Layer 2
A secondary framework or protocol built on top of a Layer 1 blockchain to improve scalability and reduce transaction costs. Examples include Lightning Network and Optimism.
Why It Matters
Layer 2 solutions are built on top of Layer 1 blockchains to improve scalability and transaction speed. They're important for addressing the limitations of the main blockchain, enhancing user experience and network efficiency.
Example
For example, the Lightning Network is a Layer 2 solution for Bitcoin, allowing faster transactions with lower fees. By operating as an additional layer, it alleviates congestion on the main Bitcoin blockchain.
Beginner Context
For those new to cryptocurrency, understanding Layer 2 is crucial for navigating networks as they can significantly enhance transaction capabilities. It’s particularly relevant as many popular networks face scaling challenges.
Mike Starr
Founder, CryptoWizardTools · M.S. Organizational Management
Last reviewed: August 2026
Related Terms
ICO
Initial Coin Offering. A fundraising method where new cryptocurrency projects sell tokens to early investors to raise capital for development.
Multi-Sig
Multi-Signature. A wallet security feature requiring multiple private keys to authorize a transaction, reducing the risk of unauthorized access.
Mainnet
The primary production blockchain network where actual transactions occur, as opposed to a testnet used for development and testing.
Total Value Locked
The combined value of all cryptocurrency assets deposited into a DeFi protocol at a given time. TVL is a key indicator of a protocol's size, usage, and popularity. A higher TVL generally signals greater trust and adoption.
Block
A collection of transactions bundled together and added to the blockchain. Each block contains a reference to the previous block, forming a chain.