Layer 2 blockchains are an important part of the Ethereum ecosystem. They are designed to attract new users and enable mass adoption of blockchain technology. But how do layer 2 blockchains make this possible? And why are transactions on layer 2 blockchains cheaper and faster? This guide takes a detailed look at layer 2 scaling solutions.
Defi Layer 2
A layer 2 network is a secondary blockchain that exists within another network, known as layer 1. It processes and executes transactions outside of the main chain and sends the results back to the layer 1 chain.
Layer 2 blockchains are also known as layer 2 solutions because they solve scalability issues.
Why blockchains need layer 2 solutions
Level 1 blockchains, such as Ethereum, have scalability limitations. To process more transactions per second (TPS) and reduce gas fees, they need Level 2 blockchains.
They also accelerate the adoption of cryptocurrencies and decentralized applications (dApps).
The relationship between layer 1 and layer 2
Layer 1 is the underlying chain that provides security and consensus. Layer 2 processes thousands of transactions quickly and cheaply, but still uses the layer 1 blockchain to verify and finalize all transactions.
Off-chain processing and on-chain settlement
Level 2 blockchains are compatible with Ethereum. Users can send and receive tokens, as well as interact with smart contracts on them. Level 2 blockchains use a different mechanism to calculate and process transactions outside the network, which provides high scalability.
L2 then collects transactions and sends them to the base layer. This step depends on the type of Layer 2 solution used. Some solutions send cryptographic proof to the base layer. Others assume that all transactions are valid.
Finally, L2 layers send data to L1 through smart contracts. The base layer resolves any disputes and adds valid transactions to the next block.
Security inherited from the base layer
Layer 2 solutions inherit the security system from Ethereum. Such solutions use a smart track deployed at layer 1. Other layer 2 solutions use a bridge for communication. Smart-trac receives the final balances and status information of the Layer 2 network. The base layer then verifies the provided data using confirmation or challenge mechanisms.
Since Layer 2 transactions occur outside the blockchain, Ethereum becomes the ultimate source of truth thanks to its consensus mechanism and immutability. Any evidence of fraud, proof of authenticity, or state commitments submitted by Layer 2 networks are ultimately validated at the base layer. This reduces the risk of any malicious behavior in Layer 2 networks.
Transaction speed and cost reduction
Transactions on Layer 2 networks are fast and inexpensive. These secondary networks are ideal for those who make frequent transactions. Transactions on Layer 2 networks are processed quickly because they go through a sequencer. A sequencer is a server or cluster of servers that processes transactions. It can be centralized or decentralized and can be operated by individuals, companies, or third-party operators.
Transactions on L2 networks are cheaper because the sequencer combines transactions and sends them to the base layer as a single transaction. This approach allows the gas fee for a single base layer transaction to be shared among L2 users, significantly reducing it.
