Layer 2 refers to networks or systems built on top of a base blockchain to improve speed, reduce fees, or increase transaction capacity.
How It Works
A layer 2 processes transactions away from the main chain, then settles or proves the results back to the base layer. Ethereum rollups are among the most important examples.
Layer 2 systems can use different designs, including optimistic rollups, zero-knowledge rollups, payment channels, and sidechain-like structures.
Why It Matters In Crypto
Layer 2 matters because popular blockchains can become congested and expensive when demand is high. Scaling systems help more users access apps without paying high base-layer fees.
A practical example: a user might trade on an Ethereum layer 2 network to get faster settlement and lower costs than using Ethereum mainnet directly.