The fundamental difference between layer 2 and execution sharding lies in the array of execution environments they present. Layer 2 solutions on Ethereum have effectively functioned as execution environments, sparking discussions on the EVM equivalent of layer 2.

Various methodologies, exemplified by Arbitrum Stylus, Aztec, and Fuel, showcase diverse approaches. Arbitrum Stylus features a secondary virtual machine supported by WASM, a binary instruction format, while Fuel adopts a UTXO-based architecture akin to Bitcoin.

Aztec introduces a novel language and programming system for smart contracts, potentially elevating the EVM into a more feature-rich virtual machine. Ethereum's layer 2 solutions offer minimal transaction fees and support a range of data availability options, including rollups, validiums, and plasma. Scalability and speed stand out as key advantages of the layer 2 strategy, benefiting premium financial assets, tokens within centralized ecosystems, and gaming applications. Nonetheless, asset transfers between different layer 2s pose security concerns, although layer 2s can furnish a finalized state root with significant promise from initiatives like Circle Stark and Binius.

Transaction speed plays a pivotal role in the security tradeoff, with layer 2 solutions relying on preconfirmation mechanisms. Ethereum's layer 2 employs StakeSure, a mechanism enabling the establishment of sub-ecosystems with advanced functionalities. This opens avenues to explore novel execution environments for enhanced flexibility and speed. Developers can seamlessly manage execution environments with Ethereum's layer 2, allowing for the deployment of new approaches without requiring permission. Layer 1 and layer 2 exhibit notable distinctions in their features and precompiles.

Both layer-1 and layer-2 systems present unique incentives. Upholding the core attributes of Ethereum ecosystems centered on layer 2 remains a primary challenge. Token transfers between layer 2s are often overseen by centralized bridge platforms, necessitating enhancements in decentralized validation infrastructure and smart contract wallet support within layer 2 ecosystems. Layer 2 and Ethereum sharding represent distinct and innovative blockchain scaling strategies.

Layer 2 has emerged as a favored scaling solution for layer 1 systems. Ethereum's emphasis on rollups for scaling has garnered acclaim. A layer-3-focused approach seeks to enhance scalability and reduce the costs associated with layer-2 operations.

Ethereum shines in scaling through rollups like Arbitrum, ZKSync, and Optimism. The layer 3 approach is anticipated to achieve tangible success with its innovative technology. Composability plays a pivotal role in the triumph of Ethereum's layer 2, while the NEAR protocol tackles scalability through sharding.