Layer 2

Understanding Layer 2

Layer 2 is a scaling solution that allows for high transaction throughput while maintaining the security of the underlying blockchain it is built on.

Ethereum and other blockchains have become popular due to their programmability and resistance to censorship. However, Ethereum can only process a limited number of transactions per second, typically ranging from 7 to 11, compared to the Visa network’s capacity of over 20,000 transactions per second. This congestion leads to a bidding war for block space and high transaction fees. In 2021, it cost over $80 to send a token on the Ethereum network.

To address this issue, layer 2 solutions have been introduced. These solutions abstract transactions away from the underlying blockchain, enabling the processing of thousands of transactions per second. The two main types of layer 2 solutions are zero knowledge rollups and optimistic rollups.

Layer 2 solutions like DeversiFi, StarkWare, Optimism, and Arbitrum differ from side-chains like Polygon in that they inherit their security from the Ethereum chain itself. They do not rely on any other network, validators, or entities to secure funds.

Author: Ross Middleton, co-founder and CFO at DeversiFi

Ross Middleton is the co-founder of DeversiFi, a layer 2 decentralized finance (DeFi) trading platform powered by StarkWare’s scalable technology. He oversees finances and manages DeversiFi’s project partners and major customers.

Prior to DeversiFi, Ross worked at the Ethfinex and Bitfinex exchanges. He has a decade of experience as a professional energy trader and analyst in London, working on global energy trading desks at companies like Centrica, Gazprom, and RWE. Ross brings extensive knowledge in both traditional and non-traditional asset trading, as well as connections to the alternative finance space. He is also an angel investor and Ironman triathlete. Ross holds a BSc in economics.