How Do Layer 2 Scaling Solutions Address the Throughput Issue?
Layer 2 solutions, such as rollups (Optimistic and Zero-Knowledge), process transactions off the main blockchain (Layer 1) and then bundle the results to be submitted back to Layer 1 for final settlement. This significantly increases transaction throughput and reduces transaction fees on the main chain.
By handling the bulk of computation off-chain, Layer 2 solutions allow the main chain to focus on security and decentralization.
Glossar
Layer 2 Solutions
Architecture ⎊ Layer 2 Solutions are off-chain protocols built atop a base settlement layer, designed to inherit its security while dramatically increasing transaction throughput and reducing latency, making them essential for high-frequency crypto derivatives trading.
Layer 2 Scaling Solutions
Definition ⎊ Layer 2 scaling solutions are secondary protocols built on top of a base blockchain, or Layer 1, designed to enhance transaction throughput and reduce costs.
Throughput
Capacity ⎊ ⎊ Throughput, within cryptocurrency and derivatives markets, fundamentally represents the rate at which a system processes transactions or data, often measured in transactions per second (TPS) or orders per millisecond.