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Layer 2

A Layer 2 is an additional network built on top of an existing blockchain. It processes transactions faster and often more cheaply than the base layer.

Last updated • 1 min read
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What is a Layer 2?

The base blockchain is called Layer 1. That’s where transactions are finalized and secured. Bitcoin and Ethereum are examples of Layer 1 networks.

A Layer 2 takes on some of the work. It processes transactions off-chain, meaning outside the Layer 1 blockchain. These transactions are then settled on Layer 1 as a group. This helps keep the base layer from becoming overloaded as quickly.

An example of a Layer 2

The Lightning Network is a Layer 2 for Bitcoin. Payments can take place outside the Bitcoin blockchain and be settled on Bitcoin later.

This shows why Layer 2 exists: not every small payment needs to be processed separately and immediately on the base blockchain.

Why is Layer 2 important in crypto?

A busy Layer 1 can lead to slower transactions and higher fees. Layer 2 can help reduce these issues without changing the rules of the base blockchain.

Crypto news often covers new Layer 2 networks, rollups, or lower transaction fees. This doesn’t automatically mean a project is better or safer. A Layer 2 relies on Layer 1 for final settlement and security.

Layer 2 is also important for dApps: applications that run on a blockchain. These applications often need to process many transactions, and Layer 2 can make them more practical.

Disclaimer: This content is for informational purposes only and does not constitute financial, investment, legal, or tax advice. The information provided may be incomplete, inaccurate, or outdated and should not be relied upon as such. Nothing on this website should be considered a recommendation to buy, sell, or hold any cryptocurrency. Investing in crypto-assets involves risk of loss.