The blockchain trilemma states that blockchains can only achieve two out of three key qualities: decentralization, security, and scalability. For decentralization and security focused blockchains like Bitcoin, achieving scalability is a challenge.
Layer 2 solutions address this issue. A Layer 2 is a secondary blockchain that runs on top of the main blockchain, known as Layer 1.
By using a Layer 2 solution, fees can be reduced, transaction speeds increased, and the overall usability of the underlying blockchain improved.
Layer 2 solutions process transactions outside Layer 1 to reduce congestion and increase efficiency.
Instead of recording every transaction directly on the main blockchain, transactions occur “off-chain” in secondary layers. Once the transaction activity concludes, the results are settled back on Layer 1 to ensure security, immutability, and finality.
This approach significantly reduces transaction fees and speeds up processing times while maintaining the trustless nature of blockchain networks.
Layer 2 solutions address the challenges posed by the Blockchain Trilemma by handling transaction processing off-chain while relying on the main blockchain (Layer 1) for final settlement and validation.
By offloading transactions, Layer 2 improves throughput (number of transactions per second) while ensuring that the underlying blockchain remains decentralized and secure.
When using a Layer 2 blockchain, users enjoy several benefits over transacting directly on Layer 1. The most significant advantage is increased transaction throughput and lower transaction fees.
This allows decentralized apps (dApps) to scale faster, handle more transactions, and improve Web3 usability.
Some Layer 2 solutions can also provide additional privacy features, offering greater confidentiality compared to Layer 1 transactions.
Layer 2 solutions are inherently more centralized than their underlying Layer 1 blockchain, which introduces a unique set of challenges.
Unlike Layer 1 blockchains, Layer 2 networks are more prone to hacks or outages. Additionally, they are often secured by a private key controlled by the Layer 2 creators, posing a potential security risk.
Layer 2 solutions are inherently less secure than their underlying Layer 1 blockchain, as they prioritize scalability. This tradeoff allows for faster and cheaper transactions, but it comes with a higher level of risk compared to Layer 1.
The Lightning Network is the most well known Layer 2 solution for the Bitcoin blockchain. It allows users to create payment channels with each other. Generally, when you buy something from a merchant in person with Bitcoin, you’ll most likely use the Lightning network because using the Layer 1 would take much longer.
Polygon is a Layer 2 blockchain on Ethereum, designed to improve transaction speed and reduce costs while maintaining compatibility with the Ethereum blockchain. Originally launched as MATIC Network in 2017, it rebranded to Polygon and began to offer more scaling solutions like sidechains and rollups. Polygon exists to address Ethereum’s scalability challenges, enabling decentralized apps (dApps) to scale efficiently while retaining Ethereum’s security and decentralization.
Layer 2 is important because it makes Web3 much cheaper and faster to use. By using Layer 2, it’s now possible to engage with dApps that require consistent signatures for interactions without paying huge transaction fees.
Layer 2’s significantly increase a blockchain’s usability for those that use the Layer 2 to transact between each other.