Layer 2 is an extra layer that is added to a blockchain. It allows for faster transaction processing and higher scalability. It is named Layer 2 because it is built on top of Layer 1 blockchain. This is the underlying decentralized ledger that records transactions, and ensures their integrity and security.
Scalability is one of the biggest challenges in blockchain technology. This refers to the network’s ability to process large amounts of transactions without becoming slow or congested. This is especially important for public blockchains like Ethereum and Bitcoin, which are used daily by millions of people and require the ability to process large volumes of transactions.
Layer 2 solutions were created by developers to address this problem. They can be used with a blockchain to increase scalability, and performance. These solutions move some of the work off the blockchain onto a separate layer. This allows the main blockchain to concentrate on security and integrity, rather than processing transactions.
There are many different Layer 2 solutions available, each offering its own benefits and unique features. These are some examples of Layer-2 blockchains:
Sidechains: A sidechain can be described as a separate blockchain that is tied to the main blockchain. It can exchange assets with the main chain. Sidechain transactions are recorded and validated independently from the main blockchain, which allows for faster processing and greater scale.
Payment channels: These payment channels allow users to perform multiple transactions without each transaction being recorded on the blockchain. Instead, transactions are stored in an off-chain channel that is only closed when they are completed. As there are no fees for recording transactions on the main blockchain, this allows for quicker and more affordable transactions.
State channels: These channels are similar in function to payment channels but are used to facilitate complex interactions between parties such as voting and auctions. They allow parties to communicate with each other and update each other, without each message being recorded on the blockchain. This makes it possible to have faster and more efficient interactions.
Plasma: Plasma is Layer 2 that allows you to create child chains that can be connected to your main chain. These child chains are able to process transactions and record data without the need for the main chain. This allows for quicker and more affordable transactions. Once a transaction has been verified on the child chain it is recorded on the main chains.
Layer 2 solutions can improve the performance and scalability of a blockchain. They move some of the work off the main chain to a separate layer. This allows for quicker and more efficient transactions. It also allows you to manage a greater volume of transactions without overloading the network.