Layer 2 (L2) is the collective term for a set of Ethereum scaling solutions. According to ethereum.org, a layer 2 is a separate blockchain that extends Ethereum and inherits Ethereum’s security guarantees. Layer 1 (L1) blockchains, such as Ethereum and Bitcoin, are the foundation that layer 2 projects build on.
Why layer 2 is needed
The “blockchain trilemma” says that a simple blockchain can only achieve two of three properties: decentralization, security and scalability. Ethereum Mainnet handles more than a million transactions a day, but only around 15 transactions per second. High demand therefore pushes up fees. Layer 2 networks bundle many transactions into one transaction on layer 1, which cuts fees and raises throughput while still settling on Ethereum.
Rollups: the main approach
- Rollups bundle hundreds of transactions into one L1 transaction and post the transaction data to Ethereum. Execution happens separately on the rollup. Once the data is on L1, reverting a rollup transaction would mean reverting Ethereum itself.
- Optimistic rollups assume transactions are valid, but anyone can challenge a suspicious one with a fault proof.
- Zero-knowledge (ZK) rollups compute transactions off-chain and submit them to Mainnet together with a validity proof.
Not the same as sidechains
Sidechains and validiums also run alongside the main chain and connect to it through bridges. Unlike rollups, they do not get their security or data availability from Ethereum, so they rely on different trust assumptions.
Risks to know
ethereum.org notes that many layer 2 projects are still young and somewhat experimental, and that no layer 2 has been as battle-tested as Ethereum Mainnet. Do your own research. For example, L2BEAT publishes risk assessments for individual projects. When you move funds, make sure the recipient is on the same network as you. See also how Web3 wallets work and ERC-20 tokens.
Risk notice: crypto-assets are highly volatile and you can lose all the money you put in. This article is general information, not financial or investment advice. Always verify smart contracts, wallets and service providers yourself before using them.