What are Layer 2 Solutions in Cryptocurrency?
Layer 2 solutions are technologies built on top of a blockchain (Layer 1) to improve its scalability, speed, and reduce transaction costs. They enable the main blockchain to process more transactions per second by handling specific operations off-chain, thereby alleviating congestion.
Common Layer 2 solutions include:
- State Channels: Channels allow users to transact off-chain while only recording the final state on the main blockchain, thus minimizing on-chain transactions.
- Plasma: A framework for building scalable applications that allows child chains to operate independently of the main blockchain, while still being secured by it.
- Rollups: These solutions bundle multiple transactions into a single one, reducing the data size processed on-chain. They can be either optimistic or zk-rollups, depending on how they handle validity proofs.
- Sidechains: Independent blockchains linked to the main blockchain, enabling assets to be transferred between them while allowing for custom functionalities and governance.
Implementing Layer 2 solutions significantly enhances user experience by offering faster transaction times and lower fees, making them a vital component of the evolving cryptocurrency landscape.