Layer 2 Solutions for Blockchain: Analysis and Applications across Several Use Cases

This thesis investigates the design and application of Layer 2 solutions to address the blockchain trilemma, which highlights the challenges in simultaneously achieving scalability, security, and decentralization in blockchain networks. The study begins by exploring the limitations of traditional Layer 1 blockchains like Bitcoin and Ethereum, where achieving high security and decentralization often results in poor scalability. Layer 2 solutions emerge as a promising alternative, performing off-chain computations while committing results to the main blockchain to reduce workload and costs. A variety of Layer 2 technologies, including cross-chain solutions, payment channels, and off-chain data management are analyzed in the context of ensuring trust in off-chain solutions. The thesis outlines different approaches to achieving this trust, ranging from optimistic strategies that allow to disprove computations and results (as in payment channel networks) to systems that require cryptographic proofs for validation, such as cross-chain solutions and blockchain-based data notarization. These solutions are tailored to meet specific application requirements, ensuring scalability while maintaining data integrity and transparency. The work emphasizes the wide applicability of Layer 2 solutions across use cases such as managing Erasmus student exchanges, building decentralized rating systems, and supporting Digital Product Passports for supply chain transparency. Each scenario leverages the unique capabilities of Layer 2 solutions to address real-world challenges such as data sharing, trust enforcement, and cost efficiency. Through its exploration, the thesis raises key research questions about the trade-offs involved in Layer 2 implementations, their ability to maintain trust in off-chain computations, and their integration into practical, enterprise-level applications. By systematically addressing these questions, the research provides valuable insights into optimizing blockchain scalability and functionality while paving the way for future advancements.