What is a Layer 2 network?

Layer 2 refers to a set of off-chain solutions (separate blockchains) built on top of Layer 1 that reduce bottlenecks with scaling and data. Blockchains like Ethereum use other secondary blockchains built on top of them, which are called Layer 2, to help increase scalability and speed. 

Let’s dive deeper into how Layer 2 networks are built. 

Decentralization and security are the main focus of all blockchains like Bitcoin and Ethereum. But as more people join crypto, these networks sometimes become very slow and expensive. Building other networks on top of the main protocol – Layer 2s on top of Layer 1s – a network’s capacity can continue to grow. 

Layer 2 networks communicate and help offload the heavy burden of transactions from the mainnet. Essentially, Layer 1 deals with security, data availability, and decentralization, while layer 2 deals with transaction-related scaling. 

Layer 2s also have the advantage of offering lower fees. Layer 2 bundles multiple off-chain transactions into a single Layer 1 transaction, which helps reduce the data load. It also maintains security and decentralization by settling transactions on the mainnet. 

These features present more utility, so with the combined benefits of higher transactions per second and lower fees, Layer 2 networks can focus on improving user experience and expanding the scope of applications. 

Most scalability issues for blockchains are related to decentralization. Centralized systems are always very fast and easy to scale, but blockchains have the job of scaling while also preserving decentralization. Networks like Bitcoin and Ethereum must include a layered and scalable design that can compete with (and eventually replace) the more streamlined but restricted channels of systems like Visa and Mastercard. Other adjacent tools like the Oasis Privacy Layer (OPL) run from Layer 1 networks like Oasis to other Layer 1 and Layer 2 networks anywhere else in crypto to help accelerate the speed, scalability, and communication of users and different networks with each other. 

Layer 1 and Layer 2 are both important types of networks because they work together to achieve the goal of making the network faster and easier to use. Neither one would be as effective without the other.