Layer 2 by Market Cap and Volume

Layer 2 platforms provide more scalability to users of layer 1 blockchain platforms. Some layer 1 blockchains like Bitcoin and Ethereum provide a high degree of security, but struggle to process a large amount of transactions in a short period of time. Layer 2 platforms tap into the robust infrastructure of their underlying layer 1 blockchains to ensure security, but use techniques like rollups or transaction channels to give users access to faster and cheaper transactions. The Lightning Network is an example of a layer 2 platform built on top of Bitcoin, while Optimism and Arbitrum are popular layer 2 platforms for Ethereum.

The need for layer 2 platforms arose once it became clear that the demand for transactions on popular layer 1 blockchains like Bitcoin and Ethereum was too big for these networks to handle adequately.

During periods of high activity, layer 1 blockchains can become congested, causing transaction fees to skyrocket to a point where sending smaller transactions is no longer economically feasible. Layer 2 platforms provide a faster and cheaper alternative, and also open up new use cases like microtransactions and tipping.

Layer 2 platforms are a relatively new development in the blockchain and cryptocurrency space, so users are recommended to exercise caution and do their own research before moving a significant amount of funds to a layer 2 platform. There’s also many different projects building layer 2 platforms, especially in the Ethereum ecosystem. This means that the quality and safety of the products could vary significantly.

As the technology matures, however, it’s likely that layer 2 platforms will achieve widespread adoption among cryptocurrency users and will be able to offer a strong level of security.