Layer 1 and 2’s. What are they?

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Layer 1 and 2’s. What are they?

Background: Bitcoin and Ethereum are considered the OG cryptocurrencies. These are the base layers, or Layer 1s (L1s), which refer to the primary blockchain networks. These L1s are where the magic happens…. storing and processing all data for their respective networks.

Bitcoin and Ethereum Networks:

  • Bitcoin: Bitcoin primarily functions as a digital currency. The Bitcoin network's primary focus is on secure, decentralized transactions.
  • Ethereum: Ethereum, on the other hand, is a more complex blockchain platform that supports smart contracts and decentralized applications (DApps). ETH, short for Ether, is the native cryptocurrency of the Ethereum network and is used to power these applications.

Layer 1 Characteristics:

  • Bitcoin: The Bitcoin network is designed to be highly secure but can be slower in transaction speeds and have higher transaction fees during periods of high demand.
  • Ethereum: Ethereum enables fast transactions and supports a wide variety of decentralized applications. However, the network can become congested, leading to higher transaction fees, known as "Gas Fees." Users need to pay these fees in ETH to process transactions and use DApps on the Ethereum network.Subscribed

Layer 2 Solutions:

Layer 2 (L2) solutions are built on top of Layer 1 blockchains like Bitcoin and Ethereum. These solutions aim to enhance the performance of the base layer by improving transaction speed and reducing costs.

  • Bitcoin's Lightning Network: This is an example of a Layer 2 solution that allows for faster and cheaper transactions by processing them off the main Bitcoin blockchain and then settling them in batches.
  • Ethereum Layer 2 Solutions: Various L2 solutions for Ethereum include Optimistic Rollups, ZK-Rollups, and sidechains. These aim to reduce the load on the Ethereum mainnet by processing transactions off-chain or through different mechanisms, thereby reducing congestion and gas fees.

Why Use/Make a Layer 2 Token?

While Ethereum is fast and secure, it can become congested and expensive due to high demand. Layer 2 solutions help alleviate these issues by handling transactions off the main Ethereum chain, resulting in:

  • Faster Transactions: Reduced latency as transactions are processed on the L2 instead of the congested L1.
  • Cheaper Transactions: Lower fees since L2 solutions can process more transactions simultaneously and efficiently.

submitted by /u/Arrakeen_eth
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