Scaling The Blockchain: Layer-2 and Immutable X explained

Despite the peaks and troughs in the price of its currencies, the adoption of blockchain technology by enterprises continues to grow apace, but one of the most pressing challenges facing the industry is scalability and cost.

With the growth of blockchain technology, the number of users and transactions on the major networks has led to expensive gas fees (Hello Ethereum!), and it’s mainly because of this that the demand for faster and more efficient solutions has become such an important area of focus.

This has led to the development of Layer-2 scaling solutions, such as Immutable X, that aim to address these challenges by providing faster, cheaper, and more scalable transactions. In this article, I will explore the potential of Layer-2 solutions for blockchain scalability – with a particular focus on Immutable X and how it compares to the alternatives.

What is Layer-2?

Layer-2 providers are designed to enhance the scalability of blockchain networks by moving some of the transaction processing off-chain. This approach can help reduce congestion on the primary network, increase the transaction speed (With higher throughput and a lower processing workload), and reduce overall the transaction/gas costs.

In practice, Layer-2 solutions work by grouping transactions together and processing them off-chain, before sending a single transaction to the main blockchain network for verification.

There are various types of Layer-2 solutions, including state channels, sidechains, and rollups. Each solution has its own unique advantages and disadvantages, depending on the specific use case.

State Channels

State channels involve opening a channel between two parties and conducting multiple transactions off-chain, before settling the final balance on-chain. This approach is particularly useful for microtransactions and real-time payments, such as those required for gaming and streaming applications.

Sidechains

Sidechains are separate blockchains that are attached to the main blockchain network, enabling transactions to be processed on the sidechain before being reconciled with the main network. Sidechains can provide high throughput and low latency, making them suitable for use cases that require fast transactions and low fees. Although please note there is an important consideration here in whether that particular sidechain could be trusted and relied upon.

Rollups

Rollups are a Layer-2 scaling solution that combines the benefits of both state channels and sidechains. Rollups use a process called optimistic rollup (like Optimistic Ethereum) or zk-rollup (Immutable X), which compresses multiple transactions into a single transaction that is verified on the main blockchain network. This approach enables higher throughput and faster settlement times than the main blockchain network while retaining the security and trustless state of the underlying blockchain.

The difference between the two put simply is that a zk-rollup handles a transaction batch as a single transaction, whilst an optimistic rollup does the same but it only updates the main network if these transactions are disputed.

Immutable X:

Immutable X uses zk-rollup technology to provide fast, secure, and scalable transfers and trades on the Ethereum network.

Immutable X is built on top of Ethereum, which allows dApps to integrate with it more easily as much of the tooling is compatible – whilst also retaining the security and decentralisation of the Ethereum network mainnet.

Immutable X is designed to offer significant benefits over the main Ethereum network, including faster transaction times and lower transaction costs. Immutable X also offers gas-free trading, instant finality, and no network congestion.

Immutable X remains fully decentralised, trustless, and censorship-resistant, which makes it an ideal solution for dApps that require high security and reliability. Immutable X has already gained significant traction in the NFT market, with popular platforms such as OpenSea, Gods Unchained, and Mintable integrating with it.

The crux is that with the high gas costs of minting on Ethereum, the NFT market has a significant floor price – as a transaction could cost more in gas than the value of the NFT/item purchased.

Alternatives to Immutable X:

While Immutable X is a promising Layer-2 provider – there are other alternatives that offer similar benefits.

One of the best-known is Polygon.

Polygon uses a sidechain approach, which allows for its higher throughput and much cheaper transaction costs than the main Ethereum network.

Polygon has doubled down on Immutable X support with its Polygon zkEVM (zero knowledge Ethereum Virtual Machine) Mainnet which is in Beta.

I have yet to actively develop upon this, as currently, the projects I lead are focusing on Immutable X.

Another established alternative is Optimistic Ethereum, which is a Layer-2 solution that uses optimistic rollups – which assume that the transaction is correct and only needs to be updated if this optimistic (Ah!) assumption is proved incorrect.

To Conclude

Layer-2 scaling solutions are an important development in the blockchain industry, offering a way to address the scalability challenges facing blockchain networks.

Whilst Immutable X is one of the most promising Layer-2 offerings, and is already a popular choice in the NFT market – it remains to be seen if its popularity will extend beyond the NFT/gaming sectors.

Other approaches, such as those provided by Polygon and Optimistic Ethereum, offer similar benefits, and may be a better fit depending on what blockchain assets are already in place, the market sector and the use case

Whether these will become the standard, or whether other approaches will come to the fore instead remains to be seen, but the development and adoption of Layer-2 does address many of the major flaws with blockchain technology (particularly Ethereum).

Personally, I draw some comfort that these build on top of the well recognised and trusted Ethereum network. There are other chains with lower transaction fees than Ethereum, but generally, they suffer from lower confidence (be it liquidity or governance) and weaker consumer awareness.

If you are considering applying blockchain technology to your business and would like to chat about it with an experienced CTO, then please do get in touch.