which has recently gained traction with many organizations, is “aggregate.” According to Dienes, the cumulative update “groups” a batch of transactions on the second tier networks and writes the transaction description data to the first tier:
“By calculating transactions on L2 and using L1 only to store transaction descriptions and ensure correct calculation, the overall system throughput can be increased by several orders of magnitude.”
This was recently stated by the author of the white book Ethereum, Vitalik Buterin Cumulative updates will soon arrive in the Ethereum ecosystemwith the proviso that it could improve the transaction throughput of Ethereum a hundred times.
Dienes mentioned that different types of cumulative actions are being developed for different instances. This is where zk-Rollups and Optimistic Rollups use different mechanisms to enforce the correctness of transactions, allowing for various trade-offs in matters such as transaction latency and selection delays.
In addition, there are a number of second-layer scaling solutions that use the first layer for security but store transaction data out of string or not on the first layer. “Validium, plasma and state channels are major.” Because they don’t write as much data to L1, they can provide much higher throughput at the cost of decentralization than cumulative updates, ”Dienes said.
Challenges navigating the vast layer 2 ecosystem
While it is remarkable that so many developments have been made in the second tier, a huge ecosystem can be challenging for businesses.
Dienes explained that the main challenge for novices is that there are many different second-tier technologies, each with its own strengths and weaknesses. As a result, tier two companies must tailor it to the needs of each candidate to maintain a level of security and success.
For example, Dienes mentioned that off-chain data scaling solutions – such as Validium, Plasma, and state channels – may be very useful for certain types of enterprise applications where it is acceptable to trust a known entity to store this data. “This solution category has other enterprise-friendly features, such as the potential for more privacy compared to cumulative updates, greater isolation from resource requirements of other applications (such as CryptoKitties) and control over where data is stored,” he said.
While Dienes’ recommendations may be useful, understanding the capabilities of what Layer 2 solutions can provide for certain applications is still not easy for many organizations. Fortunately, as space matures, it could become easier over time, as more solutions may eventually be highlighted for business needs.
This is easier said than done, because Frankowska emphasized that there will always be security concerns, volatility issues, uncertainty about the regulatory environment and skepticism about what may seem like a panacea. “Therefore, not all layer two solutions are created the same.” In addition to scaling, you also need to address issues of price stability, interoperability and security. One missing pillar and temple are falling apart, “she remarked.