CAN ETH L2 SOLUTIONS SOLVE FOR PRIVACY AND SCALE?

Key Takeaways:

• The public nature of the blockchain introduces privacy concerns for retail and institutional users
• Layer-2 solutions, especially zero-knowledge technology, can provide a trustless way to maintain privacy
• However, user privacy remains a distant milestone in the roadmap for most L2 offerings
• While privacy solutions for corporate blockchain use are multiplying, the landscape for retail-focused solutions remains limited
• There are technical challenges associated with deploying smart contracts using zero-knowledge validation techniques
• The fragmentation of L2 offerings, especially from the same L2 providers, puts the ball in the court of dApp developers to ensure retail user privacy

I recently posted about the various privacy concerns for end-users emerging from the public nature of blockchain technology. These concerns also extend to businesses that are wary of putting sensitive/proprietary data on the public block.

Layer-2 solutions such as Polygon Technology (MATIC), Offchain Labs (Arbitrum), Matter Labs (zkSync), OP Labs (Optimistic Ethereum), StarkWare (StarkEx), etc. might be the answer.

What are Layer-2 Solutions?

Layer-2 solutions are essentially scaling mechanisms for a Layer-1 protocol (think ETH), allowing for cheaper and faster transactions. So far popular Layer-2 solutions have been Polygon Technology, Optimism, and Loopring, and are generally adopted by users looking to mitigate Ethereum’s transaction costs and network congestion.