How Do Layer 2 Scaling Solutions Attempt to Mitigate High Transaction Fee Variability?
Layer 2 solutions, such as rollups and sidechains, process transactions off the main blockchain (Layer 1) in a batch. This allows the cost of the single Layer 1 transaction to be amortized across hundreds or thousands of Layer 2 transactions.
By reducing the reliance on the highly congested Layer 1, they provide significantly lower and more predictable transaction fees, thus mitigating the extreme variability seen on the base layer.
Glossar
Layer 2 Scaling Solutions
Architecture ⎊ Layer 2 scaling solutions represent a fundamental shift in cryptocurrency network design, addressing limitations inherent in base-layer blockchains regarding transaction throughput and cost.
Variability
Dispersion ⎊ In cryptocurrency, options, and financial derivatives, variability manifests as dispersion around expected returns, a critical parameter for pricing and risk assessment.
High Transaction Fee
Cost ⎊ A High Transaction Fee represents the elevated economic charge required to process and validate a transaction on a blockchain network, primarily driven by network congestion and block space scarcity.
Rollups
Scalability ⎊ Rollups represent a Layer 2 scaling solution for blockchains, fundamentally altering transaction throughput and cost structures by executing transactions off-chain while maintaining on-chain data availability.