Blockchain layers exist to assist crypto networks meet twin challenges: Function shortly and easily and preserve a excessive stage of safety. Satisfying each wants has been a problem for crypto and blockchains since their inception.
Constructing a blockchain that’s safe, decentralized, and quick presents huge challenges. When builders prioritize safety and decentralization, they typically find yourself with a community that is sluggish and costly to make use of. Prioritizing pace sometimes requires making compromises on the opposite two. This trade-off is named the blockchain trilemma. Including extra layers to a blockchain is one approach to steadiness the competing priorities of safety, pace, and decentralization.
The essential concept is to separate the work throughout two ranges. The bottom community, referred to as Layer 1 (L1), focuses on what it does finest: sustaining a safe, decentralized file of transactions. A second community, referred to as Layer 2 (L2), sits on prime of it and handles the high-volume, day-to-day exercise that may in any other case clog the bottom chain.
Consider it like a freeway system. The principle freeway is constructed for reliability and handles a very powerful site visitors. It is well-maintained, reliable, and safe. However throughout rush hour, it could possibly get congested, and each journey takes longer. A community of categorical lanes working parallel to the freeway can deal with a a lot increased quantity of automobiles, transfer them quicker, and maintain the principle highway from grinding to a halt. The categorical lanes are an addition to the principle freeway, not a substitute for it.
That is what Layer 2 networks do for blockchains. They course of transactions off the principle chain, then periodically report again and decide on it. Layer 1 gives the safety and the ultimate phrase on what occurred. Layer 2 gives pace and decrease price.
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What’s a Layer 1 blockchain?
A Layer 1 blockchain is the bottom community. It is the foundational chain that processes and information transactions immediately, with out counting on some other community to operate. Every thing else within the ecosystem, together with Layer 2 networks, is constructed on prime of it.
Layer 1 blockchains deal with the whole lot required to maintain a decentralized community working on their very own, together with:
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The consensus mechanism that determines how transactions get validated,
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The safety mannequin that protects the community from dangerous actors,
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and the storage of transaction information.
Bitcoin (BTC-USD) and Ethereum (ETH-USD) are the 2 most well-known examples. Solana (SOL-USD) and Avalanche (AVAX-USD) are additionally Layer 1 blockchains, every with its personal strategy to fixing the identical core issues.
These Layer 1 blockchains are designed to prioritize safety and decentralization above all else. That makes them dependable, but additionally sluggish and costly to make use of when demand is excessive.
Ethereum is the clearest instance of this in follow. Ethereum costs customers a charge to execute transactions on the community, generally known as a “fuel charge.” In periods of excessive exercise, these charges can climb sharply. In 2021, throughout a surge in NFT buying and selling and decentralized finance exercise, fuel charges on Ethereum recurrently reached $50 to $100 per transaction, which in smaller purchases and gross sales typically exceeded the worth of the transaction itself. When this occurs, the community turns into virtually unusable.
That congestion drawback is strictly what Layer 2 networks had been constructed to resolve. However earlier than moving into how they do it, let’s take a look at what a Layer 2 community really is.
What’s a Layer 2 blockchain?
A Layer 2 blockchain is a secondary community constructed on prime of a Layer 1, designed to deal with transactions extra effectively than the bottom chain can by itself. Layer 2s had been designed to allow blockchains to scale (course of extra transactions) with out altering the core guidelines of the base-layer protocol.
The important thing distinction is that Layer 2s do not function independently. They’re linked to Layer 1, and that connection is what offers them their safety. Somewhat than constructing and sustaining their very own safety mannequin from scratch, Layer 2 networks inherit it from the Layer 1 chain to which it’s linked.
In follow, this implies transactions are processed on the Layer 2 community after which periodically recorded, or “settled,” on Layer 1. The bottom chain does not see each particular person transaction. It sees the ultimate consequence. That is what permits Layer 2s to maneuver quicker and cost much less whereas nonetheless counting on the safety ensures of the community beneath.
When individuals ask what Layer 2 crypto is, that is the core of it. The time period “Layer 2” refers extra to a design philosophy than a single know-how. It’s extra like a class of applied sciences that serve the identical basic function: to take the heavy lifting off the bottom chain, course of it elsewhere, and report again to the bottom layer for ultimate settlement.
How do Layer 2 scaling options work?
Layer 2 networks do not all work the identical method. A number of totally different approaches exist, every with its personal technique for processing transactions off-chain and settling them again on Layer 1. The mechanics range, however the objective is identical: scale back the burden on the bottom chain with out sacrificing its safety or altering its guidelines.
The 5 most typical approaches are as follows:
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Optimistic rollups: Bundles of transactions are processed off-chain and posted to Layer 1 underneath the belief that they are legitimate. A problem window permits anybody to dispute a fraudulent transaction, which then will get verified on Layer 1.
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ZK rollups: Much like optimistic rollups in construction, however they generate a cryptographic proof that confirms each transaction in a batch earlier than it is posted to Layer 1.
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State channels: Two events open a personal off-chain ledger, transact immediately with one another, and settle the ultimate steadiness on Layer 1 once they’re accomplished. The Lightning Community, constructed on bitcoin, is essentially the most extensively identified instance.
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Sidechains: Separate blockchains that run alongside a Layer 1 and periodically sync with it. Sidechains are sometimes grouped with Layer 2 options, however they are not technically a second layer of a blockchain. In contrast to different Layer 2 scaling options, they function with their very own consensus mechanism and safety mannequin fairly than inheriting it from Layer 1. That independence offers them extra flexibility, but it surely additionally means they carry extra of their very own threat.
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Nested blockchains: A construction the place secondary chains function on prime of a major chain, every dealing with its personal transactions and reporting outcomes again as much as the layer above. The principle chain solely steps in for dispute decision.
Rollups are the place a lot of the growth power within the broader crypto area is concentrated, and so they’re the first driver behind a lot of the expansion in Layer 2 adoption over the previous a number of years.
Layer 1 vs. Layer 2 blockchain: What is the sensible distinction?
For somebody new to crypto, the excellence between Layer 1 and Layer 2 can really feel summary. The sensible variations, although, are easy and are available right down to 4 issues: pace, price, safety, and ease of use.
Layer 1 blockchains are slower and costlier to transact on, notably in periods of excessive community exercise, however they provide larger safety and reliability, partially as a result of their lengthy observe information of success. Bitcoin and ethereum have been working for years, have survived a number of market cycles and assaults, and are about as battle-tested as something within the crypto area.
Layer 2 networks are quicker and considerably cheaper to make use of. A transaction that prices a number of {dollars} on Ethereum may cost a fraction of a cent on a Layer 2. The trade-off is added complexity. To make use of a Layer 2, customers typically (however not all the time) must bridge their property from the principle chain to the Layer 2 community, a course of that introduces its personal steps and, in some circumstances, its personal dangers.
Good contract vulnerabilities and bridge exploits are a number of the worst-case situations that may result in customers shedding funds. Whereas main Layer 2 networks have sturdy safety information, the area is youthful and fewer examined than the Layer 1s beneath them.
As for when to make use of every, it comes right down to the consumer’s objective. Layer 1 makes extra sense for giant transactions or any state of affairs the place safety and finality take precedence over price.
Layer 2 makes extra sense for frequent, smaller transactions or any use case the place pace and low charges matter greater than utilizing the bottom chain immediately.
Polygon vs. Ethereum: A real-world instance of L2 and L1 blockchains
Ethereum and Polygon are among the many most well known Layer 1 and Layer 2 networks.
Ethereum is Layer 1: a big decentralized community that has been working since 2015. It is the place the ultimate file of transactions lives. It is also the place charges can climb shortly when the community will get congested, typically reaching $20 or extra per transaction throughout busy intervals.
Polygon was constructed to deal with that. It processes transactions off the Ethereum major chain, at a lot increased speeds and decrease prices, then settles again on Ethereum. A DeFi transaction that prices $15 on Ethereum immediately may cost a couple of cents on Polygon. Ethereum’s safety remains to be within the background. The consumer simply takes a quicker, cheaper path to get there.
One factor that may trigger confusion: as a result of Polygon is technically a sidechain, Ethereum and Polygon are separate networks. Every has its personal token. ETH is used to pay for transactions on Ethereum. However if you’re utilizing Polygon, you pay transaction charges in MATIC, Polygon’s native token. The 2 networks are linked, however they run independently sufficient that every requires its personal foreign money to function. This differs from a state channel Layer 2 like Bitcoin’s Lightning, the place BTC is the one foreign money used.
Layer 1 vs. Layer 2 blockchains FAQs
Is Layer 2 crypto protected?
Layer 2 networks inherit their safety from the Layer 1 beneath them, which makes the bottom safety mannequin sound. Nonetheless, Layer 2s introduce their very own dangers and are usually thought of much less safe than Layer 1s.
Are you able to stake Layer 2 tokens?
Some Layer 2 tokens may be staked, although it will depend on the community. Polygon, for instance, makes use of a Proof-of-Stake mannequin that enables (*2*).
What is the distinction between a Layer 2 and a sidechain?
A Layer 2 settles transactions again on the principle chain and inherits its safety. A sidechain runs independently with its personal safety mannequin and solely syncs with Layer 1 periodically.
What’s the most generally used Layer 2 blockchain?
Arbitrum and Base are at the moment the 2 largest Layer 2 networks by whole worth locked and transaction quantity, each constructed on Ethereum. Optimism can also be a major participant, and all three use optimistic rollup know-how.
