In one sentence
A layer 2 is a system built on top of a base blockchain that processes transactions away from the base chain but relies on that chain for security or final settlement.
How it works
Base blockchains — "layer 1" — are deliberately limited, so that ordinary computers can keep up and check everything. Layer-2 systems try to handle more activity without changing those limits.
Payment channels are one approach, used by the Lightning Network on Bitcoin, which was described in a 2016 paper by Joseph Poon and Thaddeus Dryja. Two parties lock units in a shared output on the base chain, then exchange signed updates directly between themselves as often as they like. Only the opening and the final balance are recorded on chain. Channels can be linked, so payments can be passed along a route.
Rollups are the main approach on Ethereum. A rollup executes many transactions off chain, then posts the transaction data in compressed form, plus a commitment to the resulting state, to the base chain. Optimistic rollups assume the result is correct unless someone proves otherwise during a challenge window, commonly about a week. Zero-knowledge rollups attach a cryptographic proof that the new state is correct. Since the Dencun upgrade of 13 March 2024 (EIP-4844), rollups can post their data in cheaper, temporary "blobs".
Layer 2s bring their own trade-offs: who orders the transactions, who can upgrade the contracts, and how users can exit if the operator stops.
A simple example
Think of a bar tab. Instead of paying for every drink separately, you open a tab, the bar records each order, and at the end of the evening you settle once with a single payment. The tab is the layer 2; the final payment is what reaches layer 1.
Common misconception
Misconception: A layer 2 is simply a faster copy of the base chain with the same security.
In fact: Security depends on the design: whether proofs are used, whether the data is published on the base chain, who controls upgrades and whether users can always withdraw to layer 1 on their own. Two layer 2s can differ greatly.
Where you meet it
- Rollup networks built on Ethereum.
- Payment channels on Bitcoin.
- Bridges, which move token records between layers and are a frequent target of attacks.
Related cards
Sources
This card explains a technical concept for general education. It is not a recommendation to acquire, sell or hold any crypto-asset, and it is not financial advice.