Layer 2 solution: what is it and how does it work?

You probably have heard the term Layer 2 solution, but, do you know what is it mean? How does it work and what is the need for this? Worry not, we are going to discuss this in detail.

Layer 2 solution is the term given to a scaling solution that increases the efficiency of the underlying blockchain while inheriting all of the protocols. In simple words, it is a protocol built on the blockchain which works just like this blockchain but with more capabilities. The best example of this is the Ethereum blockchain which has such capabilities to enable a lot of products and use cases on the Blockchain.

What is the need of Layer 2 solution?

You might be wondering what is the need for another such solution on the blockchain if one already exists. The problem with a lot of Blockchain is that they can transact a low number of transactions per second. For example, the Ethereum Blockchain can process only 7 to 11 transactions per second. With the rising popularity and traffic, users compete here to complete their transactions. In this bidding war, many transactions soar, and gas fees increase. There was a time when users have to pay more than $80 for a single transaction.

This is where Layer 2 solution came into the scene, FYI Ethereum now has layer 2, and gas fees at the network are decreasing. Layer 2 solution enables transactions to be abstracted away from the underlying blockchain, meaning thousands of transactions can be processed per second. The two main forms of layer 2 solutions are zero-knowledge rollups and optimistic rollups.

Sometimes people confuse layer 2 with the side-chain such as Polygon. The main difference is between the two is that layer 2 inherits the security from the Blockchain on which it is built. One of the main advantages of using off-chain solutions is that the main chain doesn’t need to go through any structural change because the second layer is added as an extra layer.

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