What is Layer 2

A limitation of blockchain networks that might hinder their evolution in the long run is their capacity to process only a small number of transactions per second.

During peak use, this is reflected in the cost of executing a transaction. As the network becomes more crowded, users start bidding over space on the blockchain to have their transactions administered quickly, driving the price of fulfilling a transaction to increase.

To foster wide scale adoption, these blockchain networks should be able to process thousands of transactions per second.

Layer 2 is the set of technology solutions developed to overcome the scaling issue without compromising the safety of the network. It allows thousands of transactions to take place per second by taking off the pressure from the main chain or layer 1.

Layer 2 solutions can be of different types such as side chains, state channels, or optimistic rollups. They achieve the same security, while significantly increasing the throughput (transactions/second).