LeoGlossary: Layer 2

0 comments-0 reblogs
avatar of @leoglossary
LeoFinance Badge
a year ago - 2 minutes read

This refers to a secondary layer or protocol built on top of a blockchain. Most are designed to aid in the scaling of the ecosystem since blockchains tend to be rather limited in the number of transactions they can process.

It is especially true of Proof-of-Work (PoW) chains.

An example is Lightning Network, which is a Layer 2 solution for Bitcoin, enabling fast and less expensive transactions.

There is debate between what is built on the base layer and what should be pushed to layer 2. This is something that depends upon the chain. Smart contracts, for example, are regularly discussed in this manner. Ethereum opted to put them on the base layer. Other chains feel that it is better as layer 2.

The benefit of moving as much as possible to the second layer, especially smart contract, is this removes the need for every node to carry each one. Over time, this can make the data a node has to process enormous.

Layer 2 node systems could be formed similar to blockchains. These are often terms sidechains. The node system could use either centralized servers or be decentralized.

In addition to scaling, Layer 2 solutions can be implemented for:

  • privacy
  • efficiency
  • cost

Due to limitations with many blockchain databases, auxiliary repositories are required. Bitcoin, for example, is distributed ledger technology (DLT). This is consistent with blockchains. However, in this instance, the data is limited to a financial ledger similar to a bank. This will show debits and credits in the different wallets.

If, however, different types of data are to be stored, another layer is required.

Blockchain is designed to be the transaction layer to transfer value. Here is where the medium of exchange typically resides. Layer 2 enables other applications and games to utilize the account system of the base layer along with the monetization that comes from tokenization.


Posted Using LeoFinance Beta