How Layer 2 Blockchain Fits Into Crypto and Why It's Important

Have you heard about a layer 2 blockchain? Here’s what that means in the world of crypto and why it matters. It's important to understand blockchain technology.

Rachel Curry - Author

Apr. 26 2022, Published 2:40 p.m. ET

When it comes to cryptocurrency, jargon acts as a major gatekeeper. Once you get past the noise, understanding blockchain technology as a whole becomes much easier. One of the terms you may be unfamiliar with is “layer 2 blockchain.”

Article continues below advertisement
Article continues below advertisement

What is a layer 2 blockchain, and how does it differ from a layer 1 blockchain? Here’s an explanation, plus an example of a recent layer 2 blockchain development.

GuardianLink announces layer 2 blockchain without gas fees.

Source: LinkedIn

GuardianLink co-founder and CEO Ramkumar Subramaniam

On April 25, decentralized NFT protocol GuardianLink announced that it’s launching a layer 2 chain for its NFT marketplace. The layer 2 protocol will operate on top of GuardianLink’s existing Omni blockchain protocol, which communicates with different Ethereum-linked blockchains.

Article continues below advertisement

Layer 2 will reportedly eliminate gas fees, which are a major hurdle in NFT investing. High gas fees deter some investors from dabbling in NFTs or other crypto transactions, and GuardianLink’s latest development could dissolve this obstacle.

What is layer 2 blockchain?

Layer 2 blockchains are exactly what they sound like — a second layer on top of an existing blockchain. Typically, these layer 2 protocols operate on top of Bitcoin or Ethereum, although other blockchains may be involved. When developers want to make some sort of functional change to a blockchain, they will create a layer 2.

Article continues below advertisement
Article continues below advertisement

Layer 2 protocols usually address issues like block size, transaction speed, efficiency, security, and fees.

Ethereum is in the midst of a long transition to a PoS (proof of stake) consensus, which is more energy-efficient than the previous PoW (proof of work) mechanism. During the merging process, Ethereum is utilizing layer 2 to test new frameworks and ensure suitability for the mainnet. Ethereum said, “A layer 2 is [a] separate blockchain that extends Ethereum and inherits the security guarantees of Ethereum.”

Article continues below advertisement

There are differences between layer 1 and layer 2 blockchain.

Think of a layer 1 blockchain as the base network. It’s a foundational element of any blockchain. Without layer 1, there wouldn't be a blockchain to speak of.

Article continues below advertisement

Layer 2 networks build on top of these foundations. Layer 2 changes certain elements of layer 1. However, the two operate in tandem. Data from layer 2 may be baked into layer 1, so the transaction data is publicly available on the original ledger. Layer 2 connects with the mainnet via a “bridge,” which allows assets to travel between blockchains.

Article continues below advertisement

Layer 2 blockchains are important — here's why.

Blockchain is a quickly evolving sector of technology. With this comes increased usage and an even stronger emphasis on decentralization, security, and scalability. Layer 2 protocols help keep blockchain up to date and allow it to keep up with a changing world while the foundational mainnet remains intact.

On April 21, Ethereum announced a layer 2 called "Scroll." The chain serves as a scaling solution and helps expand the limitations of the blockchain.

Polygon is one of the most popular layer 2 solutions and has already surpassed 1 billion transactions. Rooted in the Plasma coding language, Polygon provides a framework for building off-chain decentralized apps.


Latest Cryptocurrency & Blockchain News and Updates

    Opt-out of personalized ads

    © Copyright 2024 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.