Layer 2s are protocols built on top of a blockchain (Layer 1) to improve its scalability and speed. They take transactions off the main chain, processing them more efficiently and then recording the final state on the main chain. This allows for many transactions to be processed in a single batch, significantly reducing the load on the main chain.

The blockchain trilemma

Blockchain technology has three desirable properties: decentralization, security, and scalability. However, the blockchain trilemma states that a simple blockchain architecture can only achieve two of these three properties at once. This means that there is a trade-off between these three properties.

For example, a blockchain that is decentralized and secure will likely not be very scalable. This is because a decentralized blockchain requires all nodes to verify every transaction, which can be slow and expensive. On the other hand, a blockchain that is scalable and secure will likely not be very decentralized. This is because a scalable blockchain often requires some form of centralization to achieve its high throughput.

Where L2s come in

We need Layer 2s because blockchains like Ethereum are currently limited in their ability to handle large volumes of transactions without sacrificing security or decentralization. This can lead to congestion and high transaction fees. Layer 2s can help to address these issues by taking transactions off the main chain and processing them more efficiently.

Some of the benefits of Layer 2s include:

Scalability: Layer 2s can process many more transactions than the main chain, which can help to reduce congestion and improve transaction times.

Speed: Layer 2s can process transactions much faster than the main chain.

Cost: Layer 2s can significantly reduce transaction fees.

Security: Layer 2s inherit the security of the main chain.

Layer 2s are still under development, but there are a number of promising projects that are already in use.

Some of the most popular Layer 2 types include:

Rollups: Rollups bundle multiple transactions into a single batch and then post the batch to the main chain. This can significantly reduce the number of transactions that need to be processed on the main chain.

Sidechains: Sidechains are separate blockchains that are linked to the main chain. They can process transactions independently of the main chain, and then post the final state of the sidechain to the main chain.

State channels: State channels allow two parties to open a channel and exchange transactions off-chain. Once the parties are finished, they can close the channel and settle the final state on the main chain.

Layer 2s are an important part of the future of blockchain technology. They can help to make blockchains more scalable, faster, and cheaper to use. This will open up new possibilities for blockchain applications.