Layer 1 vs layer 2: what is the difference?

A layer 1 is a blockchain's own main network, such as Ethereum. A layer 2 is a separate network built on top of it. It processes transactions more cheaply and records its data back on the main network.

Side by side

Why layer 2s exist

Every Ethereum transaction pays a fee, and the fee depends on how busy the network is. At a busy moment the same action can cost several times more. Layer 2 networks bundle many transactions together, so each one carries a small share of the cost. Lesson 32 explains fees.

The catch: separate ledgers

Each layer 2 keeps its own record. A token on a layer 2 and the same-named token on Ethereum are separate versions.

Ethereum and many related networks use the same address format, starting with 0x. Your address is the same on all of them. So a transfer to the right address on the wrong network goes through, and arrives on a ledger the recipient may not be watching.

• To your own wallet: your keys control that address on every compatible network. You can usually add the network in your wallet and find the coins.
• To an exchange: if the exchange does not support that network, it may be unable to credit you. Sometimes the coins are lost.

Before every transfer, check that the sending side and the receiving side agree on the asset and the network. Lesson 33 covers this.

Moving between them

A bridge moves value between networks. Typically it locks your tokens on one and issues matching tokens on another. Bridges hold large pools of locked funds and have been robbed of hundreds of millions of dollars. Often you do not need one, because many exchanges let you withdraw directly on the network you want.