Layer 2 (L2) refers to a secondary protocol or network built on top of a base blockchain, commonly called Layer 1 (L1). Its purpose is to increase transaction throughput and reduce costs while still relying on the underlying chain for final settlement and security.
How Layer 2 works
Most L1 blockchains prioritize decentralization and security, which can limit how many transactions they can process directly. Layer 2s address this by moving much of the transaction activity off the main chain, then periodically submitting proofs, transaction data, or net results back to L1.
In practice, users transact on the L2, which can confirm activity quickly because it does not require every L1 node to execute every step in real time. The L1 remains the source of truth: it anchors the L2’s state, enforces rules for withdrawals, and provides a dispute or verification mechanism depending on the design.
Common Layer 2 designs and examples
Two widely discussed approaches are rollups and payment channels. Rollups bundle many transactions together and post compressed data and proofs to the L1, aiming to keep fees lower while inheriting L1 security properties. Payment channels allow participants to exchange many updates off-chain and only settle opening and closing transactions on the base chain, which can be useful for repeated, small transfers.
A familiar real-world context is Ethereum, where multiple L2 networks are used to make activities like token swaps, NFT minting, or gaming interactions cheaper and faster, while still ultimately settling on Ethereum.
Layer 2 matters because it is a key path to scaling blockchains for mainstream usage, helping networks support more users and applications without sacrificing the trust guarantees that make public blockchains valuable.