How do Layer 2 solutions work?
Layer 2 solutions are designed to enhance the scalability and efficiency of blockchain networks, primarily by processing transactions off the main blockchain (Layer 1). These solutions enable faster and cheaper transactions while maintaining strong security measures inherent to the base layer.
Key Mechanisms
- State Channels: This mechanism allows users to conduct transactions off-chain while only settling the final state on the blockchain. Example: Lightning Network for Bitcoin.
- Plasma: A framework that creates smaller chains (child chains) linked to the main blockchain. These child chains process transactions independently, allowing for faster processing and reduced congestion on the main chain.
- Rollups: Rollups aggregate multiple transactions into a single batch before sending them to the main blockchain. This reduces the load on the base layer while ensuring security through cryptographic proofs. Types include zk-Rollups and Optimistic Rollups.
Benefits of Layer 2 Solutions
Layer 2 solutions significantly decrease transaction fees and increase throughput. They allow blockchain to handle a larger number of transactions per second (TPS), making cryptocurrencies more user-friendly and accessible. Additionally, they help in alleviating the congestion often seen during peak usage times.