What is Layer 2 (L2)

A Layer 2 (L2) is a secondary blockchain or scaling solution built on top of a Layer 1 blockchain that increases transaction throughput and reduces fees by processing transactions off-chain — while inheriting the security and decentralisation of the underlying Layer 1 for final settlement. L2 solutions are the primary approach to solving the blockchain scalability trilemma without compromising L1 security. HOW LAYER 2 SECURITY WORKS The critical insight: L2 security comes from the L1. Even though transactions are processed off-chain by the L2 operator, the L1 enforces the rules. If an L2 operator tries to submit invalid state to the L1, the L1's verification mechanism (fraud proofs or validity proofs) will reject it. This means L2 users inherit Ethereum's security while paying a fraction of the cost. THE TWO MAIN L2 ARCHITECTURES Rollups: Bundle thousands of transactions into batches and post compressed data + proofs to Ethereum. The most important L2 architecture. Optimistic Rollups (Arbitrum, Optimism, Base): Assume transactions are valid, only run fraud proofs if challenged. 7-day challenge window before withdrawals finalise. ZK-Rollups (zkSync, Starknet, Polygon zkEVM, Scroll): Generate cryptographic validity proofs confirming all transactions are correct. Near-instant finality. State Channels: Two parties lock funds in a smart contract and transact off-chain indefinitely, only settling the final balance on-chain. Lightning Network (Bitcoin) is the leading example. Fastest and cheapest for frequent bilateral transactions. LEADING ETHEREUM L2S BY TVL (2025) Arbitrum: Largest Ethereum L2 by TVL. Optimistic rollup. ARB governance token. Base: Coinbase-built L2 on Optimism's stack. Fastest growing L2 in 2024. No native token. OP Mainnet: Optimism's flagship chain. OP token governance. The Superchain vision connects multiple OP Stack chains. zkSync Era: Leading ZK-Rollup by TVL and transactions. Starknet: Cairo-based ZK-Rollup with native account abstraction. BRIDGING TO L2 To use an L2, assets must be "bridged" — locked in an L1 smart contract and minted as equivalent tokens on the L2. Official bridges (Arbitrum Bridge, Optimism Bridge) provide the most secure path. Third-party bridges offer faster liquidity at higher risk.

Terms in addition to the Layer 2 (L2)

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.