Understanding Layer 2 In Cryptocurrency: Enhancing Blockchain Scalability And Efficiency

Challenges and Implications in Layer 2 Adoption

Although beneficial, some adoption challenges of Layer 2 solutions must be thoroughly evaluated. Their deployment is accompanied by technologically sophisticated deployment, where off-chain transaction recorders need to make sure that they accurately record and are verifiable on the parent chain. Layer 2, just like Layer 1, takes the security but brings along new attack surfaces to exploit like threats in smart contracts or sidechain consensus protocols. Apart from this, asset transfer between Layer 2 networks and Layer 1 networks has an impact on liquidity, leading to inefficiency in decentralized exchanges and other financial use cases. Adoption by users would also be difficult, where users have to learn about the intricacies of Layer 2 networks, e.g., bridging assets and switching between different protocols. Smooth interactions between Layer 1 and a group of the Layer 2 solutions will call for standardization and protocol engineering, as fragmentation would hamper cross-network interactions. Last but not least, as Layer 2 solutions become more popular, regulatory enforcement will increase, particularly when it comes to compliance with financial and data protection legislation.