How does a blockchain work – Simply Explained
The Bitcoin network has been heavily congested for a long time, with transaction fees reaching $ 50 in December 2017. After the CryptoKitties game appeared on the Ethereum platform, it became apparent that it had similar problems. At the same time, the number of users is still far from the planned number. Therefore, one of the main tasks for optimizers — increasing the throughput of systems through the implementation of second-level solutions.
Major cryptocurrency networks, like any other, can only fit a certain amount of data into each block. This feature affects the limitation of the number of transactions processed in a certain period of time.
«Second level» platforms and protocols are designated that host or process data, freeing from this the underlying blockchain (layer). These are often alternative digital spaces that are separate distributed networks, but they cannot function autonomously. All transactions must ultimately be conducted at a basic level.
The different solutions are not necessarily incompatible. Some of them can interact with each other, and some are built directly on top of other platforms and protocols of the second layer.
Blockchain: historical necessity or pipe dream
Payment channel — it is a tool created by two users. It takes the form of a wallet in the context of a cryptocurrency and a smart contract. Its main purpose — enable two parties to carry out a theoretically unlimited number of internal transactions. The balance of the account in the main network changes only when creating a channel, replenishing or withdrawing funds from it.
As more operations take place in the second layer, the number of codes written to the base layer decreases. This increases the speed of the main blockchain. In addition, the cryptographic mechanisms of the payment channels do not allow members to withdraw funds that they do not own..
Cross-network atomic swaps
This is an important area that will make it easy to exchange one virtual currency for another with practically no additional costs for the parties and without the participation of trading platforms. In the future, such interaction may be useful in creating a unified ecosystem consisting of various blockchains..
The method is similar in structure to payment channels. To make a cross-network transaction, the parties must create wallets that support different digital signatures (or similar smart contracts) for each cryptocurrency. Security mechanisms, among other things, do not allow access to other people’s funds, and when funds are withdrawn by one of the parties, the other automatically gets the right to withdraw.
Lightning and Raiden Network
Lightning — it is a network of many payment channels on the bitcoin blockchain. It allows parties that have not yet opened their own payment channel to use existing ones as intermediaries for exchanging funds..
Raiden is very similar, but built on top of the Ethereum blockchain.
RSK (Rootstock) is the bitcoin side network that the Ethereum VM is cloned to, so the platform supports smart contracts. Although not a Level 2 solution, the team behind the project is planning to create a new, rather unusual layer on top of this structure..
Lumino and LTCP
Lumino — it is a Lightning network built on RSK. Distinctive feature — proposed integration with LTCP, a computational logic system that significantly reduces the amount of code that must be written to the Rootstock chain to create, top up or calculate a payment channel.
Without going into the details of the protocol, we can say that it uses a number of links to other transactions or their features in order to shorten the code that must be written to the base level in the process of opening, replenishing or closing the Lumino payment channels. The LTCP white paper claims that the project could allow the RSK platform to host up to a billion users, although it is of course unclear what problems this technology might have in practice and what the real possibilities will be..
Neural networks: from person to machine
Plasma is the most talked about new level 2 solution, which so far only exists in theory. This configuration provides for many blockchains that are connected in series with each other. The author of the idea in the description compares the structure with a tree formation.
To create a plasma network, you need to place a set of smart contracts on the main chain that will control the branches. In this structure, child branches pass internal activity data to the base layer. However, instead of a complete list of transactions since the last block was formed, they only deliver a hash of its title (a string of characters obtained using cryptography from information associated with the content), which significantly saves virtual space.
If fraud or inconsistencies are detected, the system rolls back to the moment of correct functioning. All transactions made after the verified block will be productively canceled. PoS will also be used to establish consensus, therefore, in order to become a variator of a new branch, you will need to contribute funds to the smart contract in charge of it..
If in doubt about the correctness of the activity of the child chain, the user can move his cryptocurrency to the previous one. This operation can be carried out until the moment you return to the basic blockchain. The tree has a corresponding hierarchy, like a judicial system, where the higher authority can overturn the decisions of the lower one, and the original network has maximum rights..
This structure provides for the movement of user activities to «shards» blockchains acting as separate galaxies. They are connected and in contact with the main network, but differ from it. Thus, millions of users will be able to regularly withdraw their transactions to the main platform, working in fact in separate «shards», each of which supports thousands of contributors and handles operations internally.
Similar galaxies are supported by a single «validator manager contract» (VMC) in the main blockchain. Initially, the relationship between «shrapnel» it will be impossible.