Layer 2 Sector Analysis: Why Does Ethereum Need a "Second Layer"? Explaining Mainstream Scaling Solutions

I. Introduction: Ethereum's "Traffic Jam" Dilemma

Imagine Ethereum (Layer 1) is a bustling superhighway, but it only has one lane.

In the early days, this road was clear. But with the explosive growth of DeFi, NFTs, and GameFi, thousands of "cars" (transactions) flooded in, and this single-lane highway quickly became a "century-level traffic jam."

This is the "Blockchain Trilemma" that Ethereum faces. It's difficult for a blockchain system to simultaneously satisfy Decentralization, Security, and Scalability. Ethereum L1, in its quest to guarantee extreme "Decentralization" and "Security," had to sacrifice "Scalability."

The visible symptoms of this sacrifice are:

1. High Gas Fees: During congestion, you have to pay exorbitant "tolls" (Gas) to cut in line, with a single transaction easily costing tens or even hundreds of dollars.
2. Slow Transaction Speeds: This single lane can only process about 15-30 transactions per second (TPS), which is completely insufficient to meet the needs of billions of global users.

This "traffic jam" reality makes the cost of DApps (Decentralized Applications) prohibitively expensive for ordinary people, severely hindering the adoption of Web3.

To solve this problem without sacrificing L1's decentralization and security, Layer 2 (L2) scaling solutions were born.

II. What is Layer 2 (L2)?

Layer 2 is a "second layer" network built on top of Ethereum (Layer 1).

If L1 is that congested "highway," L2 is like a "high-speed railway" built above it.

How L2s Work (Simple Explanation)

1. "Batching" & "Diverting": An L2 first "diverts" hundreds or thousands of transactions off the L1. It processes and computes them quickly and cheaply on this L2 "high-speed rail" (this is called "off-chain execution").
2. "Compressing" & "Reporting": After processing all the transactions off-chain, the L2 "compresses" the results of these thousands of transactions into a tiny data packet (a transaction summary) and then submits (Posts) it back to the L1 mainnet highway for final confirmation and storage.

The Essence of L2: Inheriting L1 Security

L2s are fundamentally different from "Sidechains" (like BSC or Polygon PoS).

• A Sidechain has its own consensus and validators. Its security is independent of L1 (if a sidechain's validators turn malicious, your assets are lost).
• An L2 is different. Its security is ultimately guaranteed by L1 (Ethereum). L1 acts as the final "Supreme Court" and "settlement layer." The data an L2 submits back to L1 is monitored by all L1 nodes. L1 smart contracts ensure the L2 cannot cheat or steal user assets.

The L2 mantra is: "Trade at high speeds on L2, enjoy L1-level security."

III. Explaining Mainstream Scaling Solutions: The "Two Paths" of Rollups

Today, the mainstream L2 solution has largely unified around "Rollups" technology. The term "Rollup" is very descriptive: it refers to the process of "executing off-chain, then rolling up" the results to submit them on-chain.

However, within the Rollup category, two distinct and competing technical paths have emerged. Their core difference lies in: How does L1 know the data submitted by L2 is honest?

Solution 1: Optimistic Rollups (ORU) — The "Good Faith" Challenger

• How it works ("Trust, then verify"):
  1. Optimistic Submission: An ORU "optimistically" assumes all transactions executed on L2 are valid. It submits the transaction data bundle directly to L1 without any pre-emptive computational proof.
  2. Fraud Proofs: After submission, a "Challenge Period" begins, typically lasting 7 days.
  3. The Challenge: During these 7 days, anyone (a "verifier") can inspect the data. If they find a malicious or invalid transaction, they can submit a "Fraud Proof" to L1.
  4. The Penalty: The L1 smart contract verifies this proof. If L2 is confirmed to have cheated, L1 immediately reverts the malicious transaction and slashes the L2 node's security deposit.
• Pros and Cons:
  • Pros: The technology is relatively mature, has good EVM (Ethereum Virtual Machine) compatibility (easy for DApps to migrate), and low Gas costs.
  • Cons: The biggest drawback is that withdrawals (from L2 to L1) require waiting for the 7-day challenge period, which severely impacts capital efficiency.

Solution 2: Zero-Knowledge Rollups (ZKR) — The "Bad Faith" Verifier

• How it works ("Prove, then submit"):
  1. ZK (Zero-Knowledge) Proof: A ZKR does not trust the L2 node at all. When it submits its data bundle, it uses complex cryptography (like zk-SNARKs) to also generate a "Validity Proof."
  2. Mathematical Guarantee: This "proof" itself mathematically guarantees that every single transaction in the batch is 100% valid. L1 doesn't need to trust the L2.
  3. L1 Verification: The L1 smart contract only needs to "verify" this tiny, simple "proof" (which is very fast), rather than re-executing all the transactions or waiting 7 days.
• Pros and Cons:
  • Pros: Higher security (guaranteed by math, not a challenge period), extremely fast withdrawals (minutes to hours), and superior capital efficiency.
  • Cons: Incredibly complex technology, high computational cost to generate the "proofs," and (historically) difficult to make compatible with the EVM (though modern zkEVMs are now solving this).

IV. Overview of Core L2 Sector Projects

Based on these two technical paths, the L2 sector has seen the rise of the "Big Four" and numerous challengers. The table below summarizes the core projects and their tokens in the L2 ecosystem.

V. The Future of L2s: Modularity, L3s, and Superchains

The L2 war is far from over. Its next steps involve even more "nesting" and "unbundling."

Modularity The next step for L2s is "Modular Blockchains." This concept involves unbundling the functions of an L2 (like Execution, Data Availability (DA), and Settlement) and outsourcing them to more specialized networks. For example, an L2 might only handle "Execution" while outsourcing the most space-intensive data (DA) to a specialized DA layer like Celestia, thereby reducing L2 Gas fees by another order of magnitude.

L3 (Layer 3) The rise of "App-Chains." If L2s are public highways for "everyone," then L3s are "private highways" that a project (like a massive game) builds on top of an L2 (like Arbitrum). An L3 can achieve extreme performance, ultra-low costs, and full customization for its specific application (e.g., using its own token for gas).

The Superchain and Aggregation This is Optimism's "Superchain" vision or Polygon's "AggLayer." The goal is to connect hundreds of independent L2s into a single, seamless, interoperable network. This would make users feel like they are on one unified chain, allowing L2s to share liquidity and state.

VI. Conclusion: L2s Are Not "Replacements," They Are "Amplifiers"

We must clarify one core concept: L2s were not created to "kill" or "replace" Ethereum. They are, in fact, an extension and amplifier of Ethereum's vision.

In this evolution, the roles of L1 and L2 are becoming clear:

• Layer 1 (Ethereum): Is gradually "retiring" from handling mundane, everyday transactions. It will focus on what it does best—acting as the globe's "Security and Settlement Layer" and its "Ultimate Court of Arbitration."
• Layer 2 (Rollups): Acts as the "Execution Layer." It faces the millions (and billions) of users, providing them with cheap, fast, everyday transactions (transfers, DeFi, gaming, social).

L2 is the only path for Ethereum to evolve from an "elite toy" into a "global computation layer." The L2 sector (especially the race between ORUs and ZKRs) will be the most critical and exciting battlefield in the crypto space for years to come.