Layer 2 Blockchain, Explained

But make it cake 🍰

off-topic but if you don’t like cake, why?

Think of a layer 2 (L2) blockchain like a double-tiered cake. Specifically, the one at the top.

Imagine the bottom cake as the layer 1 blockchain. The main & most important one of the bunch. But even when it’s the more important one, it cannot do all of the work. It needs support to be able to serve more people, reduce decorative congestion, and for general aesthetics.

And that’s where the layer 2 blockchain comes in (minus the aesthetics purpose, however).

The main reason why L2 is introduced even when an L1 blockchain already exists is for:

1. Increased Scalability: scalability, in this case, means the blockchain’s ability to handle a larger amount of work or growing demands effectively. Basically, how well a blockchain network like Bitcoin for example can expand to accommodate more users, data & transactions without lagging or performance issues.

The layer-2 blockchain when used with the main blockchain helps to increase the transaction throughput (i.e. the no. of transactions a blockchain can process within a given time frame) thereby reducing congestion on the layer-1 network.

2. Cost Efficiency: By moving some transactions & heavy load off the main chain (base cake), users can experience lower transaction fees & faster confirmation times. It’s like finding a shorter queue to stay on in a bank. You spend less time & energy trying to carry out your business.

3. Better User Experience: Users leave happy when they can get things done on time instead of otherwise. They want to come back, they want to tell other people about the network.

a happy layer-2 user

Types of L2s

• Sidechains: These are separate blockchains that run in parallel to the main blockchain. Literally side by side (or on top, like a cake). They are capable of handling transactions independently, thereby reducing the load on the main chain (base cake).

• State Channels: These involve off-chain (i.e. away from the main blockchain) transactions between participants, with only the final outcome being recorded on the main chain thereby reducing the number of on-chain transactions.

• Plasma: Imagine this as a network of smaller chains (sidechains) connected to the main blockchain. These smaller chains can process transactions faster and with lower fees. The main blockchain is only used when there’s a disagreement or dispute on one of the smaller chains. Plasma helps make the overall system faster and more efficient.

Examples of an L2 blockchain

Being the 2 widely used blockchains, naturally, the Bitcoin & Ethereum networks both need the assistance of layer-2s & thereby, owning the 2 majorly known ones:

• Lightning Network (by Bitcoin)
• Plasma (by Ethereum)

Others include:

• Immutable X (an L2 scaling solution tailored for NFTs on the Ethereum blockchain)
• Optimistic rollups
• Zk rollups
• Loopring, etc.

Wrapping up…

To reiterate, the top-tier cake, or in this case, the layer-2 network when used alongside the main chain helps offset the amount of work that the main chain has to do.

It helps cater to more users thereby increasing scalability. So, while the main chain is still the major player in the blockchain security game, the layer-2 network acts as a loyal sidekick, offering assistance where help is needed.

Thanks for reading :)

PS: I made similar pieces into a Medium “playlist” called #Web3Wednesdays. If you’d like to go through previous articles, they’re neatly packed for you in a List.

PPS: feel free to clap more than once on this piece, drop a comment, anything.

Ciao 🚀