Beyond Scaling: The Benefits of Purpose-Built L2s and the Next Frontier of Innovation

This post is taking part in the Lens x Kiwi Writing Contest.

Introduction

Two years ago, I embarked on an exciting journey into the world of blockchain technology, and I was quickly struck by its rapid evolution. To me, the blockchain space feels like a dynamic, ever-expanding landscape where each network is continually working to tackle core challenges like scalability, storage, block time, latency, transaction throughput, and consensus mechanisms. My fascination with the potential of blockchain technology drove me to dive deeper into how these networks operate, both at the Layer 1 level—such as Aptos, Vara, Sui, Sei, and Monad—and at the Layer 2 level with solutions like MegaEth, Lagrange, and Risc0.

In this article, I’ll explore how purpose-built, specialized Layer 2 networks and solutions go beyond just improving scalability. I’ll discuss the unique benefits they offer and how they drive innovation within the blockchain space, particularly within the Ethereum ecosystem. Additionally, I’ll connect these insights with Vitalik Buterin’s views on how Layer 2 networks act as cultural extensions of Ethereum, shaping and influencing its evolving ecosystem.

Understanding Layer 2 Solutions

The layer-2 (L2) solutions are a set of technologies designed to improve the scalability, efficiency, and usability of blockchain networks, particularly Ethereum. They operate on top of the base layer (Layer-1), offloading some of its computational load while still maintaining the security and decentralization of the underlying blockchain. This approach addresses major limitations like slow transaction speeds, high gas fees, and limited throughput that often plague most blockchain networks.

So what are Layer 2 Solutions?
Layer-2 solutions are additional protocols designed to work on top of a Layer-1 blockchain, such as Ethereum, to improve its overall efficiency. These "second-layer" technologies handle transactions off-chain, away from the primary blockchain (Ethereum). Once processed, these transactions are grouped together and eventually recorded back on the main Ethereum blockchain network. This method helps alleviate congestion and lowers the costs that users would otherwise incur if all transactions were processed directly on the Ethereum network.

As mentioned earlier, the primary aim of these solutions is to address the limitations of the Ethereum network. As a result, these solutions often share several key characteristics, particularly in the following four areas:

• Scalability: L2s are designed to handle a much higher volume of transactions per second compared to Layer 1, without compromising security.
• Reduced Transaction Costs: By executing transactions off-chain, L2 solutions help reduce the gas fees paid by users, making blockchain usage more affordable.
• Faster Transaction Finality: With L2s, transactions are confirmed much faster compared to some Layer-1 such as Ethereum, enhancing the user experience.
• Security Inheritance: Most L2s inherit their security properties from the underlying Layer 1 blockchain, ensuring that they remain secure and decentralized.

General-Purpose and Purpose-Built Layer 2 Solutions

Vitalik’s observation points out that while Ethereum's L2 landscape has largely centered on EVM-equivalent L2s, it overlooks the vast range of alternative approaches that address specific needs. This diversity in L2 approaches allows for both broad and niche solutions, highlighting the flexible nature of Layer 2 technologies.

So based on his observation, we can say that when it comes to L2 solutions, I believe that we can put these solutions into two categories since not all L2s are created equal. Some of these solutions aim at specific limitations, while others offer much broader solutions as observed.

In that sense, let's explore these categorizations to understand the differences between these general-purpose and purpose-built second layers, which helps highlight their unique and distinct roles within the Ethereum ecosystem.

1. General-Purpose L2

The general-purpose L2 solutions are designed to be versatile, that can support a wide range of decentralized applications (dApps) without targeting any specific use case or you can say have a general use case. These L2s focus on improving transaction speed, reducing costs, and enhancing overall scalability for various applications.

Examples of these solutions (3) are Polygon zkEVM, Optimism and Arbitrum. The reason they are considered general-purpose is that these L2s are focused on scaling the Ethereum VM.

2. Purpose-Built L2s

Unlike general-purpose L2s, purpose-built L2 solutions are specifically designed and created to address particular needs or challenges within the blockchain ecosystem. Now, these solutions are tailored to optimize specific use cases, enhancing performance and capabilities in ways that a broader solution might not.

Examples of purpose-built L2 solutions are Lagrange, MegaEth, and Risc0. These solutions are narrowed down to one or two specific needs, which for instance, Lagrange, is designed to handle computing and complex simulations, and MegaEth, which focuses on high-performance trading environments, optimizing transaction speed and minimizing latency, making it ideal for financial applications and trading platforms, and whereas Risc0, with it zero-knowledge proof-based L2, Risc0 is purpose-built for privacy and security, enabling confidential transactions that shield sensitive data from the public blockchain while maintaining verifiability.

So it is evident that the General-purpose L2 solutions aim to provide broad scalability and compatibility, making them ideal for a wide range of dApps, while purpose-built L2s are specialized for specific use cases, offering tailored optimizations that are not achievable with general solutions. This distinction allows the Ethereum ecosystem to cater to diverse needs, enabling the network to scale effectively while also accommodating unique, high-performance applications.

I initially thought of Arbitrum as a general-purpose solution. However, Arbitrum Stylus adds specialized functionality with its support for WebAssembly (WASM). I mention this because Vitalik brought it up. Therefore, I think we can consider it purpose-built for Stylus"

Traditional Focus

As Ethereum's popularity increased, so did network congestion, leading to slower transaction speeds and higher fees, which posed challenges for broader adoption, especially for decentralized applications (dApps) and everyday users.

So L2 solutions, often referred to as "scaling solutions" emerged as a response to this challenge or limitation issue within the Ethereum network. These protocols are built on top of the main Ethereum chain (Layer-1), which is separate from the main chain to process transactions off-chain before being finalized on the main chain. By offloading transaction processing, the load on the Ethereum network is reduced, which enhances its overall performance and user experience.

Therefore, several general-purpose L2 solutions, such as rollups, sidechains, and state channels, focus specifically on solving the issue with the limitation.

• Rollups, such as Optimistic Rollups and ZK-Rollups, aggregate multiple transactions into a single one, processing them off-chain before submitting to Ethereum. This approach significantly reduces transaction costs and enhances throughput, making Ethereum more efficient and cost-effective for users.
• Sidechains: Sidechains operate as independent blockchains that run parallel to Ethereum, connected through a bridge. They enable high-speed transactions with lower fees but often trade off some level of security compared to the main chain.

The evolving demands of the Ethereum network have highlighted the need for more than just scalability. This has led to the creation of custom Layer-2 solutions, offering specific features, enhanced security, and tailored cultural significance for different applications. Which leads to the benefits these L2 solutions offer.

Benefits Of Purpose-Built L2s

From the information gathered, these Purpose-built L2s are indeed unique and specialized solutions that provide a lot of benefits to developers who want to build decentralized applications (dApp) and improve user experience. Just like you wouldn't use a hammer to cut wood, different purpose-built L2s are good for different jobs. This makes it possible for developers to find the right tool for what they want to do or implement, which makes the entire Ethereum system more useful for everyone, both developers and users.

So let's take a closer look into the their benefits they provide:

• Enhanced Scalability: Layer-2 solutions are designed to make blockchains faster and more efficient. They do this by processing transactions on a separate layer that works alongside the main blockchain (Layer-1), helping to reduce congestion.
• Increased transaction throughput: Layer-2 solutions can handle a lot more transactions per second (TPS) than the main blockchain. This means more people can use the network at the same time without it slowing down. For example, if the main blockchain can handle 15 transactions per second, a Layer-2 solution can handle hundreds or even thousands, making the system smoother for everyone.
• Reduced latency: By handling transactions off the main blockchain, Layer-2 solutions can confirm transactions much faster. This makes apps that rely on blockchain technology feel more responsive, like how websites load quickly without making you wait.
• Lower Transaction Costs: One of the major advantages of Layer-2 solutions is their ability to cut down on fees, making transactions cheaper and more accessible.
• Reduced gas fees: Gas fees are the costs paid to process transactions on the blockchain. Layer-2 solutions help reduce these costs because they take some of the work off the main blockchain, making it more affordable for users to send money or use apps.
• Optimized for specific use cases: Some Layer-2 solutions are designed to work really well for particular types of transactions, such as microtransactions or payments between friends. By focusing on specific needs, they can make those transactions even cheaper.
• Improved Privacy and Security: Layer-2 solutions can add extra privacy and security features to blockchain transactions, which is essential for protecting user data.
• Privacy-preserving protocols: Some Layer-2 networks use advanced technologies like zero-knowledge proofs, which allow transactions to be verified without revealing all the details. This keeps user information private while still proving that the transaction is valid.
• Enhanced security: Layer-2 solutions benefit from the security of the main blockchain (Layer-1) while adding their security measures. This combination makes the overall system more secure, protecting users from hacks and fraud.
• Customization and Flexibility: Layer-2 solutions can be customized to meet the specific needs of different industries or applications, making them versatile.

These points highlight the significant benefits of purpose-built Layer-2 solutions provides, showing how they enhance scalability, reduce costs, and improve privacy and security, all of which make blockchain technology more efficient and accessible for various applications and industries.

Now, beyond technical benefits, purpose-built L2s contribute to the cultural and community dynamics of the Ethereum ecosystem. By fostering distinct sub-ecosystems, these L2s help cultivate unique cultures that reflect their specific values, goals, and communities as said by Vitalik Buterin.

Since each purpose-built L2 tends to attract a particular user base and community, which is often centered around the specific use case or technology, it is evident that these communities contribute to the L2’s development, governance, and cultural identity, creating sub-ecosystems within the broader Ethereum landscape.

Example: Optimism, ZKSync, and Starknet: These L2s cater to distinct community interests, reflecting a variety of values and technical priorities. Optimism, for example, is known for its focus on user-friendly interfaces and seamless developer experience, which has fostered a strong community of developers dedicated to scaling Ethereum. ZKSync emphasizes privacy and transaction efficiency, attracting those who prioritize cryptographic innovation and data security. Starknet, with its focus on scalability through zk-STARKs, has cultivated a community centered around zero-knowledge proofs and their potential to revolutionize blockchain technology.

When it comes to the crazy ideas L2 networks can explore, I believe there's a lot of untapped potential, and these solutions don't have to be that crazy to push the boundaries of what’s possible on Ethereum. In fact, some of these ideas could address real-world issues or create entirely new opportunities for developers, businesses, and users alike.

Fresh and Crazy Ideas for Layer 2 Solutions to Explore

Here are some ideas:

1. NLP for Smart Contract
Imagine an NLP-powered tool for writing smart contracts, integrated into a Layer 2 solution. This could significantly broaden the use of L2 networks by removing entry barriers, as users wouldn't need to write smart contracts in specialized programming languages like Solidity or Rust. Instead, the tool would allow contracts to be written and executed in natural human language, making the process more accessible to a wider audience.

Example

Contract: Freelance Agreement Parties: - Client: John Doe - Freelancer: Jane Smith Terms: 1. Jane Smith agrees to deliver a website design for John Doe. 2. The project deadline is September 30, 2024. 3. The total payment is 5 ETH. 4. Payment schedule: a. 2 ETH upon contract signing b. 3 ETH upon project completion and approval by John Doe Conditions: - If the project is delivered before the deadline, John Doe will pay a bonus of 0.5 ETH. - If the project is delayed, 0.1 ETH will be deducted from the final payment for each day of delay, up to a maximum of 1 ETH. Signatures: [Digital signatures of both parties]

How would something like this work? Well, I'll go into more details with this one, since I had had interest for a while now.

The NLP system idea in this concept wouldn't necessarily use AI (that's what i thought initially) to write out the agreement itself. Instead, it would use AI and machine learning techniques to interpret, process, and execute agreements written in natural language which would be off-chain, and when the contract is verified by the developer it is then deployed on-chain.

This is a simple diagram to show, but I believe there's a lot that goes into it. And the thing is this whole system is incorporated into the L2 solution as either a feature or a focus of their solution.

To expand on the idea, imagine if an L2 solution were built on top of the Sei Network. For those unfamiliar, Sei is a Layer-1 network that allows developers to deploy smart contracts in both Solidity and Rust using their Bridge Pointer. Now, picture an L2 solution leveraging Sei’s powerful protocol and system, but incorporating an NLP system to eliminate barriers to entry. By focusing on simplifying the user experience through NLP, this L2 could still benefit from Sei’s high performance, consensus mechanism, and robust security while making smart contract development more accessible.

2. Adopting the Actor Model on an Ethereum L2
One bold idea I’ve had since learning about the Actor Model is how it could introduce features like gasless and signless transactions. While its feasibility within the Ethereum network might be uncertain, the Actor Model has been successfully implemented in other distributed systems, making it theoretically possible in blockchain as well. Vara Network is the first to use this model.

By integrating the Actor Model into an Ethereum L2, we could unlock powerful capabilities such as parallel execution, asynchronous programming, and isolated state management. Though it may present significant technical challenges, the potential benefits for both users and developers are enormous. With enhanced concurrency and novel transaction models, this concept could lead to a new generation of purpose-built L2 solutions, potentially reshaping the Ethereum ecosystem and pushing its scalability to new heights. Thus creating it own culture within the Ethereum Ecosystem just like Vitalik said.

3. Cross-layer Autonomous DAOs for Governance
This idea stems from the growing use of DAOs (Decentralized Autonomous Organizations) within blockchain ecosystems, but the twist is creating cross-layer DAOs that autonomously manage collaboration between L1 and multiple L2s. This would involve creating smart contract-based governance structures that sit across layers, allowing stakeholders from both L1 and various L2s to vote on decisions affecting the whole ecosystem.

For instance, we already see DAOs being used for governance on L1s like Ethereum, but extending this idea would allow L2s to autonomously coordinate resource sharing, state syncing, and even liquidity. By sharing a cross-layer governance model, this could create a positive-sum game where L1s and L2s are incentivized to cooperate instead of competing. Collaboration would include protocol updates, fee structures, and cross-chain transaction standards. The interoperability protocol here could be self-organizing, with DAOs automatically determining the optimal ways to share resources between layers, thus maximizing efficiency and scalability.

4. AI-Driven Dynamic Sharding Across L2 Networks
Now, this is idea, when it we talk about the current L2 solutions, like Ethereum and Polkadot, implement basic sharding mechanisms, but the idea is to integrate AI for dynamic shard resizing and autonomous state sharing between L2s, which I believe is a bit futuristic. While AI-driven scaling is being researched in various blockchain settings, the specific application of AI to autonomously manage shard sizes and merge or split them across different L2s in real time hasn’t yet been implemented. Sharding itself is complex, and AI-driven sharding across multiple networks is a significant technical leap that has not yet been tackled.

These ideas build upon existing technologies and concepts, but they would undoubtedly push the boundaries of how autonomous systems and AI could transform the relationship between L1 and L2. By driving scalability, efficiency, and collaboration to new levels, they open the door to unprecedented advancements in blockchain ecosystems.

Conclusion

Layer 2 solutions are transforming the blockchain landscape, providing essential scalability and efficiency to an ever-growing ecosystem. Understanding the fundamental principles behind L2s is crucial for anyone engaging with blockchain technology. By alleviating congestion on the main chain, L2s enable faster and cheaper transactions while preserving the core security and decentralization of Layer 1 blockchains.

The benefits of purpose-built L2s cannot be overstated. Tailoring these solutions for specific use cases, such as gaming, DeFi, or enterprise applications, opens the door to optimized performance and enhanced user experiences. Imagine gaming-focused L2s facilitating seamless microtransactions or DeFi platforms leveraging advanced liquidity solutions.

Moreover, the potential for innovation within the realm of L2s is vast. Fresh and even unconventional ideas, such as decentralized AI computations, cross-chain interactions, incentivized data storage, and self-sovereign identity systems, could revolutionize how we think about blockchain applications. The concept of dynamic L2s that adapt their infrastructure based on transaction types further exemplifies the creative possibilities awaiting exploration.

As the blockchain ecosystem continues to evolve, L2s will play a pivotal role in shaping the future, inviting both developers and users to engage with a more scalable and versatile digital landscape.

And to answer Vitalik's prompt below.

Now, to foster collaboration between Layer 2 (L2) solutions and Layer 1 (L1) networks while maximizing positive-sum games, L2s should adopt a more integrated and specialized approach. Purpose-built L2s tailored for distinct verticals such as DeFi, gaming, or supply chains can focus on optimizing performance for their specific use cases, enabling synergies between different L2 ecosystems. For instance, a gaming L2 can integrate with a DeFi L2 to enable in-game economies that tap into DeFi protocols, enhancing user experiences without direct competition. Establishing cross-layer governance frameworks, such as shared DAOs (as I mentioned earlier in Cross-layer Autonomous DAOs for Governance), can further streamline decision-making across L1 and L2s, enabling coordinated updates, fee-sharing models, and interoperability without fragmentation. Additionally, L2s should try to prioritize creating dynamic resource-sharing models (like the Actor Model I talked about), where computational power and liquidity can be fluidly allocated between layers and among various L2s. Shared liquidity pools and cross-chain bridges can prevent liquidity fragmentation, offering users seamless, low-cost interactions across multiple networks. Furthermore, L2s can explore experimental ideas such as incentivized data storage or decentralized AI computation, offering new utility layers that encourage collaboration across the blockchain ecosystem. By focusing on interoperability, specialized use cases, and shared resources, L2s can nurture a more collaborative environment with L1, ensuring scalable, efficient, and innovative solutions that benefit all participants.

Thank you for reading, and I hope this exploration sheds light on the importance of Layer 2 solutions in shaping the future of blockchain technology!

References

1. IMMUNEBYTES (June 19, 2024). Unlocking Blockchain Potential: An In-Depth Guide to Layer 2 Scaling Solutions. https://www.immunebytes.com/blog/unlocking-blockchain-potential-an-in-depth-guide-to-layer-2-scaling-solutions
2. COINDESK (August 18, 2022). What Are Rollups? ZK Rollups and Optimistic Rollups Explained. https://www.coindesk.com/learn/what-are-rollups-zk-rollups-and-optimistic-rollups-explained/
3. SHARDEUM (July 22, 2023). What are Sidechains? – A Detailed Guide. https://shardeum.org/blog/sidechain/
4. MEDIUM (October 9, 2023). Layer 2 vs. Sharding: Which is the Better Scaling Solution? https://medium.com/@orderlynetwork/layer-2-vs-sharding-which-is-the-better-scaling-solution-a56fea15f0a9
5. ROCKYESSEL-HASHNODE (August 30, 2024). A Comprehensive Understanding of Actor Model & How It Acheives Parallel Computation And Scalability In Vara Network. https://rockyessel.hashnode.dev/comprehensive-understanding-of-actor-model-how-it-acheives-parallel-computation-and-scalability-in-vara-network