Scalability, security and decentralization play an important role for Blockchains. However, usually one of these traits needs to be sacrificed in order to improve the other two, as shown in the image below. Blockchains usually focus on a high level of decentralization and security, resulting in low scalability. This issue is often called ’the blockchain trilemma’.
Because blockchains such as Bitcoin and Ethereum have grown extremely big, it is extremely hard to update them. Updates are excecuted now and then, but it takes a lot of time and effort to pull off. During such a big update, chances of a hard fork are then considerably high.
A way to increase scalability without sacrificing decentralization or security is by introducing layer 2 solutions. By implementing a layer 2 solution, the layer 1 blockchain (the main chain) can focus on critical tasks such as keeping the entire ecosystem safe and healthy. For example, a layer 2 solution can be a consensus algorithm, a protocol to scale up or support for smart contracts.
Examples of layer 2 solutions are:
- Optimistic Rollups
- Bitcoin Lighting Network