The Difference Between Layer 1 and Layer 2 Blockchains

Jun 11, 2025 | 4 min read

What is the difference between Layer 1 and Layer 2 blockchains?

The difference between Layer 1 and Layer 2 blockchains lies in the layer where transactions are processed:
Layer 1 is the base chain itself (such as Bitcoin or Ethereum), where all transactions happen directly. Layer 2, on the other hand, is an additional layer on top of Layer 1 that handles transactions faster and cheaper without modifying the main layer.

In this article, we explain the differences between Layer 1 and Layer 2 blockchains, how they work, and why they are essential for the future of decentralized systems.

Key Takeaways

Layer 1 blockchains are the foundational layers of networks like Bitcoin and Ethereum, where all transactions take place directly.
Layer 2 blockchains are additional layers on top of Layer 1 that handle transactions faster and cheaper without modifying the main layer.
Layer 1 suffers from scalability issues: limited transaction speed and high costs during network congestion.
Layer 2 solutions take over some of the transaction processing, process them off-chain, and then settle them on Layer 1.
Examples of Layer 2 include the Lightning Network (Bitcoin) and Optimistic Rollups (Ethereum).
Layer 2 is crucial for decentralized applications such as dApps, DeFi, NFT platforms, and blockchain games.
Both layers are indispensable: Layer 1 for security and decentralization, Layer 2 for efficiency and broad adoption.

What is a Layer 1 blockchain?

A Layer 1 crypto blockchain is the base or fundamental network of a blockchain. This is the core architecture where transactions take place and contains the consensus mechanism that ensures the network remains secure and decentralized.

Layer 1 blockchains are the original blockchains and are responsible for directly processing all transactions on the blockchain. They provide network security, consensus, and transaction validation. But as blockchain adoption increases, these networks face major challenges, especially in terms of scalability.

Bitcoin (BTC), Ethereum (ETH), and Solana (SOL) are examples of Layer 1 blockchains.

The scalability problem with Layer 1 blockchains

As the use of blockchain networks like Bitcoin and Ethereum grows, Layer 1 networks encounter problems. The biggest issue is their limited capacity to efficiently handle a large number of transactions.

For example:

Bitcoin can process about 7 transactions per second (TPS).
Ethereum can (without scaling solutions) process about 30 TPS.

By comparison, traditional payment systems like Visa can process thousands of transactions per second. As more people use the network, processing time slows down and costs increase, making the user experience less ideal. To tackle these problems, developers are working on Layer 1 scaling solutions such as sharding and improvements to the consensus mechanism (like Ethereum's transition from Proof of Work to Proof of Stake). But even these improvements cannot fully solve the problem.

This is where Layer 2 solutions come into play.

What is a Layer 2 blockchain?

A Layer 2 crypto blockchain is an overlay network that runs on top of a Layer 1 blockchain to increase scalability, such as Optimism on Ethereum. Layer 2 solutions are designed to take some of the transaction load off the Layer 1 network, allowing the base layer to focus on security and decentralization while the Layer 2 network processes large volumes of transactions more efficiently.

Layer 2 blockchains do not change the underlying Layer 1 protocol. Instead, they operate in parallel, processing transactions off-chain and settling them in batches on the base layer. This reduces both costs and pressure on the main chain.

Besides speeding up regular transactions, Layer 2 solutions are essential for the functioning of decentralized applications (dApps). Many dApps run on smart contracts (smart contracts) that require numerous interactions, such as:

Trading platforms (e.g., decentralized exchanges)
NFT marketplaces
Decentralized Finance (DeFi) applications including lending, staking, and yield farming
Blockchain games and metaverse platforms

Without Layer 2, these applications would often be slow, expensive, and poorly scalable. Thanks to Layer 2, smart contracts can serve more users simultaneously, with faster processing times and lower costs. This makes blockchain technology much more practical for everyday use.

Networks like Polygon on Ethereum particularly demonstrate how Layer 2 solutions lower the barrier for both developers and users of dApps. They enable you to perform hundreds or thousands of smart contract interactions without each transaction costing you several dollars in gas fees.

Examples of Layer 2 solutions:

Bitcoin's Lightning Network: Designed to enable faster, cheaper transactions by creating off-chain payment channels that are later settled on the Bitcoin blockchain.
Ethereum's Optimistic Rollups: A scaling solution that processes transactions off-chain and only submits the final state to Ethereum, significantly reducing congestion and gas fees.

Key differences between Layer 1 and Layer 2 blockchains

Now that we've explained what Layer 1 and Layer 2 blockchains are, let's take a closer look at their main differences:

Feature	Layer 1	Layer 2
Functionality	The fundamental blockchain layer where transactions, security, and consensus occur	Runs on top of Layer 1 and takes over some transaction processing
Scalability	Limited; scaling solutions like sharding are in development	Increases scalability by processing transactions off-chain
Transaction speed	Lower, due to focus on security and decentralization	Higher, thanks to off-chain processing
Transaction costs	High during network congestion (e.g., high gas fees on Ethereum)	Lower, as less load is placed on the main chain
Security	Very secure: this layer handles consensus and protection against attacks	Relies on Layer 1 for security; final processing happens there
Use cases	Suitable for critical, secure applications with high decentralization requirements	Ideal for small transactions, decentralized applications (dApps), and use cases that require speed

Why are both layers necessary?

Both Layer 1 and Layer 2 are important parts of a scalable blockchain. Layer 1 lays the foundation with strong security and decentralization. But without Layer 2, the network would not be efficient enough for everyday use and adoption of decentralized applications.

Layer 2 solutions provide the necessary speed and cost efficiency for applications in finance, gaming, supply chain management, and more. They ensure blockchain remains usable without compromising decentralization and network security.

Final thoughts

The difference between Layer 1 and Layer 2 blockchains revolves around their role within the network. Layer 1 forms the base with strong security and consensus, while Layer 2 provides more scalability by processing transactions more efficiently and quickly. Together, they form the foundation of a future-proof, decentralized ecosystem that is secure, scalable, and ready for widespread adoption.