Layer 2 denotes a group of technologies atop an established blockchain, referred to as Layer 1, that increase scalability, decrease costs, and attract more users. Rather than executing every transaction directly on the primary blockchain, Layer 2 solutions transfer a large part of the activity to a secondary chain, which, however, still relies on the primary chain for its security and final settlement.
Ethereum and other similar blockchains are highly secure and fully decentralized, but they may become slow and costly during the times of heavy usage. The introduction of Layer 2 technology was to address such concerns. By processing transactions only up to the point of giving a little summary to the main chain, Layer 2 mechanisms greatly diminish the congestion and, consequently, the costs of transaction fees.
The most popular Layer 2 solutions are rollups (Optimistic Rollups and ZK-Rollups, for instance), payment channels, and sidechain-like systems. These technologies enable users to perform trading, send money, or use services of applications at a much faster rate than if on Layer 1 alone.
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It should be noted that Layer 2 is not a replacement for the primary blockchain, but it coexists with it and relies on the latter as the ultimate authority. Thus, transactions are made safe, and at the same time the effectiveness is increased.
To put it simply, Layer 2 is the scaling layer for blockchains that can facilitate their growth. It turns crypto into a cheaper and quicker way of using money and thereby brings decentralized networks’ everyday adoption closer to the real world.