Layer 1 and Layer 2 Solutions - Explained

Layer 1 solutions improve scalability and optimize performance by making structural and fundamental changes to the base protocol itself. These are incorporated onto the chain and are often referred to as On-Chain Solutions. These changes involve accelerating the speed of block confirmation and increasing the amount of data being stored in each block, all directed at enhancing overall network throughput.
L2 solution is built on top of an existing blockchain to improve scalability and efficiency. Most prominent examples include Bitcoin Lightning Network and Ethereum Plasma. An L2 solution offloads the transactional burden from the L1 blockchain. The creation of an auxiliary framework enables L2 to operate and process transactions independently off the chain. L2s manage and handle all the processing load and report to L1 for result finalization. This is why L2 solutions are also referred to as Off-Chain solutions.
A major benefit of L2 frameworks is the ease of deploying the solution. These solutions are integrated as an extra layer on top of the base layer and require no structural or fundamental changes to the Mainchain. Most of the data processing is delegated to L2, reducing congestion on L1, thereby improving scalability, TPS and lowering transaction fees.
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