Blockchain’s rapid growth quickly necessitated a requirement to help scale the technology in a secure manner. So what are Layer 2 solutions and how do they work?

A critical, essential innovation which aids and enhances blockchain’s efficiency and ability to scale, Layer 2 solutions are built independently of and operate on top of existing Layer 1 blockchains.

The Different Ways Layer 2 Solutions Work and How They Help

By allowing transactions to be processed off-chain, Layer 2 tackles a number of limitations encountered by Layer 1.

Increased transaction volume, reduced costs (and the enablement of micro-transactions), improved user experience through faster transactions, and upholding security measures are all benefits of Layer 2.

Rolllups process data off-chain before then submitting a cryptographic proof on-chain. Multiple transactions are grouped together and submitted as a batch on the blockchain, rather than individually. There are different types of rollups, each with varying validation methods.

Sidechains are separate blockchains that run parallel to the main blockchain to which they are linked. This permits data and assets to be transferred between them, combating transaction speed and chain size limitations.

State channels enable multiple transactions to be done off-chain, settling the final state on the main blockchain, and Plasma blockchains allow a network of independent child chains to process transactions while periodically settling back to the main blockchain.

The descriptions provided above are all based on publicly available information, and as such cannot be considered as financial advice or encouragement to invest. Sources of information used in this article include bitcoin.org, ethereum.org and Investopedia. All transactions involving digital assets involve certain risks, which you should familiarize yourself with prior to any investment.