Blockchain layers exist to help crypto networks meet dual challenges: Operate quickly and smoothly and maintain a high level of security. Satisfying both needs has been a challenge for crypto and blockchains since their inception.
Building a blockchain that is secure, decentralized, and fast presents enormous challenges. When developers prioritize security and decentralization, they often end up with a network that’s slow and expensive to use. Prioritizing speed typically requires making compromises on the other two. This trade-off is known as the blockchain trilemma. Adding additional layers to a blockchain is one way to balance the competing priorities of security, speed, and decentralization.
The basic idea is to split the work across two levels. The base network, called Layer 1 (L1), focuses on what it does best: maintaining a secure, decentralized record of transactions. A second network, called Layer 2 (L2), sits on top of it and handles the high-volume, day-to-day activity that would otherwise clog the base chain.
Think of it like a highway system. The main highway is built for reliability and handles the most important traffic. It’s well-maintained, trustworthy, and secure. But during rush hour, it can get congested, and every trip takes longer. A network of express lanes running parallel to the highway can handle a much higher volume of cars, move them faster, and keep the main road from grinding to a halt. The express lanes are an addition to the main highway, not a replacement for it.
That’s what Layer 2 networks do for blockchains. They process transactions off the main chain, then periodically report back and settle on it. Layer 1 provides the security and the final word on what happened. Layer 2 provides speed and lower cost.
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What is a Layer 1 blockchain?
A Layer 1 blockchain is the base network. It’s the foundational chain that processes and records transactions directly, without relying on any other network to function. Everything else in the ecosystem, including Layer 2 networks, is built on top of it.
Layer 1 blockchains handle everything required to keep a decentralized network running on their own, including:
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The consensus mechanism that determines how transactions get validated,
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The security model that protects the network from bad actors,
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and the storage of transaction data.
Bitcoin (BTC-USD) and Ethereum (ETH-USD) are the two most well-known examples. Solana (SOL-USD) and Avalanche (AVAX-USD) are also Layer 1 blockchains, each with its own approach to solving the same core problems.
These Layer 1 blockchains are designed to prioritize security and decentralization above all else. That makes them reliable, but also slow and expensive to use when demand is high.
Ethereum is the clearest example of this in practice. Ethereum charges users a fee to execute transactions on the network, known as a “gas fee.” During periods of high activity, those fees can climb sharply. In 2021, during a surge in NFT trading and decentralized finance activity, gas fees on Ethereum regularly reached $50 to $100 per transaction, which in smaller purchases and sales sometimes exceeded the value of the transaction itself. When this happens, the network becomes practically unusable.
That congestion problem is exactly what Layer 2 networks were built to solve. But before getting into how they do it, let’s look at what a Layer 2 network actually is.
What is a Layer 2 blockchain?
A Layer 2 blockchain is a secondary network built on top of a Layer 1, designed to handle transactions more efficiently than the base chain can on its own. Layer 2s were designed to enable blockchains to scale (process more transactions) without altering the core rules of the base-layer protocol.
The key distinction is that Layer 2s don’t operate independently. They’re connected to Layer 1, and that connection is what gives them their security. Rather than building and maintaining their own security model from scratch, Layer 2 networks inherit it from the Layer 1 chain to which it is connected.
In practice, this means transactions are processed on the Layer 2 network and then periodically recorded, or “settled,” on Layer 1. The base chain doesn’t see every individual transaction. It sees the final result. That’s what allows Layer 2s to move faster and charge less while still relying on the security guarantees of the network underneath.
When people ask what Layer 2 crypto is, this is the core of it. The term “Layer 2” refers more to a design philosophy than a single technology. It’s more like a category of technologies that serve the same general purpose: to take the heavy lifting off the base chain, process it elsewhere, and report back to the base layer for final settlement.
How do Layer 2 scaling solutions work?
Layer 2 networks don’t all work the same way. Several different approaches exist, each with its own method for processing transactions off-chain and settling them back on Layer 1. The mechanics vary, but the goal is the same: reduce the burden on the base chain without sacrificing its security or changing its rules.
The five most common approaches are as follows:
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Optimistic rollups: Bundles of transactions are processed off-chain and posted to Layer 1 under the assumption that they’re valid. A challenge window allows anyone to dispute a fraudulent transaction, which then gets verified on Layer 1.
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ZK rollups: Similar to optimistic rollups in structure, but they generate a cryptographic proof that confirms every transaction in a batch before it’s posted to Layer 1.
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State channels: Two parties open a private off-chain ledger, transact directly with each other, and settle the final balance on Layer 1 when they’re done. The Lightning Network, built on bitcoin, is the most widely known example.
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Sidechains: Separate blockchains that run alongside a Layer 1 and periodically sync with it. Sidechains are often grouped with Layer 2 solutions, but they’re not technically a second layer of a blockchain. Unlike other Layer 2 scaling solutions, they operate with their own consensus mechanism and security model rather than inheriting it from Layer 1. That independence gives them more flexibility, but it also means they carry more of their own risk.
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Nested blockchains: A structure where secondary chains operate on top of a main chain, each handling its own transactions and reporting results back up to the layer above. The main chain only steps in for dispute resolution.
Rollups are where most of the development energy in the broader crypto space is concentrated, and they’re the primary driver behind much of the growth in Layer 2 adoption over the past several years.
Layer 1 vs. Layer 2 blockchain: What’s the practical difference?
For someone new to crypto, the distinction between Layer 1 and Layer 2 can feel abstract. The practical differences, though, are straightforward and come down to four things: speed, cost, security, and ease of use.
Layer 1 blockchains are slower and more expensive to transact on, particularly during periods of high network activity, but they offer greater security and reliability, in part due to their long track records of success. Bitcoin and ethereum have been running for years, have survived multiple market cycles and attacks, and are about as battle-tested as anything in the crypto space.
Layer 2 networks are faster and significantly cheaper to use. A transaction that costs several dollars on Ethereum might cost a fraction of a cent on a Layer 2. The trade-off is added complexity. To use a Layer 2, users often (but not always) need to bridge their assets from the main chain to the Layer 2 network, a process that introduces its own steps and, in some cases, its own risks.
Smart contract vulnerabilities and bridge exploits are some of the worst-case scenarios that can lead to users losing funds. While major Layer 2 networks have strong security records, the space is younger and less tested than the Layer 1s beneath them.
As for when to use each, it comes down to the user’s goal. Layer 1 makes more sense for large transactions or any situation where security and finality take priority over cost.
Layer 2 makes more sense for frequent, smaller transactions or any use case where speed and low fees matter more than using the base chain directly.
Polygon vs. Ethereum: A real-world example of L2 and L1 blockchains
Ethereum and Polygon are among the most widely recognized Layer 1 and Layer 2 networks.
Ethereum is Layer 1: a large decentralized network that has been running since 2015. It’s where the final record of transactions lives. It’s also where fees can climb quickly when the network gets congested, sometimes reaching $20 or more per transaction during busy periods.
Polygon was built to address that. It processes transactions off the Ethereum main chain, at much higher speeds and lower costs, then settles back on Ethereum. A DeFi transaction that costs $15 on Ethereum directly might cost a few cents on Polygon. Ethereum’s security is still in the background. The user just takes a faster, cheaper route to get there.
One thing that can cause confusion: because Polygon is technically a sidechain, Ethereum and Polygon are separate networks. Each has its own token. ETH is used to pay for transactions on Ethereum. But when you’re using Polygon, you pay transaction fees in MATIC, Polygon’s native token. The two networks are connected, but they run independently enough that each requires its own currency to operate. This differs from a state channel Layer 2 like Bitcoin’s Lightning, where BTC is the only currency used.
Layer 1 vs. Layer 2 blockchains FAQs
Is Layer 2 crypto safe?
Layer 2 networks inherit their security from the Layer 1 beneath them, which makes the base security model sound. Still, Layer 2s introduce their own risks and are generally considered less secure than Layer 1s.
Can you stake Layer 2 tokens?
Some Layer 2 tokens can be staked, though it depends on the network. Polygon, for example, uses a Proof-of-Stake model that allows staking.
What’s the difference between a Layer 2 and a sidechain?
A Layer 2 settles transactions back on the main chain and inherits its security. A sidechain runs independently with its own security model and only syncs with Layer 1 periodically.
What is the most widely used Layer 2 blockchain?
Arbitrum and Base are currently the two largest Layer 2 networks by total value locked and transaction volume, both built on Ethereum. Optimism is also a significant player, and all three use optimistic rollup technology.