A Layer 2, or L2, is a separate network that processes transactions outside a base blockchain (the Layer 1) and then settles the results back on it. The aim is to raise capacity and cut fees while still relying on the base chain for security. Most Layer 2 networks today are built on Ethereum. The ethereum.org Layer 2 overview is a good starting point.
Why Layer 2 Exists
Ethereum's main chain handles roughly 15 transactions per second. Block space is limited, and users bid for it. When demand is high, fees rise. During the busiest periods of 2021, a simple token swap could cost tens of dollars.
Raising the base chain's capacity directly would make nodes more expensive to run, which works against decentralization. Ethereum chose a different path: keep the base layer secure and decentralized, and move most activity to Layer 2 networks.
How Rollups Work
The dominant Layer 2 design is the rollup. A rollup executes transactions on its own chain, bundles them into batches and posts compressed data about them to Ethereum. Hundreds or thousands of transactions share the cost of a single Ethereum transaction.
Because the data is published on Ethereum, anyone can reconstruct the rollup's state and check it. That is the source of the security claim: Ethereum, not the rollup operator, is the final record.
There are two main kinds, covered in ethereum.org's scaling documentation.
- Optimistic rollups: batches are assumed valid when posted. During a challenge window, typically around seven days, anyone can submit a fraud proof to contest an invalid batch. Examples: Arbitrum, OP Mainnet (Optimism) and Base.
- ZK rollups: each batch comes with a validity proof, a piece of cryptography that shows the batch was computed correctly. Ethereum verifies the proof, so no challenge window is needed. Examples: ZKsync, Starknet, Scroll and Linea.
Optimistic rollups are simpler to build and were first to reach wide use. ZK rollups offer faster withdrawals to Ethereum, but generating proofs takes heavy computation.
What Is Not a Rollup
- Sidechains: independent chains with their own validators, connected to Ethereum by a bridge. Polygon PoS is the best known. A sidechain does not inherit Ethereum's security. It relies on its own validator set.
- Validiums: these use validity proofs like a ZK rollup but keep transaction data off Ethereum. That is cheaper, but users depend on the data staying available elsewhere.
On Bitcoin, the Lightning Network is a Layer 2 that uses payment channels rather than rollups.
Blobs and the Dencun Upgrade
Posting data to Ethereum was the largest cost for rollups. The Dencun upgrade in March 2024 introduced blobs under EIP-4844, a cheaper type of data space designed for rollups. Blob data is kept by nodes for a limited period and then pruned. The ethereum.org page on danksharding explains the design and the longer-term plan.
After Dencun, fees on most major rollups fell sharply, often to a few cents or less per transaction.
Major Layer 2 Networks
- Arbitrum: an optimistic rollup with a large DeFi ecosystem. Its governance token is ARB.
- OP Mainnet: an optimistic rollup run by the Optimism Collective. Its code base, the OP Stack, is open source and used by other chains.
- Base: an optimistic rollup built by Coinbase on the OP Stack. It has no token of its own.
- ZKsync, Starknet, Scroll and Linea: ZK rollups with differing designs.
Optimism's Superchain is a plan for many OP Stack chains, including Base, to share standards and communicate with each other.
Rollups charge fees in ETH in most cases. Their own tokens, where they exist, are mainly for governance.
Risks and Tradeoffs
- Centralized sequencers: on most rollups, a single operator orders transactions. If it goes offline, the network can stall. It can also delay transactions. Teams have published plans to decentralize this role, and progress varies.
- Upgrade keys: many rollups can be upgraded by a small council or multisig. A compromised or malicious upgrade could put funds at risk.
- Proof system maturity: not every rollup has fully working, permissionless fraud or validity proofs. Some still depend on trusted parties.
- Bridge risk: bridges hold locked assets and are frequent targets. In 2022, the Ronin bridge lost more than 600 million dollars and the Wormhole bridge about 320 million dollars to exploits.
- Fragmentation: liquidity and applications are spread across many networks, and moving between them adds cost and risk.
Bridging and Withdrawals
Depositing from Ethereum to a rollup through its official bridge usually takes minutes. Withdrawing from an optimistic rollup through the official bridge takes about seven days because of the challenge window. ZK rollup withdrawals are faster.
Third-party bridges offer faster transfers by fronting liquidity for a fee. They add their own smart contract risk. Many centralized exchanges also support direct deposits and withdrawals on major rollups, which avoids bridging altogether.
Common Mistakes
- Sending funds to an exchange on a network it does not support. Always match the withdrawal network to the deposit network.
- Arriving on an L2 with no ETH for gas. Most rollups need a small ETH balance for fees.
- Treating every chain labeled Layer 2 as equally secure. Sidechains and validiums carry different trust assumptions.
- Using an unfamiliar bridge link. Fake bridge sites are a common phishing method.
Nothing in this article is financial advice.
Key Facts
- Main design: rollups, optimistic or ZK
- Optimistic withdrawal delay: about seven days through official bridges
- EIP-4844 blobs: live since March 2024
- Gas token on most rollups: ETH
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