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Oct 09, 2023
Educational
Layer 2 vs. Sharding: Which is the Better Scaling Solution?
by Orderly Network
layer2-vs-sharding-scaling-solution

Scalability remains one of the most pressing challenges in the world of blockchain technology. As cryptocurrencies and decentralized applications (DApps) gain popularity, the need for efficient scaling solutions becomes increasingly evident. Two prominent approaches that have emerged to tackle this issue are Layer 2 scaling solutions (L2) and sharding. In this article, we delve into the details of these two scaling methods to determine which one might be the better choice.

To ease your understanding, we have divided this article into segments. First, we start by explaining what layer 2 and sharding solutions are. We then proceed to compare the two options based on established blockchain fundamentals. Let’s dive right in, shall we?

What is a Layer 2 Blockchain?

A Layer 2 blockchain is a scaling solution built on top of an existing blockchain (often referred to as Layer 1 or L1). Its primary purpose is to address the scalability limitations and high transaction fees associated with Layer 1 blockchains. The aim of L2 solutions is to improve the overall performance and usability of the underlying blockchain network. Hence, they have become increasingly popular on smart contract blockchain networks like Ethereum, where gas fees are high and transaction processing is slow.

One common type of L2 solution is the “off-chain” or “sidechain” approach. In this model, transactions are processed off the main blockchain, reducing congestion on the L1 network. These transactions are then periodically settled on the Layer 1 blockchain to leverage its security and decentralization benefits. Prominent examples include the Lightning Network for Bitcoin and various L2 solutions for Ethereum like Optimistic Rollups and zk-Rollups.

L2 blockchains offer several advantages, including faster transaction processing, lower fees, and increased scalability, making them attractive for decentralized applications (DApps) and projects requiring efficient microtransactions.

Defining Sharding in Crypto

Blockchain sharding is a scalability technique that aims to address the performance limitations of traditional blockchain networks, which process every transaction and smart contract on a single, shared chain. Sharding involves dividing the blockchain network into smaller, interconnected segments called “shards.” Each shard operates independently, processing its own set of transactions and smart contracts. This parallel processing significantly improves the blockchain’s throughput, making it faster and more scalable.

In a sharded blockchain, each shard is responsible for maintaining a portion of the network’s overall state and transaction history. These shards work together through a consensus mechanism to maintain the integrity and security of the entire blockchain.

However, it is worth noting that while sharding enhances scalability and reduces congestion, it also introduces complexity in terms of shard coordination and data availability. Nonetheless, blockchain sharding offers several benefits, such as increased transaction processing speed and reduced fees, making it more efficient and cost-effective.

Sharding allows blockchain networks to scale horizontally, accommodating a growing number of users and applications in the process. Notwithstanding, implementing sharding requires careful design and robust security measures to ensure that the network remains secure and decentralized, even as it scales to handle a massive number of transactions. As such, sharding is an important development in the evolution of blockchain technology to support broader adoption and usability.

Comparing Layer 2 and Sharding Scaling Solutions

In the table below, we detail 4 main blockchain fundamentals — Scalability, Security, Interoperability, and Complexity

comparing-layer2-vs-sharding

What Scaling Solution is better?

Both Layer 2 scaling and sharding offer valuable solutions to the scalability problem in blockchain technology. The choice between the two depends on the specific needs of a project or network.

Layer 2 scaling provides a pragmatic approach for applications that require immediate scaling relief while maintaining compatibility with existing blockchains. However, there may be more suitable options for projects with long-term scalability goals.

With its potential for exponential scalability and enhanced security, Sharding could be the answer for blockchain networks looking to accommodate a growing user base and increased demand for decentralized applications.

Overall, the choice between L2 scaling and sharding depends on various factors, including the nature of the blockchain project, scalability requirements, and security considerations. Ultimately, the future of blockchain scaling may involve a combination of both approaches to ensure the best of both worlds.

Laying Orderly Omnichain’s Foundation with the EVM ecosystem

Orderly Omnichain has been in testnet for some time now and we have started out with the EVM ecosystem. EVM builders can now create their own Perps DEX on top of a low latency and shared liquidity CLOB trading infrastructure, accessible from all the main EVM protocols such as Arbitrum, Optimism, Linea, Avalanche, Polygon, Scroll with many more integrations underway.

Orderly Omnichain represents the next evolution of Orderly Network with a primary aim of unifying liquidity across all chains. We are building a shared liquidity trading infrastructure that empowers new and existing dApps to deliver solutions tailored to their specific user needs.

As the EVM ecosystem continues to enjoy and test out Orderly’s capabilities, we are constantly gathering feedback and optimizing Orderly Omnichain in preparation for the mainnet launch later in Q4. Stay tuned as we keep you updated on our omnichain expansion!

Conclusion

Choosing between Layer 2 scaling solutions and sharding depends on various factors, including the specific use case, security requirements, and the existing blockchain infrastructure. L2 solutions offer a practical approach for immediate scalability needs, while sharding holds the promise of achieving even higher transaction throughput but requires more development and time to mature.

Ultimately, the choice between Layer 2 and sharding may not be a binary one. Many blockchain projects are exploring hybrid solutions that combine both approaches to leverage their respective advantages. As the blockchain space evolves, it is likely that a combination of Layer 2 and sharding will contribute to a more scalable and robust decentralized ecosystem.

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