Layer 2 refers to a supplementary structure or protocol developed over an established blockchain network. The primary objective of these protocols is to address the transaction velocity and scalability issues encountered by the leading cryptocurrency networks.
For example, Bitcoin and Ethereum cannot currently handle thousands of transactions per second (TPS), which undoubtedly hinders their long-term expansion. A significant increase in throughput is required for these networks to be efficiently implemented and utilized on a broader scale.
In the given scenario, “layer 2” denotes the various proposed solutions to the issue of blockchain scalability. The Bitcoin Lightning Network and the Ethereum Plasma are prominent examples of layer 2 solutions. Although each has its own operational methods and unique features, both aim to enhance blockchain systems’ transaction capacity.
In particular, the Lightning Network operates based on state channels, essentially linked channels that execute blockchain transactions and relay them to the primary chain. These state channels are predominantly utilized as payment channels. Conversely, the Plasma framework comprises sidechains, essentially miniature blockchains organized in a hierarchical tree structure.
In a more comprehensive perspective, layer 2 protocols establish an auxiliary structure where blockchain transactions and operations can occur separately from layer 1 (primary chain). Consequently, these methods might also be called “off-chain” scaling solutions.
A primary benefit of employing off-chain solutions is that they do not necessitate any fundamental alterations to the main chain, as the secondary layer is incorporated as an additional layer. Consequently, layer 2 solutions can deliver high transaction volume without compromising the network’s security.
A significant part of the tasks the primary blockchain typically executes can be transferred to the secondary layer. Therefore, while the primary blockchain (layer 1) ensures security, the secondary layer delivers high transactional capacity, capable of processing hundreds, or potentially thousands, of transactions every second.
