What does L2 network mean? How does L2 network effect start?

This article explores L2 networks, which are additional layers built on top of existing blockchain networks to improve scalability, speed, and cost efficiency. With the first L2 networks launching in 2018, the L2 ecosystem has grown steadily in recent years with a variety of solutions emerging, including Optimistic Rollup, ZK-Rollup, and sidechains. From payments and DeFi to gaming and enterprise applications, L2 networks have potential applications in numerous areas. While they offer clear advantages, L2 networks also face challenges such as security, compatibility, and user adoption that need to be further addressed.

Comprehensive Guide to L2 Networking: Definitions, Effects and Rankings

Key Points

This article explores L2 in depth Networking, including its definition, effects, and top solutions currently on the market.

L2 Network Definition

• An L2 network (also known as a Layer 2 network) is an additional layer built on top of an existing blockchain network.
• Designed to address the limitations of main chain networks (layer 1) such as scalability, speed and cost.
• By batching transactions and settling them only on the main chain, the L2 network improves overall efficiency.

The beginning of L2 network effect

• The first L2 networks were launched in 2018 to address congestion and high fees on the Ethereum network.
• Early L2 solutions were mainly state channels and sidechains, but recently there have been many other types of innovations emerging.
• The L2 ecosystem has grown steadily as scalability challenges intensify and other blockchain networks seek solutions.

Top L2 Network Ranking (excluding FTX)

• Polygon: Known for its fast, low-cost transactions Famous, using Optimistic Rollup technology.
• Arbitrum: Another Optimistic Rollup L2 focused on security, scalability and user experience.
• Optimism: The third Optimistic Rollup, known for its fast transaction processing and compatibility with the Ethereum Virtual Machine.
• StarkNet: ZK-Rollup L2 based on STARK proof, supports privacy protection function.
• Immutable X: L2 focused on gaming and NFTs, offering no gas fee transactions and instant confirmations.

L2 network application scenario

• Payments: Offers fast, low-cost transactions for everyday use and cross-border remittances.
• DeFi: Expand the scalability of DeFi applications to support frictionless lending, trading, and yield farming.
• Game: Enhance the gaming experience with no gas fee transactions and fast confirmation times, suitable for on-chain games and NFT collections.
• Enterprise: Provides scalable and secure solutions for enterprise blockchain solutions and supply chain management.
• Development: Provides developers with modules, tools, and frameworks to easily build and deploy L2 applications.

Advantages of L2 network

• Scalability: Significantly improve transaction processing capabilities and ease the on-line maintenance of the main chain network of congestion.
• Speed: Provides faster transaction confirmation time and improves user experience.
• Cost: Significantly lower transaction fees, making it more economical.
• Security: Inherits the high security of the main chain network to ensure the protection of assets and data.
• Flexibility: Supports a variety of applications and use cases, from payments to DeFi and gaming.

Challenges of L2 Networks

• Security: Some L2 solutions may face different security risks than the main chain network and need to be carefully evaluated.
• Compatibility: Not all L2 networks are compatible with all main chain networks, limiting the interoperability of applications and assets.
• Adoption: Promoting and adopting L2 networks takes time and user education, especially for applications still using main chain solutions.
• Liquidity: Some L2 networks may face liquidity issues, especially for newer or smaller networks.
• Complexity: The underlying technology of L2 networks may be too complex for some users and needs further simplification and user-friendliness.

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