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Layer 2

Crypto Glossary: Layer 2

Layer 2: Layer 2, often abbreviated as L2, refers to an additional framework or protocol constructed on top of an existing blockchain system, commonly known as a layer-1 network. The primary objective of layer 2 solutions is to address transaction speed and scaling challenges encountered by major cryptocurrency networks.

Secondary Framework: Layer 2 serves as a secondary framework where blockchain transactions and processes can occur independently of the layer 1 (main chain). It acts as an intermediary solution to enhance transaction throughput without necessitating structural changes to the main chain.

Transaction Throughput Solutions: Layer 2 solutions aim to resolve scalability issues and increase transaction throughput. Examples include the Bitcoin Lightning Network and Ethereum Plasma, each employing distinct mechanisms such as state channels and sidechains, respectively, to enhance throughput for blockchain systems.

Off-Chain Scaling: Layer 2 protocols are often referred to as “off-chain” scaling solutions. These solutions create an off-chain network, system, or technology that operates independently of the main chain, reducing bottlenecks related to scaling and data.

Independence and Security Inheritance: For a network, system, or technology to be considered a layer 2, it must inherit the security of the underlying blockchain. This ensures that transaction data is verified and confirmed by the base layer network rather than a separate set of nodes. The independence of layer 2 is maintained while still benefiting from the security of the base layer.

Enhanced Transaction Throughput: Layer 2 solutions play a crucial role in achieving higher transaction throughputs, contributing to lower fees. They enable faster and scalable transaction execution without compromising decentralization or security, offering a solution to the scalability challenge faced by certain blockchains.

Comparisons to Traditional Systems: Analogies to systems like a restaurant kitchen or payment platforms like Visa illustrate the efficiency gained through layer 2. By compartmentalizing tasks, similar to prep stations in a kitchen or batch processing in payment systems, layer 2 achieves higher efficiency in transaction processing.

Ethereum Implementations: Ethereum incorporates layer 2 solutions such as Arbitrum, Optimism, Loopring, and zkSync. These implementations, including Optimistic and zero-knowledge (ZK) rollups, alleviate the mainnet’s burden in managing transactions, resulting in increased transaction inclusion and throughput for a more practical user experience.

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