Layer 2

What is layer 2?

Layer 2 (L2) is a collective term to describe a specific set of Ethereum scaling solutions. A layer 2 is a separate that extends Ethereum and inherits the security guarantees of Ethereum.

Now let’s dig into it a bit more. To do this we first need to explain layer 1 (L1).

Why do we need layer 2?

Three desirable properties of a blockchain are that it is decentralized, secure, and scalable. The blockchain trilemma(opens in a new tab) states that a simple blockchain architecture can only achieve two out of three. Want a secure and decentralized blockchain? You need to sacrifice scalability.

Ethereum currently processes 1+ million transactions per day. The demand to use Ethereum can cause transaction fee prices to be high. This is where layer 2 networks come in.

Scalability

The main goal of layer 2 is to increase transaction throughput (higher transactions per second) without sacrificing decentralization or security.

Ethereum (layer 1) is only able to process roughly 15 transactions per second. When demand to use Ethereum is high, the network becomes congested, which increases transaction fees and prices out users who cannot afford those fees. Layer 2s are solutions that reduce those fees by processing transactions off the layer-1 blockchain.

How does layer 2 work?

As we mentioned above, layer 2 is a collective term for Ethereum scaling solutions that handle transactions off Ethereum layer 1 while still taking advantage of the robust decentralized security of Ethereum layer 1. A layer 2 is a separate blockchain that extends Ethereum. How does that work?

There are several different types of layer 2, each having their own trade-offs and security models. Layer 2s take the transactional burden away from the layer 1 allowing it to become less congested, and everything becomes more scalable.

Rollups

Rollups bundle (or ’roll up’) hundreds of transactions into a single transaction on layer 1. This distributes the L1 transaction fees across everyone in the rollup, making it cheaper for each user.

The transaction data in the rollup is submitted to layer 1, but the execution is done separately by the rollup. By submitting transaction data onto layer 1, rollups inherit the security of Ethereum. This is because once the data is uploaded to layer 1, reverting a rollup transaction requires reverting Ethereum. There are two different approaches to rollups: optimistic and zero-knowledge - they differ primarily on how this transaction data is submitted to L1.

Sidechains and validiums are blockchains that allow assets from Ethereum to be bridged over and used on another blockchain. Sidechains and validiums run in parallel with Ethereum, and interact with Ethereum through , but they do not derive their security or data availability from Ethereum.

Both scale similarly to layer 2s - they offer lower transaction fees and higher transaction throughput - but have different trust assumptions.

• More info on sidechains
• More info on validiums

Some layer 1 blockchains report higher throughput and lower transaction fees than Ethereum, but generally with trade-offs elsewhere, for example greater hardware requirements for running nodes.