Layer 2 Blockchain Definition

A Layer 2 blockchain is a system built on top of an existing blockchain to help it handle more transactions and work faster. It moves many tasks off the main chain and then sends the results back, so users get faster and cheaper transactions while still depending on the main chain’s security.

Background and why it exists

Base layer blockchains, or Layer 1, focus on security and decentralization. However, this can limit how many transactions they handle each second, leading to slowdowns and higher fees when many people use them. Layer 2 solutions help by moving routine work off the main chain but still let the base chain do the final checks.

How Layer 2 systems work

Most Layer 2 systems handle transactions or calculations outside the main chain. They use contracts or other tools to lock and release funds or to record a simple proof of what happened off-chain. As a result, most activity happens away from the main ledger, and only the final result or a summary is sent to Layer 1. This reduces the main chain’s workload and allows the system to process more transactions per second.

Main types of Layer 2 solutions

There are several types of Layer 2 solutions, each using different technical methods:

• Rollups: These batch many transactions and publish a single summary to the base chain. They can use different verification methods to prove that the batched results are correct.
• State channels: These open a private channel between participants to let many transfers happen off-chain, settling on the main chain only when the channel closes.
• Sidechains: These are separate blockchains that run in parallel and connect to the main chain through bridges or contracts.

Each type offers a different balance between speed, cost, and how much users need to trust the system.

Benefits users see

By moving routine tasks off the main chain, Layer 2 solutions let users send money or use apps more quickly and with lower fees. This makes everyday use easier, especially when the main network is busy. Some Layer 2 systems can also handle many more transactions per second than the base chain.

Trade-offs and things to watch

Layer 2 makes transactions faster and cheaper, but there are trade-offs. Some systems need users or operators to monitor the network for fraud or use special contracts. Others rely on bridges or different security rules, which can make things more complex. It’s important for users and developers to learn the rules of a Layer 2 system before using it or building apps on it.

Real-world examples and use cases

Popular examples include payment networks and rollups made for major blockchains. People use these systems to make payments, run decentralized apps for less money, and scale services that would be too slow or costly on the main chain. The exact names and projects depend on the blockchain and the technology used.