What is Layer 2?

Token Takeaways ✍

✨ Ethereum has suffered from congestion issues and high fees as network adoption has grown.

✨ Many promising projects are building out “Layer 2” solutions on top of Ethereum’s “Layer 1” base chain to offer higher speeds and reduced costs. 

✨ Layer 2 could be key to unlocking mass token adoption on Ethereum. 

Ethereum has been one of the token universe’s greatest success stories. Since launching with a bold vision to create a decentralised version of the Internet in 2015, it’s become the world’s most widely used blockchain network. Ethereum pioneered smart contract technology, which has given rise to groundbreaking innovations like decentralised finance and NFTs. 

But while Ethereum has thrived as these spaces have boomed, its success has come at a cost. As Ethereum has grown in popularity, the network has become increasingly congested. ETH, Ethereum’s token for paying transaction fees, has also soared in value over recent years, making the network inaccessible to many people. That’s why the Ethereum community is so excited for Layer 2. 

What is Layer 2? 🤔

Layer 2 is a framework built on top of an existing base layer (or Layer 1) blockchain. In the Ethereum ecosystem, Layer 2 networks are individual blockchains that run on top of Ethereum. 

These solutions carry data away from Ethereum and reduce congestion while benefiting from the network’s high level of security. By carrying data onto a new network, they can offer higher speeds and reduced costs. And that’s a good thing for onboarding more users. 

Ethereum’s leading Layer 2 solutions are known as rollups as they can “roll up” many transactions at once on their networks. There are two types of rollups: ZK-Rollups and Optimistic Rollups. 

The future of Ethereum and Layer 2 🌌

Like Ethereum itself, the Layer 2 ecosystem is still in development. However, adoption has soared in recent months. 

Ethereum’s grand vision is to support multiple Layer 2 networks that each host decentralised applications in DeFi, NFTs, and other arenas. Ethereum inventor Vitalik Buterin has spoken at length about the important role Layer 2 will play in the network’s evolution. Most Ethereum transactions are processed on its Layer 1 base chain today. But with several scaling networks building on top of Ethereum, that could change in the future. 

Vitalik Buterin has long discussed the importance of Layer 2 technology in helping Ethereum fulfil its scaling ambitions (Source: Lionel Ng/Bloomberg)

Many Ethereum advocates believe that Layer 2 could be the key to unlocking mass token adoption. If they’re right, it’s possible that Ethereum could hit 1 billion users in the future. 

token.com is a supporter of Ethereum and its Layer 2 ecosystem, which is why we curated a Collection featuring core projects like Optimism, StarkNet, and Polygon. Titled Ethereum’s Mass Adoption Mission, the Collection highlights the scaling projects that are bringing the token ecosystem closer to mass adoption. 

Layer 2 is likely to play an important role in Ethereum’s—and by extension, the token universe’s—future. With our Ethereum’s Mass Adoption Mission Collection, you can learn all about it and stay ahead of the trend while the space is in its infancy. Explore our Collection today, and you’ll be ready for when Ethereum heads towards mass adoption in the coming years.

Please note: Investing in cryptoassets is risky. Due to the volatile nature of the cryptocurrency market, investors run the risk of losing their funds when they make an investment. Returns from cryptoasset investing are not guaranteed, therefore users should always be aware of the risks.