Blockchain was never meant to stay small. From the outset, the goal was to create networks that anyone could utilize without relying on banks or governments. That vision has been successful, but only to a certain extent. As more people have joined in, the limits of blockchain technology have become obvious. Transactions can be slow, fees climb during busy periods, and developers face hurdles when trying to build apps on top of major chains like Bitcoin and Ethereum.
This is where Layer 2 scaling solutions come in. They promise to make blockchains faster, cheaper, and easier to use while keeping their security intact. To understand why they matter so much right now, it helps to examine the problems they solve and how they are already transforming the crypto space.
Why Scaling Matters
The main issue with blockchains is that they don’t scale well. Bitcoin, for example, handles about three to seven transactions per second. Ethereum does a little better, but it still slows down when demand spikes. Compare that to MasterCard, which can do around 5,000 transactions, or Visa, which can process more than 65,000 transactions per second, and you see why developers have spent years working on solutions.
Instead of replacing the base chain, Layer 2 solutions add a new layer built on top of it. These systems process transactions away from the main chain, then feed the results back later. That way, the main blockchain doesn’t get overloaded, but it still secures the data. This approach is gaining traction quickly. Projects like BTC Hyper, which build on Bitcoin with faster settlement and smart contract support, highlight how Layer 2 can push old networks into new territory without rewriting their foundations.
Layer 1 versus Layer 2
Before we delve into the various types of Layer 2, let’s clarify what we mean by these terms. A “Layer 1” change would be a change to the protocol layer itself. For instance, Ethereum’s transition from proof-of-work to proof-of-stake is a Layer 1 change (as is Bitcoin’s addition of SegWit in 2017). These changes have the potential to improve functionality and performance, but any substantive changes to protocols are both difficult to make and often disagreeable.
Layer 2 changes do not modify the main chain, but rather work in relation to an existing chain. You could think of it as a service road around a very busy highway. The highway is still present, and cars that do not need to occupy the main travel lanes have a better way to reach their destination. With vehicles off the highway, there is less congestion, but it does not change the safety and flow of the highway trip itself.
Types of Layer 2 Solutions
Various projects address scaling in different fashions, but most often fit into a few broad categories.
Payment Channels
The Lightning Network on Bitcoin is one of the first and most well-known examples of this technology. It allows users to open channels between themselves for many transactions. Instead of announcing every little payment on Bitcoin’s main chain, only the result of the transaction will settle on the chain. This setup allows for payments that are almost instant and incredibly cheap. For small transactions, such as tips or small online purchases, Lightning can do things that the main Bitcoin chain cannot.
Rollups
Rollups aggregate many transactions together, submitting them as one transaction to the base chain. Recently, this has been a very popular strategy for scaling on Ethereum, where projects such as Arbitrum and Optimism have become key components of the DeFi ecosystem. However, there are still two types of rollups that can be recognized: optimistic and non-optimistic (which are also known as zero-knowledge, or ZK) rollups.
Optimistic rollups assume transactions are valid unless proven otherwise. Optimistic rollups rely primarily on a system of fraud proofs to deal with bad actors in the system. Non-optimistic, or zero-knowledge, rollups use cryptographic proofs to verify the validity of all transactions in aggregate, while not revealing the details of each transaction. Generally, ZK-rollups are considered faster and more secure than optimistic rollups, but they require more complex development than optimistic rollups.
Sidechains and Parachains
A sidechain is a separate blockchain linked to the main chain. The Liquid Network, built on Bitcoin, is a good example of a sidechain. A sidechain may run much faster than a base chain, as it doesn’t rely on the previous global consensus of the main chain. However, it does depend on the consensus of its own validators, which reduces its inherent security by not adopting the main chain’s level of validity.
Parachains (popularized by Polkadot) are an example of blockchains that can operate in parallel while all running on top of a main chain, or relay chain. Parachains share a common security layer (the relay chain), but can also work in parallel while specializing in various use cases. This allows for more throughput, flexibility, and usage, but is still intermixed with a set layer of complexity in the architecture and implementation.
Plasma
Ethereum researchers developed plasma as a way to use smaller chains (child chains) to separate transactions and offload them to the main chain. Although it is not as popular compared to other scaling solutions and approaches at this time, it was the first major effort to explore how Layer 2 (smaller, parallel chains) could scale and provide an example of scaling features.
Bitcoin and Layer 2
Bitcoin’s conservative philosophy towards change makes Layer 2 particularly relevant. The primary chain prioritizes stability and security over all else and provides few options for upgrades. Lightning has gained the most visibility, providing a fast payment solution and cross-chain swaps. As projects like Bitcoin Hyper illustrate, some in the developer community are willing to rethink Bitcoin’s role.
The new Bitcoin Hyper project isn’t simply about speed. Bringing smart contract capabilities with the Solana Virtual Machine introduces Bitcoin to DeFi applications, lending programs, and so on. This matters because Bitcoin has historically been framed as a value transfer mechanism. If Layer 2 solutions of this nature gain traction, Bitcoin can potentially compete with established programmable finance networks.
Ethereum and Layer 2
Ethereum’s demand is massive, and gas fees have often been painful for users. That’s why most of the major Layer 2 innovations have been tested on Ethereum first.
Arbitrum and Optimism, both optimistic rollup systems, have attracted billions in total value locked, with many DeFi protocols now offering their services on these networks. Polygon, once known as Matic, has become a hub for scaling with multiple solutions, including a proof-of-stake sidechain, ZK-rollups, and its new zkEVM.
StarkWare, another major player, has developed StarkNet and StarkEx, which rely on advanced cryptography to secure transactions. These platforms have already been used in projects like Immutable and dYdX, proving that real applications can run smoothly at scale.
How Layer 2 Changes User Experience
For users in the everyday world, the difference Layer 2 makes is pretty simple: faster and cheaper transactions. To send Bitcoin or Ethereum on the base chain can take minutes and cost several dollars, sometimes even much more. When using Layer 2, the payment settles in seconds and costs pennies.
For developers, Layer 2 provides the ability to build applications that do not scare users away due to high fees. Games, NFT platforms, and decentralized exchanges all become realistic applications when transactions of the protocol are affordable.
Risks and Trade-offs
All technologies present trade-offs, and Layer 2 is no different. Payment channels require participants to be online to resolve disputes, rollups apply a level of trust in the validators, and sidechains do not fully inherit the security properties of their parent chain. In other words, they are less trustless.
Nevertheless, we can see progress. The total value locked (TVL) across Layer 2 solutions was over $34 billion in September 2025. This indicates activity in the developer ecosystem and interest from blockchain users alike.
The Bigger Picture
Layer 2 isn’t just trying to solve technical limits. It’s about making blockchains usable at scale. Without Layer 2, Bitcoin and Ethereum may simply be too slow and expensive for anything other than large transfers or speculation. With Layer 2, Bitcoin and Ethereum can service applications that rival traditional payment systems and financial services.
The fact that major institutions are pondering and implementing solutions in the space speaks volumes. Visa has run trials for Ethereum Layer 2 systems and is exploring stablecoin payments. PayPal recently announced an expanded crypto service, with analysts calling attention to Layer 2 as a way to keep costs low for everyday use.
