Layer 2

Layer 2 (L2) networks are like an extra layer that sits on top of the basic blockchain networks (Layer 1, such as Bitcoin or Ethereum). These L2 networks are specifically designed to make transactions faster and cheaper. They achieve this by simplifying the transaction verification process, meaning fewer nodes or participants are needed to approve a transaction. This leads to faster consensus and thus improves network efficiency.

In essence, L2 networks operate as a kind of highway on top of the standard blockchain, where transactions are processed more smoothly and at a lower cost. Transactions occurring within an L2 network are bundled and periodically fed back to the L1 blockchain, where they are validated as one large transaction.

Some examples of L2 solutions include the Lightning Network for Bitcoin and platforms such as Arbitrum and Loopring for Ethereum. These solutions are crucial for making blockchains scalable, making them more practical and useful for everyday use.