The primary distinction between layer 2 and execution sharding is the variety of execution environments they offer. Ethereum layer 2 solutions have effectively served as execution environments, with discussions now focusing on the EVM equivalent of layer 2.

Different approaches, such as Arbitrum Stylus, Aztec, and Fuel, illustrate diverse methodologies. Arbitrum Stylus features a second virtual machine supported by WASM, a binary instruction format, while Fuel uses a UTXO-based architecture similar to Bitcoin.

Aztec introduces a new language and programming system for smart contracts, with the potential to enhance the EVM into a more feature-rich virtual machine. Ethereum layer 2 solutions offer very low transaction fees and support various data availability options, including rollups, validiums, and plasma. Scalability and speed are major advantages of the layer 2 approach, benefiting premium financial assets, tokens for centralized ecosystems, and games. However, transferring assets between different layer 2s remains a security concern, though layer 2s can provide a finalized state root with significant potential from projects like Circle Stark and Binius.

Transaction speed plays a crucial role in the security tradeoff, with layer 2s relying on preconfirmation mechanisms. Ethereum layer 2 employs a mechanism called StakeSure, allowing the creation of sub-ecosystems with advanced features. This presents an opportunity to explore new execution environments for greater flexibility and speed. Developers can easily maintain execution environments with Ethereum layer 2, and new approaches can be deployed without permission. Layer 1 and layer 2 differ significantly in their features and precompiles.

Both layer-1 and layer-2 systems offer unique incentives. Maintaining the core properties of layer-2-focused Ethereum ecosystems is a primary challenge. Token transfers between layer 2s are often managed by centralized bridge platforms, and improvements are needed in decentralized validation infrastructure and smart contract wallet support within layer 2 ecosystems. Layer 2 and Ethereum sharding are distinct and innovative blockchain scaling approaches.

Layer 2 has become a popular scaling solution for layer 1 systems. Ethereum’s decision to focus on rollups for scaling has been praised. A layer-3-focused approach aims to enhance scalability and reduce costs associated with layer-2 operations.

Ethereum excels in scaling through rollups such as Arbitrum, ZKSync, and Optimism. The layer 3 approach is expected to achieve practical success with its innovative technology. Composability is a significant factor in the success of Ethereum layer 2, while the NEAR protocol addresses scalability through sharding.