What is Layer2 Blockchain

Layer 2 blockchain, often referred to as a "Layer 2 solution," is a term used in the context of blockchain technology to describe a secondary framework or protocol that is built on top of an existing blockchain system (the "Layer 1" blockchain). The primary purpose of Layer 2 blockchains is to enhance the scalability, speed, and efficiency of the underlying Layer 1 blockchain without compromising its security or decentralization. This is achieved by handling transactions off the main chain (Layer 1) and then recording them collectively to the main blockchain, effectively reducing congestion and increasing transaction throughput.

There are several types of Layer 2 solutions, including but not limited to:

  1. State Channels: These involve the creation of private channels between two or more parties where transactions can occur off-chain and the final state is then settled on-chain. Lightning Network for Bitcoin and Raiden Network for Ethereum are examples of state channels.

  2. Sidechains: These are separate blockchains that are attached to the main blockchain via a two-way peg. They operate independently and can have their own consensus mechanisms but are secured by the main chain. This allows for experimental development and scalability solutions.

  3. Plasma: Plasma is a framework for building scalable applications by creating child blockchains anchored to the main Ethereum blockchain. It allows for the creation of an unlimited number of child chains, each of which can execute its own smart contracts and handle transactions independently.

  4. Rollups: Rollups perform transaction execution outside the main chain (off-chain) but post transaction data on-chain. There are two main types of rollups: Zero-Knowledge Rollups (ZK-Rollups), which use cryptographic proofs to validate transactions, and Optimistic Rollups, which assume transactions are valid by default and only run computations in the case of disputes.

COST EFFICIENCY: Transaction fees on Layer 1 blockchains can become prohibitively expensive, especially for microtransactions or everyday use. ENVIRONMENTAL IMPACT: The energy consumption of some Layer 1 blockchain has raised concerns about their environmental impact. SMART CONTRACT PROCESSING: Layer 1 blockchains may experience bottlenecks when processing complex smart contracts, affecting the user experience.

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