What is layer 2 on Ethereum? | Get Started with Bitcoin.com (2024)

FAQs

What is layer 2 on Ethereum? | Get Started with Bitcoin.com? ›

Bitcoin layer-two solutions (Bitcoin L2s) are secondary protocols built on top of the main Bitcoin blockchain. Their purpose is to address scalability issues, improve transaction speeds, and reduce fees. Some L2s also introduce smart contract capabilities, expanding Bitcoin's potential use cases.

Layer 2 is an umbrella term to describe solutions that build on top of Ethereum mainnet (layer 1) to improve the scalability of the Ethereum network. There are a number of layer 2 solutions on Ethereum.

Layer 2 technology is part of what is called the OSI (Open Systems Interconnection) model. It is the layer at which data moves from the physical layer into the cybersphere. It is the launching pad for data.

Layer 2 (L2) scaling solutions are technologies designed to improve blockchain efficiency and performance without compromising security or decentralization. They work by offloading a significant portion of computational work from the main blockchain (Layer 1) to secondary networks.

For instance, Ethereum only processes about 15-30 transactions per second (TPS). This number is way lower than VISA's transactions per second, which is approximately 1,700 TPS.

Bitcoin layer-two solutions (Bitcoin L2s) are secondary protocols built on top of the main Bitcoin blockchain. Their purpose is to address scalability issues, improve transaction speeds, and reduce fees. Some L2s also introduce smart contract capabilities, expanding Bitcoin's potential use cases.

Layer 2: Scaling Layer

Role: built on top of layer 1 to improve scalability and transaction speed. These are protocols or solutions like Lightning Network for Bitcoin or Plasma and Rollups for Ethereum. They handle transactions off the main chain (Layer 1) and periodically update the main chain.

The data link layer, or layer 2, is the protocol layer that transfers data between nodes on a network segment across the physical layer, or what is commonly known as a host's physical address.

About Ethereum 2

Staked ETH (and rewards) can't be unstaked until Ethereum 2.0 fully launches, which most experts estimate will happen sometime in 2023. If participants want to sell, send, or use their staked ETH they can do so by converting it to cbETH, Coinbase's Wrapped Staked ETH token.

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Ethereum 2 (or Ethereum 2.0) is the next generation of Ethereum: a major upgrade to the Ethereum blockchain network. This entails a change from using proof-of-work to proof-of-stake for the validation of blocks on the Ethereum blockchain.

Layer 1 refers to a base blockchain protocol, (e.g., Bitcoin or Ethereum) while layer 2 refers to a third-party protocol built to have integrated functionality with that base blockchain. There, that's it. If you wanted a high-level overview, that's pretty much all you needed to know.

Layer 2 networks enhance the blockchain, improving transaction speeds and reducing fees on a singular blockchain. Layer 3 takes the baton from Layer 2's focus on speed and efficiency, venturing into the realm of interconnectivity and advanced application hosting.

The advantage of using this approach is that gas fees will be substantially lower than with other methods. If this is important to you because you want to stake a small amount of ETH, then using a Layer 2 network is likely going to be your option of choice.

To use an L2, a user deposits their L1 funds (like, say ether) into the L2 system via what's known as a “bridge.” With their funds on L2, the user can transact. L2s utilize the underlying blockchain, but only minimally, which translates to L2 users paying lower fees.