What is a Second Layer Solution (Layer 2) in Blockchain?

The second layer solution (Layer 2) is a protocol that is put on top of the main blockchain (Layer 1) and is meant to make it more scalable. Popular blockchain platforms with low bandwidth, like Ethereum and Bitcoin, use L2 solutions.

The second layer solution works well with the main network and has smart contracts and crypto assets that work together. In the case of Ethereum, you will need a cross-chain bridge to move money from the main network to Layer 2.

Why Do You Need Layer 2  Solutions?

The “scalability trilemma” is a problem that blockchains have from the start. It has to do with how hard it is to make a network that is fast, decentralized, and safe at the same time. Because of this, developers usually have to choose and optimize no more than two of the three parts.

Early blockchains, like Bitcoin and Ethereum, were not built to handle a large number of transactions and users, so their throughput is low. For example, there are 5–7 transactions per second (TPS) in Bitcoin and about 15 TPS in Ethereum.

Changes to the code of the blockchain protocol, like sharding, can help make it more scalable. But this can take years because it takes a lot of time. Also, these kinds of changes change the way the architecture works, so the project community isn’t always willing to make them.

Without changing the code of the main blockchain, L2 solutions can solve at least part of the problem of low throughput and high transfer fees. Their main benefit is the ability to move assets between “first level” addresses while using the “second level,” which can be a separate off-chain protocol or a separate blockchain.

What kinds of second-layer solutions are there for bitcoin?

The Lightning Network is the main L2 project for the first cryptocurrency (LN). It uses smart contracts and something called “state channels” to run on a protocol. The Lightning Network started up in 2015, and since then it has been growing quickly. By the end of May 2022, there were 3900 BTC worth of LN channels.

The main purpose of LN is to let people who own Bitcoin make direct trades without having to write information to its ledger. To do this, you need to use one on-chain transaction to open a special channel and put bitcoins in it.

After it is turned on, the payment channel lets you make transfers “off-chain,” or outside of the main network, much faster and with lower fees. The only people who can see transactions in Lightning Network channels are the people who use them. In the main blockchain, only the beginning and end of a transaction are recorded.

This method makes the main bitcoin network much less busy because the Lightning Network can handle thousands of transactions per second while making sure the system is secure.

For Ethereum, what Layer 2 solutions are there?

Ethereum is the most popular blockchain platform for decentralized applications, even though it is slow. It runs a lot of popular projects in the fields of decentralized finance (DeFi) and tokens that can’t be exchanged for cash (NFT). Because of this, the problem of scaling is especially big for Ethereum.

Now, a number of major L2 solutions are being made at the same time:

Polygon, Arbitrum, and Optimism.

Rollups, which come in two main types, are the main tool they use in their work.

Rollups of good news. With this solution, transactions happen in the L2 network, and then large groups of them are put together into a small block. Validators then add the block to the main Ethereum network. In Arbitrum and Optimism, these rollups are used.

ZK-Rollups. Transactions in the second-level network are also bundled and sent to the Ethereum network. However, they are confirmed using special verifiers, which are cryptographic proof that operations are valid. Polygon is made with ZK-Rollups as its base. Vitalik Buterin, who is the main co-founder of the platform, is thinking about this technology as a way to scale it.

No matter what the L2 solution is, the “first layer” of Ethereum is in charge of verifying transactions and making blocks. It is also the ledger where the final states are written and the mechanism for reaching a consensus. Since this is the case, the project doesn’t need to build its own infrastructure.

There are also some other Layer 2 projects. In July 2022, Matter Labs, a new company, announced that zkSync 2.0 was coming out. A month later, the StarkWare project began with a protocol written in the Cairo language that was only used for that project.

Do Sidechains Work on Layer 2?

Sidechains are not second-level solutions. They are used in games like Cosmos and Polkadot, for example. If the first group uses its own security system, the second group must rely on the “parent” blockchain.