Layer 2 Blockchains: Simply Explained
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Now let's get a little bit technical and talk about layer two blockchains. We described ImmutableX as an Ethereum scaling Layer 2, but what does that actually mean?
Well, let's consider Ethereum. Ethereum is whats known as a Layer 1 blockchain. Now there's an important concept to understand, which is something called the Blockchain
Trilemma. The Blockchain Trilemma was first described by the founder of Ethereum, and it talks about the fact that there are three key properties scalability, security and decentralisation.
And it's really hard to have all three of them present in a blockchain environment. And so for instance, Ethereum, trades off scalability
for security and decentralisation. Ethereum's a very secure blockchain. It's a very decentralised blockchain, but it's not particularly fast or scalable.
There are limitations on the number of transactions that can be present in each block and on how long it takes for each block to be committed.
In contrast to that, let's consider ImmutableX. ImmutableX has deliberately traded security and decentralisation
for scalability. Now alone, that might be a problem. But the great thing about Layer 2 blockchains is they inherit some of the properties of the underlying Layer 1 blockchain.
So in this case, ImmutableX actually inherits the security and decentralisation characteristics of Ethereum. So what does this look like? Well, transactions can happen a lot faster on ImmutableX,
and what happens in the background is those transactions are grouped together and wrapped into a single transaction that is stored on the Layer 1
Ethereum blockchain. This happens through a smart contract that sits on the Ethereum, that takes these wrapped transactions, verifies their integrity
and processes deposits and withdrawals of value between the Layer 1 and the Layer 2. So this allows you to transfer both Fungible
Tokens and Non-Fungible Tokens from Ethereum to ImmutableX and the other way around in a way that is secure and decentralised using Ethereum,
but allows for transacting on ImmutableX in a highly scalable, really fast manner. This architecture lends itself to a series
of advantages versus Ethereum. Firstly, it allows for much higher scalability. So where you've got situations like games that might generate thousands of events
a second, that can be supported, whereas on Ethereum it can't. It improves the user experience because on ImmutableX
you can have an instant transaction confirmation, whereas on Ethereum, that takes minutes. You can have cheaper transactions because many transactions are batched together and then stored in a single transaction within
Ethereum, the high gas fees get spread across many different transactions. It gives you that Ethereum
level security because the transactions are batched and then settled on the Ethereum layer one. Then it maintains the same security properties that Ethereum does.
And finally you get the network effects of Ethereum. Ethereum is an extremely well known blockchain that has a large
community and a lot of usage. And because you can easily access and interact with Layer 1 users or wallets and tokens on the Layer 2, that allows you to leverage