Blockchain technology has advanced tremendously since its inception, and layer 2 solutions have been a significant milestone. Layer 1 is the base layer of a blockchain network, which consists of the core protocols and consensus mechanisms that govern the network's operations. Examples of layer 1 blockchains include Bitcoin and Ethereum.
In contrast, layer 2 is a secondary layer built on top of the base layer that provides additional functionality and scalability to the network without compromising its security or decentralization. State channels, sidechains, and off-chain protocols are examples of layer 2 solutions.
The primary benefit of layer 2 solutions is scalability. Layer 1 blockchains such as Bitcoin and Ethereum have transaction processing limitations, leading to slow transaction times and high fees during high network congestion periods. Layer 2 solutions offer a means of alleviating some of the network's traffic, enabling faster and cheaper transactions.
Layer 2 solutions provide additional functionality and use cases that are not possible on layer 1. For example, state channels enable fast and affordable micropayments, while sidechains allow for interoperability between different blockchain networks.
Layer 2 blockchain projects have emerged in recent years, each with its unique approach to solving scalability issues and offering additional functionality. For example, the Lightning Network is a layer 2 solution built on top of the Bitcoin blockchain that enables faster and cheaper payments. Polygon (formerly Matic Network) is a layer 2 scaling solution for Ethereum that offers faster and cheaper transactions.
For traders and blockchain users, layer 2 solutions offer faster and cheaper transactions, broader access to applications and use cases, and improved network performance and user experience.