Layer 2 Blockchain: An integration layer for the future of crypto in 2024

The blockchain technology industry has experienced remarkable growth since Bitcoin’s launch in 2008. From a simple payment network, blockchain now powers countless diverse applications—DeFi, GameFi, NFTs, metaverse, and Web3. However, the challenge faced by most Layer-1 blockchains is scalability.

Consider the numbers: Bitcoin processes about 7 transactions per second (TPS), Ethereum Layer-1 handles around 15 TPS, while Visa can process 1,700 TPS. This is why Layer 2 has become a key solution—addressing the blockchain trilemma( by balancing scalability, security, and decentralization.

What Is a Layer 2 Protocol? An Overview

Layer 2 blockchain represents essential scaling technologies designed to enhance the performance and throughput of Layer-1 blockchains like Ethereum. Instead of processing all transactions on the main chain, Layer 2 protocols operate on top, handling transactions off-chain )off-chain( before summarizing them on the main blockchain.

For example, like a dedicated highway: traffic flows smoothly, transactions occur at lightning speed, and fees are nearly zero. That’s how Layer 2 works—fast lanes built on Ethereum’s platform to optimize efficiency.

How Layer 2 Networks Work

Layer 2 networks operate on a simple principle: process transactions off-chain, then send summaries to Layer-1. This approach significantly reduces congestion, cuts processing times, and lowers gas costs.

Imagine Layer 2 as an intelligent traffic management system, rerouting transactions from the main blockchain for separate processing. This not only reduces congestion but also speeds up transactions, lowers fees, and increases throughput.

)Main Benefits of Layer 2

Unlocking dApps and DeFi Potential: Layer 2 makes decentralized applications and DeFi platforms cheaper, faster, and more user-friendly—opening up endless possibilities for users.

Increasing Profits for Traders: Transaction costs are significantly reduced, especially in yield farming###yield farming( and trading, directly boosting investor profits.

Accelerating Blockchain Adoption: Layer 2 acts as a catalyst, transforming blockchain from a niche technology into an accessible solution, driving its expansion into gaming, supply chain management, and many other sectors.

Layer 1, Layer 2, and Layer 3: The Layered Landscape

To better understand blockchain development, look at these three layers:

)Layer-1: The Core Foundation

Layer 1 is the main blockchain—Bitcoin or Ethereum. This is where consensus mechanisms, security, and smart contracts are executed. However, as traffic increases, Layer 1 can become congested, leading to slow transactions and high fees.

###Layer 2: The High-Speed Bridge

Layer 2 functions like express bridges, rerouting transactions to auxiliary networks. This creates clear benefits: faster transactions, lower fees, and higher throughput.

###Layer 3: Specialized Solutions

Layer 3 builds dedicated bridges on Layer 2, optimized for specific tasks such as advanced off-chain computations, seamless dApp interactions, and improved cross-chain communication.

Choosing the Right: Need a solid foundation? Go for Layer 1. Want speed and cost efficiency? Layer 2 is the solution. Looking for customization for complex dApps? Explore Layer 3.

Types of Layer 2 Solutions

Optimistic Rollups: “Trust-But-Verify” Method

Optimistic Rollups assume all transactions are valid unless proven otherwise. This simplifies verification and reduces costs. Key features:

• Faster transactions, lower costs
• Balance between efficiency and security
• Widely used in Ethereum Layer 2 projects

Zero-Knowledge Rollups: The Data Privacy Champion

ZK Rollups bundle transactions into a single proof that hides personal details, enhancing privacy. Notable features:

• High privacy and scalability
• Minimal computational overhead
• Popular in DeFi and NFTs

Ethereum Plasma Chains: Independent Sidechains

Plasma chains operate as dedicated sidechains connected to Ethereum, each with its own infrastructure. Advantages:

• Significantly faster transactions, lower fees
• Different approach compared to rollups

Validium: Security and Efficiency Combined

Validium seeks a balance by processing transactions off-chain but verifying via cryptographic proofs. Benefits:

• High scalability without compromising security
• Ideal for speed-priority applications

Prominent Layer 2 Projects in 2024

1. Arbitrum - Market Leader

Arbitrum uses Optimistic Rollups with throughput up to 4,000 TPS, processing transactions 10 times faster than Ethereum and reducing gas costs by up to 95%. As of January 2024, Arbitrum holds over 51% of Layer 2 market share.

Current Data:

• Throughput: 2,000-4,000 TPS
• TVL: $10.7 billion
• Market Cap: $1.09B ###ARB: $0.19(
• Technology: Optimistic Rollup

With a vibrant community and rapidly growing DeFi, NFT marketplaces, and gaming ecosystems, Arbitrum continues to establish itself as a top contender in the Layer 2 race.

) 2. Optimism - Pioneering Layer 2 Without Tensions

Optimism employs Optimistic Rollups, providing Ethereum security without the scalability limitations. Throughput reaches 4,000 TPS, transactions are 26 times faster, and gas fees are reduced by up to 90%.

Current Data:

• Throughput: 2,000 TPS
• TVL: $5.5 billion
• Market Cap: $513.24M ###OP: $0.26(
• Technology: Optimistic Rollup

Optimism aims to be a community-governed platform, with thriving DeFi protocols, NFT marketplaces, and DAOs. The OP token is used for fees, staking, and governance.

) 3. Lightning Network - Bitcoin’s Layer 2 Solution

Lightning Network enables instant small Bitcoin payments at minimal cost, operating off-chain but leveraging Bitcoin’s security.

Main Features:

• Throughput: Up to 1 million TPS
• TVL: ###million+
• Technology: Bi-directional payment channels, smart contracts

Ideal for daily transactions and real-time applications, though still facing technical complexity and adoption speed challenges.

$198 4. Polygon - Multi-Chain Ecosystem

Polygon offers a diverse set of technologies including zkRollups and Proof-of-Stake sidechains, with impressive throughput up to 65,000 TPS.

Current Data:

• Throughput: 65,000 TPS
• TVL: ###billion
• Market Cap: $7.5 billion+
• Technology: zk Rollup

Polygon hosts top DeFi protocols like Aave, SushiSwap, Curve, as well as major NFT marketplaces. The MATIC token is used for gas fees, staking, and governance.

$4 5. Base - Coinbase’s Step Forward

Base is designed to enhance Ethereum’s potential using OP Stack and Optimistic Rollups, targeting 2,000 TPS.

Current Data:

• Throughput: 2,000 TPS
• TVL: ###million
• Technology: Optimistic Rollup

Base commits to reducing gas costs by up to 95%, supported by Coinbase’s platform, bringing strong security expertise. The project is still developing but focuses on speed, affordability, and developer-friendliness.

$729 6. Dymension - Modular Blockchain of Cosmos

Dymension is a modular blockchain ecosystem comprising specialized RollApps built on a secure payment hub. It is the first Layer 2 within the Cosmos ecosystem.

Current Data:

• Throughput: 20,000 TPS
• TVL: 10.42 million DYM
• Market Cap: $30.07M ###DYM: $0.07(
• Technology: RollApps

Dymension separates functions like consensus, execution, and data availability, allowing each RollApp to optimize performance. Support for IBC)Inter-Blockchain Communication( protocol enhances interoperability.

) 7. Coti - From Cardano to Ethereum

Coti initially was a Layer 2 solution for Cardano, now transitioning into a privacy-focused Layer 2 network for Ethereum.

Current Data:

• Throughput: 100,000 TPS
• TVL: $28.98 million
• Market Cap: $54.66M ###COTI: $0.02(
• Technology: zk Rollup

This transition aims to provide faster, cheaper transactions with Ethereum-level security and interoperability. COTI token is used for fees, staking, and governance. Coti is shifting from a DAG mechanism to an EVM-compatible architecture, maintaining security via garbled circuits)garbled circuits(.

) 8. Manta Network - Privacy Hub

Manta Network is a privacy-focused ecosystem with two modules: Manta Pacific ###Layer 2 EVM-compatible( and Manta Atlantic )privacy identity management(.

Current Data:

• Throughput: 4,000 TPS
• TVL: )million
• Market Cap: $33.52M $951 MANTA: $0.07(
• Technology: zk Rollup

Manta uses zero-knowledge cryptography to ensure transaction validity without revealing privacy. It has quickly gained popularity, becoming Ethereum’s third-largest Layer 2 by TVL as of January 2024.

) 9. Starknet - Zero-Knowledge Proofs for Scalability

Starknet employs STARK proofs###zero-knowledge proofs( to verify off-chain transactions, with theoretical throughput reaching millions of TPS.

Current Data:

• Throughput: 2,000-4,000 TPS
• TVL: )million
• Technology: zk Rollup

Starknet offers a developer-friendly environment with familiar Cairo language. The project is fully decentralized with a rapidly growing ecosystem. However, cryptographic complexity may be challenging for newcomers.

$164 10. Immutable X - Focused on Gaming

Immutable X is a Layer 2 network designed for gaming, offering scalability, affordability, and security.

Current Data:

• Throughput: 9,000 TPS+
• TVL: ###million
• Market Cap: $192.86M $169 IMX: $0.23(
• Technology: Validium

IMX uses ZK-Rollups achieving over 4,000 TPS with near-instant transactions. It leverages Ethereum’s security while providing low costs for game developers. Its gaming ecosystem, NFT marketplaces, and dApps are rapidly expanding.

Ethereum 2.0 and the Future of Layer 2

Ethereum 2.0 introduces pivotal upgrades, notably Danksharding integration. Proto-Danksharding is expected to boost Ethereum’s throughput to an impressive 100,000 TPS.

) Major Impacts

Driving Layer 2 Scalability: Danksharding eliminates slow, costly transactions, optimizing Layer 2 efficiency and turning them into cost-effective paradises.

Lower Transaction Fees: Proto-Danksharding helps reduce Layer 2 transaction costs, broadening access from seasoned traders to newcomers.

Seamless L1-L2 Synergy: Proto-Danksharding enhances Ethereum’s support for Layer 2 rollups and sequencer rollups, providing better integration and user experience.

Enhanced User Experience: Faster confirmations, less network congestion, ultra-low gas fees—these are the true potentials of Danksharding.

Ethereum 2.0 does not render Layer 2 obsolete; instead, it fosters a symbiotic relationship where both work together to create a more efficient and scalable blockchain ecosystem.

Conclusion

Layer 2 protocols have emerged as the building blocks of the future blockchain landscape. By addressing Layer 1’s scalability limitations, Layer 2 networks mark a transformative phase in blockchain technology development.

In 2024, Layer 2 is not just a trend—it’s a paradigm shift. From booming Ethereum L2 projects to innovative Bitcoin scaling solutions, these networks are shaping the future of the crypto industry. They pave the way for widespread adoption, unlock new opportunities, and prove that blockchain can be fast, cost-effective, and accessible to all.