Layer 2

Layer 2 (L2) refers to a secondary framework built atop an existing blockchain's infrastructure, such as Ethereum or Bitcoin. It aims to enhance scalability and functionality without altering the base protocol. Essentially, Layer 2 addresses the performance and cost challenges associated with the inherent scalability limitations of Layer 1 blockchains.

Examples of Layer 2 solutions include:

• Payment channels: These enable users to conduct off-chain transactions, minimizing congestion and reducing transaction fees. The Lightning Network for Bitcoin and Raiden Network for Ethereum are prominent examples.
• State channels: These facilitate the execution of smart contracts off-chain, enhancing scalability and transaction speed. State channels are utilized in applications like micropayments, gaming, and decentralized finance (DeFi).
• Plasma: Plasma is a scalability framework that employs Merkle trees to bundle secondary transactions into blocks, with only transaction summaries recorded on the main chain. Projects like Optimistic Ethereum and OMG Network utilize Plasma for scaling Ethereum.
• Rollups: Rollups combine off-chain transaction processing with an on-chain transaction summary, enabling high throughput without compromising security. There are two types of rollups: optimistic rollups and zk-rollups. Optimistic rollups, exemplified by projects like Arbitrum and Optimism, prioritize scalability, while zk-rollups, such as Loopring and zkSync, emphasize privacy and efficiency.

Layer 2 solutions provide substantial benefits by improving transaction speed, reducing costs, and alleviating congestion on the main chain. This makes decentralized applications (dApps) more practical and accessible to a broader user base.

In summary, Layer 2 encompasses protocols and frameworks designed to enhance scalability and functionality by building upon existing blockchain infrastructure, offering solutions like payment channels, state channels, Plasma, and rollups to address scalability challenges.