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.

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 $180 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.