What is layer2 Blockchain

In the context of cryptocurrency, “Layer 2” refers to solutions or protocols built on top of a blockchain’s “Layer 1” (the main blockchain). Layer 2 solutions aim to address some of the limitations and challenges faced by Layer 1 blockchains, particularly in terms of scalability and transaction speed.

Layer 1 blockchains, like Bitcoin and Ethereum, have certain limitations in terms of the number of transactions they can process per second. For example, Bitcoin can process around 7 transactions per second, and Ethereum can process around 15-30 transactions per second. This limited throughput can lead to higher transaction fees and slower confirmation times during periods of high network activity.

To overcome these limitations, Layer 2 solutions are developed to enhance the scalability and efficiency of blockchain networks. Some common Layer 2 solutions include:

  1. Payment Channels: Payment channels are off-chain solutions that enable users to conduct multiple transactions privately and quickly without every transaction being recorded on the main blockchain. Examples include the Lightning Network for Bitcoin and the Raiden Network for Ethereum.
  2. State Channels: State channels are similar to payment channels but allow more complex interactions beyond simple payments. They enable off-chain execution of smart contracts, reducing the burden on the main blockchain.
  3. Sidechains: Sidechains are separate blockchains connected to the main blockchain, allowing assets to be moved between the main chain and the sidechain. Sidechains can handle transactions more quickly and with lower fees, freeing up space on the main chain.
  4. Plasma: Plasma is a framework that allows for the creation of child chains (sub-chains) that are connected to the main blockchain, increasing the overall capacity and scalability of the network.
  5. Rollups: Rollups are a technology that aggregates multiple transactions into a single transaction, reducing the number of on-chain operations needed and increasing the throughput of the blockchain.

Layer 2 solutions aim to provide a balance between scalability and decentralization, offering faster and more cost-effective transactions while still benefiting from the security and trustlessness of the underlying Layer 1 blockchain.

These Layer 2 protocols and solutions are continuously evolving as the blockchain ecosystem seeks to improve the overall user experience and make blockchain technology more suitable for various use cases, including decentralized finance (DeFi), gaming, and non-fungible tokens (NFTs).


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