Glossary

The words of Crypto by the Bitsapiens team.

Layer 2

Layer 2

Layer 2 denotes a supplementary framework or protocol constructed on an existing blockchain system, aiming to address the challenges of transaction speed and scalability faced by prominent cryptocurrency networks.

For example, both Bitcoin and Ethereum presently struggle to process a significant number of transactions per second (TPS), hindering their long-term growth potential. Higher throughput is required for these networks to be widely adopted and effectively utilized.

Within this context, “layer 2” encompasses various proposed solutions to enhance blockchain scalability. Two notable examples of layer 2 solutions are the Bitcoin Lightning Network and Ethereum Plasma. Although these solutions employ distinct mechanisms and features, their shared objective is to augment the throughput of blockchain systems.

The Lightning Network is specifically built upon state channels, which function as attached channels executing blockchain operations and reporting them to the main chain. State channels primarily serve as payment channels. Conversely, the Plasma framework involves sidechains—small blockchains organized in a tree-like structure.

Broadly speaking, layer 2 protocols establish a secondary framework where independent blockchain transactions and processes can occur alongside the layer 1 (main chain). Consequently, these techniques are also referred to as “off-chain” scaling solutions.

One notable advantage of employing off-chain solutions is that they do not necessitate structural modifications to the main chain; rather, the second layer is added as an extra layer. Therefore, layer 2 solutions possess the potential to achieve high throughput while preserving network security.

In essence, a significant portion of the tasks that would traditionally be executed on the main chain can be shifted to the second layer. Thus, while the main chain (layer 1) ensures security, the second layer facilitates high throughput, allowing hundreds or even thousands of transactions per second to be processed.