The idea of Layer 2 is to build protocols or secondary infrastructure (e.g. the Lightning Network) that can interact with a fundamental base blockchain (Layer 1 e.g Bitcoin) but not be restricted by its scale limitations. This is where we make a clear distinction between on-chain (Layer 1) and off-chain (Layer 2).
Transactions described as being on-chain are processed entirely through the relevant blockchain’s consensus mechanism and recorded publicly onto the chain.
Bitcoin requires Proof of Work, which takes roughly 10 minutes to confirm a transaction, with six recommended for finality, so you can see why on-chain transactions cannot compete with the speed of Visa..
Transactions described as being off-chain are processed outside of the given blockchain network and its consensus mechanism, but at a later date are batched together and the aggregate activity is recorded as an on-chain transaction.
The beauty of layer 2 solutions is that the main chain doesn’t need to go through any structural change, or sacrifice either security or decentralisation in order to increase scalability.
For Bitcoin, the relevant Layer 2 application that can do this is called the Lighting Network.
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