What is Layer 2?
Layer 2 (L2) refers to a secondary framework or protocol built on top of an existing base blockchain (Layer 1, such as Ethereum). The primary purpose of a Layer 2 network is to solve blockchain scalability challenges by dramatically increasing transaction throughput and lowering gas fees while fully inheriting the security and decentralization of the underlying base chain.
The Need for Layer 2 Scaling
While Layer 1 blockchains provide programmable smart contracts and censorship resistance, their execution capacity is strictly limited:
- Low Throughput: Base networks like Ethereum process only about 7 to 11 transactions per second (TPS), contrasting sharply with centralized payment networks like Visa that handle over 20,000 TPS.
- High Fees: Network congestion forces users into fee-bidding wars to get their transactions included in a block, driving transaction prices to unsustainably high levels during periods of peak demand.
How Layer 2 Solutions Work
Layer 2 solutions scale the ecosystem by offloading transaction execution from the primary blockchain:
- Off-Chain Execution: Transactions are processed on the Layer 2 network in parallel at high speeds and minimal cost.
- Batch Compression: Large sets of off-chain transactions are aggregated and compressed into unified batches or cryptographic proofs.
- Layer 1 Settlement: The final state updates or cryptographic proofs are published back to the Layer 1 network for permanent storage and verification.