An independent blockchain acting in concert with Bitcoin, Ethereum or other major chain, which retroactively became known as "Layer 1 chains" or "main chains." Layer 2 chains process new transactions faster while reducing the load on Layer 1 and typically taking much lower fees.
A connection (channel, bridge, etc.) is opened between Layer 1 and Layer 2, and at periodic intervals, a summary of Layer 2 transactions is added to Layer 1 for a permanent record. A major consideration of Layer 2 chains is how transactions are validated before they are "cast in concrete" on the main chain. New Layer 2 solutions are being devised all the time, making this is a major topic in the crypto world. See blockchain
Although sidechains and Layer 2 chains are often considered synonymous, their only similarity is that they function as independent networks with an interface to Layer 1. Like a Layer 1 chain, a sidechain has its own validators and consensus method for adding blocks. This means it is viable only if a sufficient number of validators are on board and its consensus mechanism is secure. See sidechain
, consensus mechanism
and Polygon blockchain
Like sidechains, plasma chains have their own consensus algorithm and create blocks of transactions. Plasma provides a framework for building Layer 2 chains on Ethereum. At a fixed interval, a compressed representation of each block is committed to a smart contract on Ethereum.
State Channels (Payment Channels)
With state channels, crypto is deposited in a multi-signature smart contract on Layer 1, and a connection is opened between two parties. Payments are made on Layer 2, and when completed, a ticket is signed on Layer 1. State channels can be bi-directional and also handle another party if channels have previously been opened. Bitcoin's Layer 2 Lightning chain uses state channels (see Lightning Network
Rollups accumulate transactions, and at some interval, a summary of the transactions is "rolled up" into a cryptographic proof and stored on the main Layer 1 chain. Optimistic Rollups assume people are honest but transactions can be disputed (see Optimism
). Zero-Knowledge Rollups (ZK Rollups) provide proof without divulging every detail (see zero-knowledge proof
Layer 2 Solutions
As Bitcoin and Ethereum became more popular, Layer 2 chains were developed to handle thousands of small-value transactions and store them as summaries on the main chain. This also keeps Layer 1 chains from growing too large and cumbersome.