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What are Layer 2 blockchains and why they matter for mass adoption

6 min read

Blockchain technology has revolutionized transactions by introducing a decentralized, secure, and transparent system to the world of finance. While Layer 1 (L1) blockchain networks like Ethereum, Solana, Avalanche, and Fantom were trailblazers of this revolution, they stumbled on the road to scalability and affordability. Ethereum’s mainnet is often cluttered, leading to a sluggish network and higher transaction fees. There’s an urgent need to address these limitations to drive the mainstream adoption of crypto, and Layer 2 (L2) blockchains are emerging as an effective solution.

L2 blockchains function as relief valves, which ease the load on the main blockchain, accelerate transactions and reduce costs. Think of them as highways constructed above the busy roads of the main blockchain, which alleviate congestion and enable smoother operations on a network. 

Gamechanging L2s like Arbitrum, Optimism, zkSync, and StarkNet are already succeeding in addressing these challenges. This article explores the potential of L2 solutions to drive blockchain adoption.

Understanding blockchain technology

Blockchain technology operates on the principle of decentralization, distributing data across multiple nodes or entities, which eliminates the need for a central authority. This approach creates a transparent and trustless system. Transactions group into blocks (hence the term blockchain) and, upon verification, are added to the blockchain through consensus mechanisms like Proof of Work (PoW) or Proof of Stake (PoS).   

Read more: A guide to blockchain consensus mechanisms

Layer 1 blockchain networks such as Bitcoin and Ethereum provide the foundation for consensus and execution, delivering robust security, immutability, and resistance to censorship. However, these networks face inherent limitations, most notably when it comes to scalability. Processing and validating every transaction on a single chain can often lead to network congestion and increased transaction fees. 

This is where L2 solutions come into play. Built on top of L1 blockchains, these networks enhance scalability and improve transaction throughput by processing some transactions off the main chain. This eases congestion, reduces fees, and enables faster and more cost-effective transactions while maintaining the robustness and security of the underlying L1 blockchain. 

By understanding the scalability challenges faced by L1 blockchains and the benefits of L2 solutions, we can overcome the challenges hindering mass adoption and unlock the full potential of blockchain technology.

How do Layer 2 solutions work?

In general, L2 solutions provide a platform for transactions and computations to occur outside the L1 blockchain. These off-chain transactions are then batched and periodically settled on the L1 chain, reducing the burden on the main chain. Broadly speaking, there are many types of Layer 2 solutions, but the most popular are optimistic rollups and zero-knowledge rollups (known as zk rollups). 

Optimistic rollups and zk rollups make use of a component known as a sequencer. This sequencer enhances efficiency through batch processing, grouping multiple off-chain transactions, and settling them on the L1 blockchain. This approach not only alleviates the computational load on the main chain but also cuts transaction costs by reducing the amount of on-chain data that requires processing and storage which allows for more affordable and efficient transactions.

By offloading transactions from L1s to off-chain processing, L2 blockchains can achieve significantly faster transaction speeds compared to L1 blockchains. This increased efficiency enables near-instantaneous transaction confirmations, thereby enhancing the user experience.

The role of sequencers in zk and optimistic rollups

While Ethereum L2 solutions can benefit from the security that often comes with L1s, their level of decentralization, on the other hand, falls under scrutiny. This is particularly true for rollup-based solutions like zk rollups and optimistic rollups, where sequencers play a pivotal role. These sequencers calculate transaction proofs, batch them, and subsequently relay them to an L1 blockchain. 

However, in what seems like a trade off, most - if not all - L2 sequencers currently exist as centralized entities, with development teams retaining control to mitigate risks and technical failures. This centralization raises valid concerns about the sequencers’ potential to manipulate transaction orders, censor certain transactions, or become unavailable. It’s crucial to address these concerns, since L2 solutions like Arbitrum, Optimism, zkSync, and StarkNet depend on centralized sequencers. For a deeper understanding of centralization in L2s, read Security of Ethereum Layer 2s.

Moving forward, these networks must adopt more decentralized models. For an in-depth understanding of these options, we suggest reading Alex Beckett’s article on three potential ways to decentralize rollup sequencers. This decentralization, in turn, facilitates staking, revenue sharing, and a more equitable network ownership structure. As L2 solutions evolve, the pursuit of decentralization remains pivotal in ensuring their long-term success and resilience.


L2 solutions are vital for tackling scalability, and reducing congestion and fees in L2 blockchain networks. However, the debate around L2 solutions, especially those with sequencers, is crucial, given the concerns about their true decentralization and security. Some go as far as to argue that networks must decentralize sequencers to foster a trustless system.

Ultimately, L2 solutions are essential for industry growth and widespread blockchain adoption. With advancing rollup technologies, development teams are focused on creating more decentralized models and equitable control distribution while supporting staking and revenue sharing. As such, understanding L2 solutions, their benefits, and operating mechanisms is key to shaping the future of blockchain.

DISCLAIMER: The content of this article does not constitute financial advice and is for informational purposes only. The price of digital assets can go down as well as up, and you may lose all of your capital. Investors should consult a professional advisor before making any investment decisions.


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