What is Layer 2?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
A Layer 2 executes transactions off the main chain and posts only the results back to it, easing fees and congestion. What separates it from an independent chain is that it derives its security from Layer 1.
Key points
- Executes off-chain and settles results on Layer 1
- Inherits its security from the base chain
- Fees are far lower than on the main chain
- Some designs impose a delay on withdrawals
Definition
A system built on top of an existing blockchain that processes transactions externally while relying on the base chain to guarantee their validity.
Ethereum's main chain has a throughput ceiling because every node validates every transaction — which is why fees spike when it is busy. A Layer 2 executes elsewhere and writes only compressed data or a proof back, cutting the cost per transaction.
Arbitrum, Optimism and Base are the well-known examples, all settling to Ethereum. They are not independent chains: the final judgement of validity rests with Ethereum, and in principle there is an escape route to recover funds from the base chain even if the Layer 2's operators stop.
In practice, though, most Layer 2s still have a single sequencer deciding transaction order. If it halts, transactions stop being processed for a time. Lower fees come with different trust assumptions on each network, so it is worth knowing which parts are still centralised.
Watch out for
- · Decentralisation and governance differ markedly between Layer 2s
- · Withdraw to an exchange on the wrong network and the funds are gone
- · Depending on the design, exits to the base chain involve a waiting period