What is a layer 2?

Published: Feb 26, 2023 Est. read time: 1 minute

A layer-2 solution refers to a secondary protocol or technology built on top of a primary blockchain such as Bitcoin or Ethereum.

Whilst the underlying chain is referred to as layer-1. Layer-1 can and do offer improvements and scaling solutions but it's often much harder to implement and may not be in the best interests of the overall chain.

Layer-2's bridge that gap. They are designed specifically to improve the scalability, speed, and cost-effectiveness of the underlying blockchain by offloading some of the transaction processing from the main chain. This is achieved by enabling transactions to be processed off-chain or via sidechains, which can then be settled back onto the main chain at a later time. These solutions enable faster and cheaper transactions by reducing the amount of data that needs to be stored on the primary blockchain while maintaining the security and trustlessness of the underlying protocol.

There are several types of layer-2 solutions, including payment channels, state channels, sidechains, and plasma chains. These solutions offer different trade-offs in terms of security, decentralization, and usability, but they all share the common goal of reducing the burden on the primary blockchain and improving its overall performance.

Lightning Network (Bitcoin)

The Lightning Network is a layer-2 for the Bitcoin blockchain. It was proposed in a 2015 whitepaper and launched on the Bitcoin mainnet in 2018. The Lightning Network is a layer-2 scaling solution for Bitcoin that operates as a network of payment channels, enabling users to conduct instant and low-cost transactions without needing to record every transaction on the Bitcoin blockchain. Read more about the Bitcoin Lightning Network.

Arbitrum (Ethereum)

Arbitrum is an Ethereum layer-2. Unlike many other layer-2, Arbitrum doesn't have its own native utility token. All fees are settled in ETH.

Polygon (formerly Matic Network): Polygon is a layer-2 scaling solution for Ethereum that offers faster and cheaper transactions through the use of sidechains and Plasma chains.

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