Layer 2 Scalability refers to solutions built atop a blockchain’s foundational “Layer 1” protocol to enhance transaction throughput and reduce costs without compromising the underlying security. Its purpose is to address the inherent limitations of primary blockchains, making them suitable for broader and more frequent application usage.
Mechanism
Layer 2 protocols, such as rollups (optimistic or zero-knowledge), state channels, or sidechains, process transactions off-chain or in batches. They then periodically settle the aggregated results or cryptographic proofs back onto the Layer 1 blockchain. This mechanism significantly reduces the computational load and transaction fees on the main chain.
Methodology
The strategic approach seeks to optimize the balance between decentralization, security, and scalability for blockchain networks. This framework enables a higher volume of cheaper transactions, facilitating advanced financial applications like institutional options trading and smart trading. It extends the utility of crypto assets by supporting rapid, cost-effective operations.
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