Ever paid more in gas fees than the value of your actual transaction? That pain is exactly what Layer 2 networks aim to fix.
Layer 2 (L2) solutions scale blockchains like Ethereum and Bitcoin by moving most activity off the main chain, then settling results back in highly compressed batches. You keep the security of a major Layer 1 (L1) network, but get cheaper, faster transactions and room for many more users.
This guide explains what Layer 2 is, how it works, the main types (Optimistic and ZK rollups, channels, etc.), and the trade-offs to understand before you bridge your assets.
What Is a Layer 2?
A Layer 2 network is a separate blockchain or protocol that sits on top of a base chain (Layer 1) and relies on that base layer for security and final settlement.
- Layer 1 (e.g., Ethereum, Bitcoin) records the core state and secures it with proof-of-work or proof-of-stake.
- Layer 2 handles thousands of transactions per second off the main chain, then periodically posts “blobs” of compressed data or proofs back to Layer 1.
You can think of it as an express lane. L2s let you:
- Send transactions with sub-second finality
- Pay a fraction of the usual gas fees – often less than $0.01
- Run dApps without congesting the base network
By late 2025, the landscape is dominated by networks like Arbitrum and Optimism, as well as “Superchains” like Base (backed by Coinbase), zkSync Era, and the high-performance Starknet. On Bitcoin, the Lightning Network and new “Bitcoin-native” L2s like Stacks have expanded the network’s utility.
Why Do We Need Layer 2?
Most major blockchains trade off speed for decentralisation and security. Ethereum, for example, can handle only about 15-30 transactions per second on Layer 1. As demand grows, users compete for block space and fees spike.
Layer 2 networks target three core problems:
- High fees – L1 gas costs can price out smaller users and businesses
- Limited throughput – only so many transactions fit into each block.
- User experience – waiting minutes for confirmation is painful for everyday payments or gaming.
Following the 2024–2025 “Dencun” and “Pectra” upgrades, Layer 1 now acts as a secure “data vault,” while Layer 2 has become the primary execution layer for 90% of all user activity.
How Layer 2 Works (High-Level)
Implementation details vary, but most Layer 2s follow a similar pattern.
You first move funds from the main chain (Layer 1) into a smart contract or bridge connected to the Layer 2 network. Once there, your transactions happen on the faster, cheaper L2, where they’re processed in bulk instead of one by one on L1.
Periodically, the L2 sends transaction data or validity proofs back to Layer 1 for final settlement, so security still anchors in the base chain.
When you’re done, you can withdraw assets back to L1 through the bridge, closing the loop between scalability and decentralization.
You move funds to Layer 2
You bridge Ethereum (ETH) or tokens from the L1 chain to the L2 contract. On L1, funds lock in a smart contract; on L2, you receive a corresponding balance.
Transactions happen on the L2
Trades, swaps, mints, and transfers occur on the Layer 2 network. These are cheap and fast because the L2 doesn’t store every byte of data directly on L1.
The L2 batches or proves transactions
The Layer 2 periodically sends:
- A batch of transaction data, and/or
- A cryptographic proof that all those transactions were valid to the base chain for final settlement.
Layer 1 finalizes state
Once the batch or proof is accepted on L1, the new state (balances, positions) becomes final. Security ultimately derives from the consensus and security of the base chain.
You withdraw back to Layer 1 (optional)
When you want to leave, you submit a withdrawal request on L2 and, after the protocol’s delay or proof cycle, receive your funds back on L1.
The main differences between L2 designs lie in how they prove data validity and how much data they store on-chain.
Main Types of Layer 2 Solutions
1. Optimistic Rollups
Optimistic rollups assume that transactions are valid by default and only run heavy verification if someone submits a challenge.
They bundle thousands of Layer 2 transactions into a single batch, compress the data, and post that batch to the Layer 1 chain along with a period during which anyone can submit a fraud proof if they detect something wrong.
Networks like Arbitrum One, Optimism, and Base follow this model, which makes them feel very close to using Ethereum itself, just faster and cheaper.
The big advantages of optimistic rollups lie in their maturity and compatibility. Their ecosystems are relatively advanced, with many familiar Decentralized Finance (DeFi), Non-Fungible Token (NFT), and infrastructure projects already deployed.
Because they are highly EVM-compatible (Ethereum Virtual Machine), developers can usually port Ethereum Decentralized Applications (dApps) with minimal changes, and users interact with them almost exactly as they would on mainnet—just with lower gas fees and higher throughput.
The main downside is the withdrawal delay. When you withdraw funds from an optimistic rollup back to Layer 1, you often wait around seven days while the system leaves time for potential fraud proofs. This is a trade-off for security via challenge periods.
On top of that, the protocol logic around disputes and challenge games is more complex, which increases the surface for implementation bugs compared with simpler designs.
2. ZK Rollups (Zero-Knowledge Rollups)
ZK rollups use cryptographic validity proofs to show that a batch of transactions is correct. Instead of assuming everything is fine until challenged, they generate a succinct proof that mathematically guarantees all included transactions followed the rules.
The same zero-knowledge technology can also hide certain details (like amounts or counterparties), so some ZK-based systems are able to offer stronger privacy on top of scalability—though many current ZK rollups still publish transaction data publicly and use proofs mainly for security and efficiency, not full anonymity.
The rollup then posts this proof plus minimal transaction data to the Layer 1 chain, which verifies the proof quickly without replaying the entire batch. Examples include zkSync Era, Starknet, Scroll, and Linea.
The strengths of ZK rollups focus on security and speed. If the proof verifies on Layer 1, the batch is valid by design, which removes the need for long fraud-proof windows. This allows faster finality and usually much shorter withdrawal times back to the base chain.
ZK rollups also offer powerful data compression over time, which can support very efficient use of Layer 1 block space and potentially lower fees as the technology and tooling improve.
The trade-off is complexity. Generating zero-knowledge proofs is technically demanding and computationally heavy, which makes these systems harder to implement and optimise.
Some ZK Layer 2 ecosystems are still catching up in terms of developer tools, documentation, and dApp variety. EVM compatibility can also be trickier—some ZK L2s emulate the EVM closely, while others use different virtual machines and require more work to port existing Ethereum applications.
3. State Channels and Payment Channels
State channels lock a chunk of funds on-chain and then move most activity off-chain. Two or more participants open a channel by depositing funds into a smart contract or base-layer transaction.
Once the channel is open, they exchange signed messages that update the channel’s state (for example, “Alice now has 3, Bob has 7”) without touching the blockchain each time.
Only the final agreed state—or a disputed state—needs to settle back on Layer 1. The Bitcoin Lightning Network is the most famous example of payment channels used at scale.
The main benefit of state and payment channels is speed and cost. Once a channel is open, transactions between participants are almost instant and extremely cheap, which makes them ideal for high-frequency, low-value payments such as streaming micro-payments, tipping, or repeated trades between a small group.
Because most updates stay off-chain, they also reduce congestion and fee pressure on the underlying blockchain.
However, channels come with limitations. They work best for repeated interactions between a relatively small set of parties and are harder to generalise to complex, many-to-many dApps. Opening and closing channels still require on-chain transactions, which adds friction.
For multi-hop routing (like in Lightning), users depend on liquidity being available across the network, and UX can suffer if routes fail or capacity is misaligned. These factors make channels powerful for specific payment use cases but less flexible than rollups for general-purpose computation.
4. Plasma and Sidechains (Honourable Mentions)
Plasma was an early Ethereum scaling approach that moved most computation off-chain while anchoring certain data and commitments to Layer 1. Users interacted with child chains, and the system relied on exit games and fraud proofs for security.
In practice, many of the earliest Plasma designs ran into usability and complexity challenges—especially around exits and data availability—so much of the ecosystem shifted toward rollup-based designs instead.
Sidechains, such as the older Polygon PoS chain or Gnosis Chain, run in parallel to Ethereum with their own validator sets and consensus mechanisms. They bridge to Ethereum but do not inherit Ethereum’s security in the same way rollups do. Instead, they rely on their own trust and security assumptions.
This makes sidechains useful for lowering fees and increasing throughput, especially for gaming or high-volume dApps, but they are better classified as separate Layer 1s that connect to Ethereum rather than true Layer 2 networks.
In short, Plasma and sidechains played important roles in the evolution of scaling, but today the main Layer 2 conversation tends to focus on rollups (optimistic and ZK), with channels filling specialised payment niches.
What Are The Benefits of Layer 2
1. Lower Fees
By batching many transactions and optimising data, Layer 2 networks cut per-transaction costs significantly compared with sending the same action on L1. Users often see fees drop from several dollars to cents or less, depending on network conditions.
2. Higher Throughput
More transactions fit into each rollup batch or off-chain update. That allows thousands of operations per second across the L2 environment, while the base chain only sees compressed summaries.
3. Better User Experience
Faster confirmations and cheaper transactions make:
- Small trades
- On-chain gaming
- Micro-payments
- NFT mints
much more practical. For many users, a well-designed L2 app feels closer to a web app than a congested on-chain Decentralized Exchange (DEX).
4. Security Anchored to Layer 1
The biggest selling point: rollup-style Layer 2s inherit security from a battle-tested base chain. Ethereum L2s use the Ethereum mainnet as the final arbiter of which transactions are valid, rather than relying solely on their own independent validators.
Risks and Trade-Offs of Layer 2
Layer 2 is not magic. It introduces new risks you should understand before bridging assets.
1. Smart-Contract and Protocol Risk
L2 systems rely on sophisticated smart contracts and off-chain infrastructure. Bugs in the rollup contracts, bridge contracts, proof or fraud-verification circuits can put funds at risk. While many L2s undergo audits and formal verification, no code is risk-free.
2. Operator and Centralisation Risk
Early-stage L2s often start more centralised:
- Upgrade keys controlled by a small team or multisig
- Whitelisted sequencers or provers
- Emergency “pause” or admin functions
Over time, many teams aim to decentralise these roles, but at any given moment you should check:
- Who can upgrade contracts?
- Who runs sequencers or provers?
- What happens if that entity goes offline or is compromised?
3. Bridge Risk
To move assets onto an L2, you typically lock them in a bridge contract on L1. Bridges have historically been attractive targets for hacks because they hold large amounts of value. If a bridge fails, your L2 claims can become worthless, even if the base chain is fine.
4. UX and Withdrawal Delays
Optimistic rollups often require a delay (for example about 7 days) for withdrawals back to Layer 1 so users can submit fraud proofs. Many bridges and liquidity providers offer “fast exits,” but these add extra counterparty risk.
Popular Layer 2 Ecosystems
A few Layer 2 ecosystems have emerged as major hubs:
- Arbitrum One & Nova – Optimistic rollups with strong DeFi and gaming presence.
- Optimism & OP Stack chains (e.g., Base) – Optimistic rollups plus an open-source stack for building new L2s.
- zkSync Era & Starknet – ZK rollups focused on scalability and zero-knowledge proofs.
- Bitcoin Lightning Network – Payment-channel-based Layer 2 for low-cost BTC payments.
Each has its own trade-offs in speed, security assumptions, and ecosystem maturity.
How to Use a Layer 2 Safely
If you want to start using a Layer 2, a simple process looks like this:
Choose a reputable L2
Start by picking a well-established Layer 2 network rather than chasing the newest, least-tested chain. Check whether it has clear documentation, public audits, and a transparent team or foundation behind it.
Look at which wallets, bridges, and major dApps support it—if leading Decentralized Finance (DeFi) protocols and trusted infrastructure providers are integrated, that’s usually a good sign. Avoid chains where it’s hard to find technical details, the team is fully opaque, or everything relies on hype and airdrop farming.
Bridge a small test amount first
Before you move serious funds, send a small test transaction through the official bridge or a widely trusted third-party bridge linked from the project’s site. Confirm that the assets show up on the Layer 2 in the right token format and that you can see and move them in your wallet.
Only after that should you bridge larger amounts. This step protects you from simple mistakes like wrong networks, fake bridge URLs, or misconfigured wallets.
Use supported wallets and dApps
Add the Layer 2 network to your wallet using the official documentation or one-click prompts on the project’s website, not from random threads or DMs. Make sure you’re using well-known wallets that explicitly support that L2 (e.g. MetaMask with the correct Remote Procedure Call (RPC), or a native L2 wallet).
When you interact with dApps, stick to verified links from the L2’s ecosystem page or trusted aggregators. Avoid connecting your wallet to unknown sites or pasting contract addresses you can’t independently confirm.
Watch fees and congestion
Layer 2s are cheaper than mainnet, but they’re not immune to congestion. During big NFT mints, airdrops, or popular token launches, gas fees and confirmation times can spike.
Keep an eye on the network status dashboard if one is available, and double-check gas settings before submitting a transaction—especially if you’re doing anything time-sensitive like liquidations or bridging. If fees suddenly explode, it might be better to wait than to rush and overpay.
Plan your exits
Before you move significant value onto an L2, understand exactly how to get it back off. Learn how the native withdrawal mechanism works, how long withdrawals take, and what risks are involved.
Optimistic rollups, for example, often have a multi-day withdrawal period back to Layer 1. If you think you may need faster exits, explore reputable “fast bridge” options—but recognize that they add another layer of counterparty and smart-contract risk. The goal is to avoid being surprised by delays or liquidity issues when you’re under pressure to move funds.
Are Layer 2 Networks Right for You?
Layer 2 makes the most sense if you actually use your crypto. If you swap in DeFi, mint or trade NFTs, or send/receive crypto often, moving that activity to a Layer 2 lets you do the same things for a fraction of the gas and with faster confirmations.
If you mostly keep assets in cold storage, rarely transact, or only hold a small amount, Layer 2 matters less—simplicity and security on Layer 1 are usually enough.
For businesses and builders, Layer 2 is what makes high-frequency on-chain activity realistic. You can run dApps, games, loyalty programs, and payment flows where users click and transact often without paying several dollars in fees each time.
Most serious users and institutions end up with a mix: core reserves and “final settlement” on Layer 1, daily activity on Layer 2, and larger treasuries in institutional-grade custody. The point isn’t to pick one chain forever, but to match each use case with the speed, cost, and security it actually needs.
Layer 2 as the Practical Scaling Path
Layer 2 has moved from experiment to core infrastructure. Rollups, channels, and similar solutions let blockchains handle many more users without giving up the security guarantees that make public chains valuable in the first place.
If you’re a regular user, understanding Layer 2 helps you save on fees and enjoy a smoother DeFi or NFT experience. If you’re a builder or business, it opens the door to products and transaction flows that simply aren’t viable on a congested base chain—microtransactions, high-frequency trading, or consumer-grade apps that need low-friction User Experience (UX).
Behind the scenes, serious platforms increasingly rely on infrastructure providers like ChainUp for secure wallet management, compliance tooling, and connectivity across hot, warm, and cold environments. That backbone lets users enjoy the speed and cost benefits of Layer 2 while institutions keep security, governance, and risk management under tight control.
Use Layer 2 to trade, build, or play more efficiently—but stay clear on how each network works, where its risks lie, and how it fits into your overall crypto strategy.
And if you’re designing an exchange, fintech app, or institutional product that needs secure Layer 2 integration plus robust wallet and custody infrastructure, talk to ChainUp about an MPC-powered, institution-grade stack that’s built for scale.
