Layer 2 blockchain is an important part of the Ethereum ecosystem. These are built to onboard new users and enable mass adoption of blockchain technology. But how does Layer 2 blockchain make this possible? And why are transactions cheaper and faster in L2? In this guide, we'll tell you all about Layer 2 scaling solutions.
What is layer 2 of blockchain?
Layer 2 definition
A Layer 2 network is a secondary blockchain that exists within another network known as Layer 1. It processes and executes transactions from the main chain and sends the results to the layer 1 chain.
Layer 2 blockchain is also called a layer 2 solution because it solves the scalability problem.
Why blockchain needs a layer 2 solution
Layer 1 blockchains like Ethereum have scalability limitations. To process more transactions per second (TPS) and reduce gas fees, you need a layer 2 blockchain.
It will also accelerate the adoption of cryptocurrencies and decentralized apps (dApps).
Relationship between layer 1 and layer 2
Layer 1 is the basic chain that provides security and consensus. Layer 2 processes thousands of transactions quickly and cheaply, but still relies on the Layer 1 blockchain to verify and finalize everything.
How does Layer 2 work?
Off-chain processing and on-chain payments
Layer 2 blockchain is compatible with Ethereum. Users can send and receive tokens and interact with smart contracts on the tokens. L2 is highly scalable because it uses a different mechanism to calculate and process transactions off-chain.
L2 then bundles the transactions and sends them to the base layer. This step varies depending on the type of Layer 2 solution being used. Some solutions send cryptographic proofs to the base layer. You may also assume that all transactions are valid.
Finally, L2 sends the data to L1 through the smart contract. The base layer resolves any disputes and adds valid transactions to the next block.
Security inherited from the base layer
Layer 2 solutions inherit security from Ethereum. Such solutions have smart contracts deployed at layer 1. The other L2 relies on the bridge to communicate. The smart contract receives the final balance and the state of the L2 network. The base layer then validates the submitted data through attestation or challenge mechanisms.
Because Layer 2 transactions occur off-chain, Ethereum's consensus mechanism and immutability make it the ultimate source of truth. Any proof of wrongdoing, proof of validity, or national commitment submitted by the L2 network is finally finalized at the base layer. This reduces malicious behavior that occurs on the L2 network.
Transaction speed and cost reduction
Transactions on L2 networks are fast and cheap. Such secondary networks are great for frequent traders. Transactions on the Layer 2 network go through a sequencer, so they are processed faster. A sequencer is a server or cluster of servers that processes transactions. They can be centralized or decentralized and operated by individuals, companies, or third-party operators.
Transactions in L2 networks are low-cost because the sequencer bundles transactions and sends them as a single transaction to the base layer. This approach significantly reduces gas charges by splitting the gas charges for a single baselayer transaction among L2 users.
Layer 2 solution types
Rollup (optimistic rollup, ZK rollup)
Rollups are a way to bundle hundreds of transactions on a Layer 2 network into a single transaction on Layer 1. There are two types of L2 rollups:
- optimistic rollup
- Zero-knowledge proof (ZK) rollup.
Both types bundle layer 2 transactions, but interact with the base layer differently.
optimistic rollup
Optimistic rollups perform transactions off-chain and send data to the base layer via calldata or blobs. This approach assumes that all transactions are valid, hence the name. Optimistic Rollup compresses transaction data before sending it to Ethereum to reduce costs.
Once an Ethereum smart contract receives transaction data, anyone can challenge this optimistic assumption using proof of fraud within a certain dispute period. Ethereum essentially takes an “innocent until proven guilty” approach when dealing with optimistic rollups.
This conflict window varies depending on the Layer 2 solution. And those who challenge this assumption are Ethereum participants known as validators or watchers.
Upon successful proof of fraud, Ethereum reverts to an invalid state and malicious sequencers are penalized by losing their staked ETH collateral. The correct state is then applied to the base layer.
If valid evidence of fraud is not provided during the dispute period, the series of transactions will be deemed valid and finalized on Ethereum.
ZK roll up
Zero-knowledge proof rollups (ZK rollups) work similarly to optimistic rollups. They execute thousands of transactions off-chain and send data to smart contracts that reside on the base layer. However, rather than assuming that all transactions are valid, ZK-Rollups proves that all transactions are valid before sending them to Ethereum. This is accomplished by generating a cryptographic proof, also known as a zero-knowledge proof, that mathematically verifies the correctness of the entire batch.
ZK Rollup relies on operators (aka provers or sequencers) to process transactions, generate proofs, and send them to Ethereum. Some rollups rely on centralized operators, while others use semi-distributed provers. Evidence is verified instantly, so there is no dispute period and users can access their funds immediately. Once the proof of validity is accepted by the Ethereum smart contract, the transaction data is added to the next verified block on the base layer.
state channel
State channels are another way to extend Ethereum. A single state channel allows two or more people to send and receive tokens quickly and cheaply, without on-chain payments. Once the transaction is finished, the final state and transaction summary can be sent to Ethereum.
State channels are peer-to-peer (p2p) and managed by multi-signature smart contracts. To open a state channel, peers must lock funds into smart contracts built on top of the base layer. Locked funds are collateral to ensure integrity and prevent disputes. All state changes are performed and verified by their peers. This approach reduces gas fees, calculations on Ethereum, and speeds up transactions.
In the event of a dispute between participants, the issue is resolved at the base layer and Ethereum consensus enforces the latest signature state.
State channels have some limitations. Peers must stay online and monitor the channel at all times. It is also not user-friendly and difficult to monitor multiple channels at the same time.
plasma chain
The plasma chain is a separate chain linked to the base layer, in this case called the root chain or parent chain. Plasma chains, also known as child chains, are managed by smart contracts deployed on the parent chain.
Plasma Chain processes and verifies transactions off-chain, reducing the verification load on Ethereum. Transactions are faster because they rely on one or more operators to organize and execute them. However, only the final state is periodically sent to Ethereum for security anchoring.
To utilize Plasma Chain, users must deposit Ether or ERC-20 tokens into a smart contract. The operator will create new tokens equivalent to the user's funds. To exit Plasma Chain, you must submit a withdrawal request. Your request will then be disputed through our fraud prevention features for approximately 7 days. If the challenge fails, your withdrawal request will be approved and executed. However, if the challenge is successful, the operator will be penalized.
Plasma chains appear to work like rollups, but with some limitations. The long exit queue from Plasma Chain to Ethereum faces a significant problem of data unavailability. This is because the Plasma Chain operator stores the data and sends it to Ethereum only periodically. Rollup, on the other hand, provides complete transaction data every time a user wishes to trade or withdraw funds.
Sidechain (and why it's different from true L2)
Sidechains are not layer 2 networks. However, they can help scale up Ethereum. These are separate blockchains that connect to Ethereum via a bridge. Sidechains have different block specifications and consensus mechanisms. They do not inherit Ethereum's security properties and do not post transaction data or state routes to Ethereum. This makes malicious attacks and centralization more likely.
To achieve high throughput, sidechains implement larger block sizes and higher gas limits. Powerful hardware is required to run larger blocks with fast processing times. This makes it difficult for everyone to run a full node, leading to centralization and malicious attacks.
The sidechain is EVM compatible and allows you to run Ethereum dApps with minimal changes. Sidechains interact with Ethereum through bridges, which are collections of smart contracts deployed on both chains. This bridge implements a mint and burn mechanism that allows users to enter sidechains, trade, and return to Ethereum.
Popular Layer 2 Projects in 2025
decision
Arbitrum is an L2 that uses Optimistic Rollups to process transactions off-chain and post them to Ethereum. It offers traders low fees while relying on the security of Ethereum.
Arbitrum supports Ethereum Virtual Machine (EVM), allowing developers to easily deploy smart contracts with minimal changes. L2 has a suite of products serving DeFi, gaming, and business dApps, including Arbitrum One, Arbitrum Nova, and Arbitrum Orbit.
The average gas cost per transaction in June 2025 ranged from $0.007 to $0.015. It costs an average of $0.30 to exchange a token, and transactions are completed within minutes.
optimism
Optimism is an Ethereum-compatible L2 that relies on Optimistic Rollups. Similar to Arbitrum, Optimism executes transactions off-chain and sends bundled data to Ethereum. L2 offers lower gas prices and higher TPS rates.
Optimism is built with a modular OP stack, allowing developers to easily deploy EVM smart contracts. As of 2025, Optimism Superchain has processed 2.47 billion transactions and secured approximately $3.4 billion in total value locked (TVL). The average block time of the network is 200ms.
zkSync era
zkSync Era is a layer 2 scaling solution for Ethereum and uses ZK rollups. This works in a similar way to Optimism and Arbitrum. However, this one is different and uses ZK rollup technology. zkSync processes transactions off-chain and proves their validity before sending them to Ethereum.
The average trading amount per day is zkSync It grew from 290,000 in Q4 2024 to 1.1 million in Q1 2025. Average fees also fell to $0.03 per trade in Q1 2025. Based on data collected from zkSync blockchain explorerthe network processed approximately 465 million transactions, with an average block time of 2-4 seconds.
stark net
StarkNet is an L2 that uses ZK rollups, or validity rollups, built on top of Ethereum. L2 uses STARK proofs to ensure that all off-chain transaction bundles are verified before settlement at the base layer.
In mid-2025, StarkNet reached Stage 1 decentralization, a milestone in the rollup network framework proposed by Vitalik Buterin. This means that the StarkNet rollup has crossed key technical and governance thresholds, bringing the network closer to full decentralization.
StarkNet supports Cairo-based smart contracts and native account abstraction. The average trading fee on StarkNet is very low, around $0.0013. The network recorded over 127 TPS in late 2024 with confirmation times of less than 2 seconds.
Polygon PoS and Polygon zkEVM
Polygon PoS is a high-throughput sidechain. It is EVM compatible and helps scale Ethereum. Sidechains use a dual-layer architecture and process transactions from the base chain. There are regular checkpoints to ensure payments and security on Ethereum. Polygon PoS has a transaction throughput of approximately 1,000 TPS and supports millions of users with gas fees of less than $0.01.
Polygon zkEVM is an L2 network. It is fully compatible with EVM and uses ZK-Proofs to validate transactions before posting them to Ethereum. As of 2025, Polygon zkEVM will process approximately 40-50 TPS, with peak capacity reaching over 200 TPS during testing. Average gas fees range from $0.02 to $0.05 per transaction, which is about 90% cheaper compared to Ethereum.
Advantages of Layer 2 Blockchain
Reduced transaction fees
One of the main advantages of layer 2 blockchains is low transaction fees. During the 2021 bull market, Ethereum charged users hundreds and even thousands of dollars due to network congestion. Layer 2 networks solve this problem by bundling transactions and splitting the cost of a single Ethereum transaction among many users, minimizing fees.
faster transaction speeds
Layer 2 networks provide near-instantaneous transactions because they rely on sequencers to quickly order and process transactions. On the other hand, Ethereum is a decentralized validator network, so it takes time to confirm transactions.
DeFi, NFT, and gaming scalability
Layer 2 blockchain provides an ideal playground for DeFi, NFTs, and gaming dApps to grow and gain mass adoption. Transaction fees are negligible, so sending and receiving coins, in-game items, and other types of NFTs is easy and nearly instantaneous.
Improved user experience
L2 networks provide a better user experience, especially for new users. These reduce latency, reduce entry costs, and simplify interactions with dApps. Users benefit from near-instantaneous transactions and smooth access to dApps without experiencing congestion compared to the base layer.
Layer 2 challenges and risks
Security prerequisites
Layer 2 networks inherit security from Ethereum, but introduce their own trust assumptions. Sequencers, bridges, and data availability layers can be critical points of failure. If invalid data is submitted or the proof challenge fails, operators may lose their ETH stake and users may lose funds or experience delays.
Bridging user experience and risk
Moving tokens between L1 and L2 or vice versa involves some risks. Complex UX or poor wallet integration can cause users to lose funds or experience delays, driving them away despite low fees and high throughput.
Concerns about centralization
L2 networks are technically centralized, as they rely on sequencers operated by selected validators. This can lead to censorship, downtime, and technical failures, reducing decentralization and user trust.
Regulatory uncertainty
L2 networks operate in a gray zone. Institutions are not currently adopting L2 networks due to unclear rules regarding storage, coin classification, and infrastructure.
Layer 2 vs. Layer 1: Key Differences
Payment and security
Layer 1 and Layer 2 networks operate differently in terms of payments and security. L1 directly settles transactions, while L2 relies on the base chain settlement layer. While L1 has full security through a consensus mechanism and a network of validators, L2's security relies on Layer 1.
Speed and throughput
Layer 1 and layer 2 blockchains have different speeds and throughput rates. Similar to Ethereum, L1 is limited to a few dozen transactions per second (approximately 10-15 TPS).
Because L2 networks process transactions off-chain, they handle hundreds or thousands of TPS.
Basically, L2 is faster than L1, making it ideal for real-time interactions with users and dApps.
Use cases and tradeoffs
L1 is ideal for high-value transactions where decentralization is important. For example, Ethereum is used by stablecoin issuers and institutional DeFi platforms such as Aave. L1 is also great for transferring NFTs like CryptoPunks and Pudgy Penguins since they are expensive items.
L2 is ideal for frequent, low-fee transactions such as microtransactions, gaming, and high-frequency trading. The tradeoff of L2 is faster and cheaper transactions, but less centralization and security.
The future of layer 2 scaling
Ethereum rollup-centered roadmap
Ethereum’s roadmap includes Dank Sharding and Protodunk Sharding.
In EIP-4844, protodunk sharding brings cheap BLOB data to L2, while dank sharding aims to scale Ethereum rollups to 100,000 TPS. This is possible by making L2 data abundant and cheap.
The main goal of the roadmap is to further reduce L2 gas prices while increasing throughput. Additionally, this upgrade will focus on L1 security and payment enhancements.
Interoperability between L2
Interoperability between L2s is a concept introduced by Optimism. A concept called superchain introduces seamless communication between OP stack L2 chains.
Superchains aim to eliminate siled rollups and unify security and governance across multiple L2s. This allows transactions to be moved between L2s via Cross-L2 Inboxes, bridging contracts, and standardized fault proofing.
It enables atomic cross-chain calls and consolidates gas tokens and liquidity across L2. For example, OP stack L2s such as Base, Mode, Zora Network, and Frax Tool can communicate to form a superchain.
Layer 3 solutions on the horizon
Layer 3 solutions are different from L2. Layer 2 is Ethereum's general-purpose scaling solution, while L3 deals with scaling dApps. L3 handles customized use cases such as games, enterprise apps, and privacy-focused rollups to reduce fees and scale transactions.
StarkNet's L3 app chain, zkSync's hyperchain, and Arbitrum Orbit are examples of L3 implementations. These solutions allow developers to leverage their own rollups while inheriting L2 security.
