What is a Layer-2 blockchain?
A Layer-2 solution is built on top of a Layer-1 blockchain to boost transaction speed and lower gas fees. These solutions have become especially important and gained popularity among users and developers as they address the scalability issue of Layer-1.
For example, Ethereum, as a Layer-1 blockchain, can process only 20-40 transactions per second, which under high load can make transactions expensive and slow. In contrast, a Layer-2 blockchain like Arbitrum can maintain transaction costs of just a few cents, even under heavy traffic. It offloads some tasks, like checking transactions and storing data, to an off-chain layer, which helps ease the workload on the main network.
What makes blockchain transactions expensive?
Let’s dive into an example with Ethereum. Ethereum can be slow and expensive because of how it’s designed. Every computer (or node) in the network has to process all the transactions in its history to stay in sync. This keeps Ethereum decentralized and open for anyone to run a node, but it also limits how many transactions it can handle at once. When the network gets busy, it can take longer to process transactions, and fees go up because people compete to get their transactions through faster. This trade-off helps keep Ethereum secure and fair but makes it harder to scale.
Conclusion
In recent years, Layer-2 blockchains have made a profound impact on the crypto industry, significantly scaling Layer-1 networks and driving the growth of diverse ecosystems. They have enhanced interoperability between different blockchains, enabling communication and supporting the rise of thousands of decentralized applications. This article has introduced you to the top Layer-2 solutions, including their core principles, key advantages, and important performance metrics.
Frequently asked questions
Layer-1 blockchains are independent networks that can validate and complete transactions on their own, without relying on any other blockchain. Examples include Ethereum, Solana, Sui, Aptos, and others.
Layer-2 blockchain is a secondary network built on top of a Layer-1 blockchain that improves scalability, speed, and efficiency while relying on the underlying Layer 1 for security. Examples include Optimism, Arbitrum, and Polygon.
Layer-3 blockchain is built on top of Layer-2 to improve scalability and solve interoperability challenges by facilitating smooth communication across different blockchains. Additionally, Layer-3 provides the infrastructure needed for developing advanced decentralized applications with more complex features.
Based on market capitalization and ranking among other altcoins, POL, MNT, ARB, IMX, and STRK all rank within the top 100 by market cap.
Layer-1 is the independent blockchain with its own consensus algorithm, functioning as the core of the network. Layer-2 is a network built on top of Layer-1 to increase scalability, improve transaction speed, and reduce costs. Layer-3 focuses on creating user-facing applications and protocols, providing specific use cases for end-users.
The “best” Layer-2 blockchain depends on the specific use case and needs. Our top picks include the following L2 solutions: Lisk, Arbitrum, Optimism, Polygon, Polygon zkEVM, Mantle, Immutable X, Starknet, Lightning Network, and Loopring.
Like any other cryptocurrency asset, Layer-2 tokens are also highly risky and volatile, so it’s crucial to follow risk management practices. Additionally, conducting thorough research (DYOR) is essential before making any investment decisions, including exploring the website, white paper, social media, fundraising efforts, and price charts.
There are several potential limitations, such as liquidity fragmentation, where having multiple Layer-2 solutions can divide liquidity across networks, and bridging platforms are required to move assets between them.
Layer-2 solutions usually depend on the security of the main blockchain they are built on. For example, Arbitrum, as a Layer-2 solution, relies on Ethereum’s security to ensure reliability and safety.