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A blockchain contains three main levels: keeping security as a top priority, making sure everything works at all times, and allowing everyone to participate in the functioning of a blockchain.
However, when many people use a blockchain at the same time, it slows down. That's where Layer 2 comes in, which can be considered an upgrade to Layer 1 blockchains. Layer-2 makes blockchains scalable, faster, and less saturated, keeping everything governed and secure.
In this article, we will discuss what Layer 2 blockchain is, the different layers of blockchain, and specifically what the key differences are between Layer 1 and Layer 2 blockchains.
What is Layer 2 Blockchain?
As the name suggests, Layer 2 in cryptography comes after Layer 1 and is built on top of Layer 1 to improve its performance and scalability.
The main problem with Layer 1 protocols is their high fees and slow transaction speeds, especially during a volatile market and peak usage. Layer 2 blockchains have created sidechains, state channels, and rollups, among other solutions that improve upon the underlying Layer 1 blockchain in terms of faster transaction times and lower fees.
Understanding the layers of blockchain
Layer-1 (L1), also known as the base layer of a blockchain network, oversees fundamental functions including consensus mechanisms such as ethereum (eth) proof-of-stake or bitcoin proof-of-work and transaction settlement, among other key functions. . Although decentralization and security are major aspects of L1s, they are sometimes affected by bottlenecks such as poor transaction speeds and expensive fees.
Layer 2 (L2) blockchains are built right on top of Layer 1 blockchains to address the underlying issues. Layer 2 blockchains use techniques such as rollups, sidechains, and state channels, which in turn reduce transactional burden and enable faster, less costly transactions without sacrificing security.
L2 blockchains have come a long way and have solved many problems in L1 and the broader blockchain ecosystem; However, additional optimization is required to improve interoperability, user experience, and particular application features. This is where Layer 3 (L3) blockchains come into the picture.
L3 blockchains are specialized in creating application-specific protocols in web3 sectors, including but not limited to nft, DeFi, and gaming. In simpler words, L3 blockchains facilitate cross-chain functionality on different blockchains so that any end user can access multiple blockchains at the same time, improving accessibility and interoperability.
These three layers of blockchain described above combine to create a complete stack that ensures the future scalability, security, and accessibility of blockchain technology.
Layer 1 vs. Layer 2 Blockchain
Layer 1 and Layer 2 blockchains primarily differ in their functions within the blockchain ecosystem. Consensus mechanisms and autonomy are at the core of Layer 1 blockchains. bitcoin and ethereum are two of the popular Layer 1 blockchains that operate autonomously while recording and verifying transactions on the chain. However, as mentioned above, when there is significant volatility in the market, Layer 1 blockchains experience critical scalability issues that have a direct impact on increased fees and transaction delays.
Layer 2 blockchains are built on top of Layer 1 protocols with a specific mission under control, which is to improve the scalability and performance of L1 blockchains over time. There are many techniques that L2 blockchains use to make L1 efficient, but the most common are combining multiple transactions into one and off-chain transaction processing that directly reduces the protocol workload without many negative impacts.
Rollups, state channels, and sidechains are some of the many solutions offered by L2 blockchains that combine to enable faster, less costly transactions and reduce congestion on the underlying L1 protocols.
In the long term, both Layer 1 and Layer 2 come together to produce an effective system: Layer 1 provides the security and decentralized consensus that form the foundation, while Layer 2 improves scalability and user experience, making make blockchain technology more viable for common use cases such as gaming and decentralized finance (DeFi).
List of layer 2 blockchains
There are more than 100 layer 2 blockchains with more blockchains developing from time to time. Here we will mention the top three Layer 2 blockchains so far:
Polygon (POL)
Polygon is a Layer 2 blockchain, also known as a “sidechain,” which is a scaling solution that operates on the ethereum blockchain. Cryptocurrency projects use Polygon to improve the scalability, flexibility, and autonomy of their platform. POL (previously known as MATIC) is Polygon's native token and is used for governance and network transaction fees on the Polygon blockchain.
Optimism (OP)
Optimism is a layer 2 blockchain that uses optimistic rollups to scale the ethereum ecosystem. This layer 2 platform runs on a community-driven governance model to benefit the ecosystem in the long term.
The Optimistic Rollup protocol is at the center of Optimism, as it helps alleviate the load on ethereum by running transaction data off of ethereum and then periodically publishing it to the ethereum blockchain. This entire process helps reduce transaction costs and improves the performance of the ethereum blockchain and more projects can be built on ethereum using the Optimisim L2 blockchain.
Arbitration (ARB)
Arbirtum is a layer 2 blockchain that also uses optimistic digest to store data off-chain, reducing traffic on the ethereum blockchain. It offers web3 applications and smart contracts that offer lower and faster transactions compared to using ethereum alone as a blockchain.
Benefits and challenges
By now you may have understood why Layer 2 blockchains are a critical part of the entire web3 ecosystem. However, that doesn't mean they don't face any challenges. In this section, we will briefly discuss the benefits and challenges that Layer 2 blockchains offer.
Benefits:
Scalability
Off-chain transaction processing is the key feature of L2 blockchains that has a direct impact on increasing scalability as congestion on the underlying L1 blockchain is significantly reduced.
Lower transaction costs
New users and projects are attracted to moving from web2 to web3 because layer 2 blockchains dramatically reduce transaction costs thanks to the off-chain transaction processing feature described above.
Faster transactions
When transactions are processed off-chain, not only the fee is reduced, but also the time it takes to get from point A to point B. The L2 blockchain bundles multiple transactions together, making its speed faster and , in turn, ensures a better user experience while maintaining. security too.
Challenges:
Security units
L2 blockchains do not share the autonomy and high level of security compared to layer 1 blockchains. There are still vulnerabilities and flaws associated with L2 blockchains that are being resolved by blockchain developers.
Complexity and adoption
Not everyone can integrate their Layer 2 project into Layer 1 protocols as it may require specific infrastructure knowledge of L1 and L2 blockchains. This means that many users and new projects may face a steep learning curve in adopting this layer 2 technology.
Interoperability issues
Performance and fast transactions are a big benefit of Layer 2 blockchains; however, interoperability issues are still there. This problem is solved by introducing L3 blockchains that improve cross-chain functionality on different blockchains, as explained in section 2 of this article.
The future of layer 2 blockchains
Layer 2 blockchains in crypto will continue to solve the scalability issues currently faced by Layer 1 blockchains such as bitcoin and ethereum. With an increasing number of adoption of decentralized technology, cost-effective blockchain technology will be the main requirement and this is where layer 2 blockchains can handle this incoming traffic without compromising on decentralization or security.
It is also expected that interoperability between Layer 1 and 2 blockchains will continue to be improved. This will help create a unified ecosystem that will provide more accessibility to assets and data across blockchains. In simpler words, user experiences such as blockchain wallet integrations, transaction performance, and other key metrics that determine blockchain performance will be improved, which in turn will encourage mass adoption.
Other important expectations from layer 2 blockchains are that the innovation sector, including rollups, zk-proofs, etc., will continue to advance as new cryptocurrency companies continue to build on this blockchain technology. It is also possible that the layer 2 blockchain solution will eclipse other layers of blockchain and become the future of a decentralized economy.
