Layer 2 refers to a protocol built on top of an existing blockchain, known as Layer 1 (L1), with the primary purpose of enhancing scalability and speed by trading off some security.

L2 solutions are particularly prominent in the Ethereum ecosystem, where high transaction fees and network congestion have driven the development of numerous scaling solutions.

There are several types of Layer 2 solutions, including state channels, sidechains, rollups, and plasma. Each has its own mechanism for interacting with the main blockchain to ensure transactions are secure while being processed more efficiently off-chain.

State Channels: These involve two parties engaging in numerous transactions off-chain, only settling the final state on-chain. This is similar to opening a tab at a bar and only settling the bill at the end.

Sidechains: These are separate blockchains that are connected to the main chain via a two-way peg, allowing assets to be securely moved between the main chain and the sidechain.

L2 Rollups: perform transaction execution outside the main chain but post transaction data on-chain. They come in two types: optimistic rollups and zk-rollups. Optimistic rollups assume transactions are valid by default and only run computations if a fraud proof is submitted. zk-Rollups, on the other hand, provide cryptographic proof (zero-knowledge proofs) of the validity of the transactions.

Plasma: Plasma is a framework for creating scalable “child” blockchains that use the main Ethereum chain for security.

Layer 2 solutions are designed to enhance the performance of Layer 1 blockchains by increasing transaction speeds, lowering fees, and making Layer 1 blockchains more efficient.

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