Layer 2

A secondary protocol built on top of a Layer 1 blockchain, designed to improve scalability and transaction speed.

What is Layer 2?

Layer 2 refers to secondary protocols built on top of a Layer 1 blockchain that are designed to enhance scalability and transaction throughput without compromising the security and decentralization of the underlying base layer. Layer 2 solutions operate by moving computation and transaction execution off the main chain while keeping data anchored to the Layer 1 for security and finality.

The primary goal of Layer 2 solutions is to increase transaction speed and reduce costs while maintaining the security guarantees of the Layer 1 blockchain. They achieve this by processing multiple transactions off-chain and then bundling them together before submitting compressed data back to the main chain for final validation.

Core characteristics of Layer 2 solutions:

• Off-chain execution: Transactions are processed outside the main blockchain
• Data availability: Transaction data is posted back to Layer 1 for verification
• Inherited security: Layer 2 inherits security from the underlying Layer 1 blockchain
• Lower costs: Reduced gas fees compared to transacting directly on Layer 1
• Higher throughput: Ability to process significantly more transactions per second

Layer 2 solutions are particularly important for blockchains like Ethereum that have become congested due to high demand, leading to slow transaction times and expensive gas fees.

Why Layer 2 matters

As blockchain adoption grows, Layer 1 networks face fundamental scalability constraints. A blockchain that prioritizes security and decentralization inherently limits the number of transactions it can process per second. This creates the blockchain trilemma, where projects struggle to optimize all three properties simultaneously.

Problems Layer 2 solutions address:

• Network congestion: High demand on Layer 1 leads to slow transaction processing
• High gas fees: Competition for block space drives up transaction costs
• Limited throughput: Layer 1 blockchains can typically only handle 15-30 transactions per second
• Poor user experience: Slow confirmations and expensive fees deter mainstream adoption
• Scalability bottlenecks: Single-chain processing capacity cannot meet growing demand

Layer 2 solutions provide a path forward by offloading computational work from the base layer while preserving its security properties. This allows blockchains to scale without forcing developers to choose between security, decentralization, and performance.

Types of Layer 2 solutions

Layer 2 scaling solutions come in several forms, each with different approaches to improving blockchain scalability:

Rollups

Rollups are the most prominent Layer 2 scaling approach. They execute transactions off-chain and bundle (or "roll up") multiple transactions into batches before submitting them to Layer 1. Rollups move computation and state storage off-chain but keep some data per transaction onchain, using compression techniques to replace data with computation wherever possible.

There are two main types of rollups:

• Optimistic rollups: Assume all transactions are valid unless challenged. They use fraud proofs, where validators can dispute invalid transactions during a challenge period (typically 7 days). This approach offers 10-100x improvements in scalability and supports general-purpose smart contract execution. Examples include Optimism and Arbitrum.
• ZK rollups (Zero-Knowledge rollups): Generate cryptographic proofs called validity proofs that mathematically prove transactions are correct. Every batch includes a ZK-SNARK proof that can be quickly verified onchain. They offer faster finality (no challenge period needed) and enhanced privacy, though they are more computationally intensive to generate proofs. Examples include zkSync and StarkNet.

State channels

Allow participants to conduct multiple transactions off-chain, with only the opening and closing states recorded on Layer 1. They work well for applications requiring frequent interactions between fixed participants, such as payment channels. The Lightning Network for Bitcoin is a prominent example.

Sidechains

Independent blockchains that run parallel to the main chain with their own consensus mechanisms. They can transfer assets to and from the main chain via bridges but maintain their own security model, making them potentially less secure than rollups that inherit Layer 1 security.

Plasma

A framework for creating child chains attached to the main blockchain. Plasma chains use fraud proofs similar to optimistic rollups but have limitations around data availability that prevent them from supporting general-purpose smart contracts.

Layer 2 vs Polkadot's architecture

While Layer 2 solutions are designed to scale existing Layer 1 blockchains like Ethereum, Polkadot takes a fundamentally different architectural approach. Polkadot implements rollup functionality at the native level through its Layer 0 protocol, rather than requiring separate Layer 2 scaling solutions.

Key differences:

Polkadot rollups (i.e., parachains) function as Layer 1 blockchains that inherit shared security from the Polkadot Chain (Relay Chain). They process transactions in parallel rather than sequentially, with each rollup optimized for specific use cases. Unlike traditional Layer 2 rollups that batch transactions and post them to a Layer 1 chain, Polkadot rollups are validated directly by Polkadot's validator set through a "cynical" approach that always checks transaction validity rather than assuming validity.

Traditional Layer 2 solutions like optimistic rollups on Ethereum must wait for challenge periods (up to 7 days) before achieving finality. Polkadot rollups achieve finality in approximately 18 seconds through GRANDPA consensus, with no extended withdrawal periods needed.

Polkadot's approach vs traditional Layer 2:

• Native vs additive: Polkadot's scalability is built into the protocol rather than added on top
• Parallel vs sequential: Multiple rollups process simultaneously rather than batching to a single chain
• Shared security: All Polkadot rollups share the same validator set rather than relying on separate Layer 2 operators
• Fast finality: Seconds instead of hours or days for transaction finalization
• No Layer 2 needed: Polkadot rollups can build their own Layer 2 solutions if desired, but the base architecture already provides the scalability benefits that Layer 2 offers to other blockchains

Some Polkadot ecosystem projects have explored additional Layer 2 technologies for specific use cases, such as state channels for off-chain interactions, but these are enhancements rather than necessary scaling solutions.