Layer 2

What Is Layer 2?

Layer 2 is an additional layer of protocols placed on existing blockchain protocols to improve them. This is usually done to improve transaction processing times and solve scaling problems of cryptocurrency networks. Later 2 creates a scaling solution that allows existing networks to process transactions more smoothly and faster. It does this by adding new protocols to the existing blockchain, so the security and other underlying features are not compromised by better performance. 

Blockchain Scalability Solutions 

Mainstream blockchains like Bitcoin and Ethereum have grown in popularity because of features like smart contract support and censorship resistance. This rise in reputation has led to an increased number of transactions. Unfortunately, this has caused a slowdown in their processing abilities as they cannot process the high number of transactions sent their way. 

This lack of processing capacity and the resulting congestion of networks is a reason for the low uptake of crypto transactions. For example, Ethereum can only process 11 transactions per second, while the Visa network can process over 20,000 transactions per second. As a result, users compete to get their transactions processed with a growing demand for better processing capability. This has pushed up transaction costs. 

Layer 2 is a term that refers to the different solutions that are proposed to solve the scalability issue. Two famous examples are the Bitcoin Lightning Network, and the other is Ethereum Plasma.

These solutions add other chains to the original blockchain to help perform transactions and processes and improve the scalability problem. The Lightning Network attaches channels to the blockchain through state channels. This protocol is mainly used for payment channels. The plasma framework builds sidechains where operations are performed independently and report to the main blockchain once done. 

These solutions are also known as “off-chain” scaling solutions. Their main advantage is that they help speed up transaction processing times. Another benefit is that they do not require any changes to layer 1 or the main blockchain. This means they speed up the processing without any compromise to security.