What is Layer 2?

Layer 2 is a term used in blockchain networks to scale and enhance performance. While the first layer (Layer 1) includes the fundamental blockchain protocol, the second layer (Layer 2) utilizes various solutions to increase the network's capacity. This results in faster transactions, lower fees, and overall improvements in network efficiency.

Layer 2 solutions typically work by either adding an additional layer to the network or operating outside the network. A series of transactions occur on Layer 2 before returning to the main blockchain, reducing the load on the network and enabling faster and more cost-effective transactions.
Some Layer 2 solutions include:

1. Sidechains: Private blockchains that operate outside the main blockchain, such as Polygon (formerly Matic) as a sidechain for Ethereum.
2. Plasma: A Layer 2 solution based on Ethereum designed to reduce the network load.
3. State Channels: Channels established directly between two users, allowing them to conduct a series of transactions. Lightning Network is an example for Bitcoin.
4. Rollups: Solutions that process data securely at regular intervals and submit it to the main blockchain. Optimistic Rollups and zk-Rollups are examples.
5. Optimistic Virtual Machine (OVM): Solutions like Optimistic Ethereum running on Ethereum, which execute transactions on Layer 2.

These solutions aim to improve the performance and scalability of the main blockchain. However, each has its own advantages and disadvantages, so the choice of solution depends on the project's needs and goals.