What Is Layer 2?
Layer 2 refers to a scaling solution that facilitates high throughput of transactions while maintaining the security of the underlying blockchain it is built on.
A Look at Transaction Capacity and Fees
Blockchain networks like Ethereum have gained popularity due to their programmability (smart contracts) and resistance to censorship, enabling a wide range of products and use cases.
However, Ethereum’s transaction processing capacity is limited to 7 to 11 transactions per second, significantly lower than the Visa network‘s capacity of over 20,000 transactions per second.
As the Ethereum blockchain becomes congested, users compete to have their transactions processed quickly, leading to a bidding war for block space and soaring transaction fees.
At certain points in 2021, the cost of sending a token on the Ethereum network exceeded $80.
Exploring Zero-Knowledge Rollups
To address this bottleneck issue, layer 2 solutions have been introduced to alleviate the pressure on Ethereum.
Layer 2 solutions abstract transactions from the underlying blockchain, enabling the processing of thousands of transactions per second.