How Do Layer 2 Solutions like the Lightning Network Address Block Space Limitations?
Layer 2 solutions move the bulk of transactions off the main blockchain (Layer 1) and onto a secondary layer. For example, the Lightning Network uses 'payment channels' for fast, low-cost transactions that only require two on-chain transactions (opening and closing the channel).
This significantly reduces the overall demand for limited Layer 1 block space.
Glossar
Layer 2 Solutions
Architecture ⎊ Layer 2 solutions, within the context of cryptocurrency derivatives and financial engineering, represent a paradigm shift in scalability and transaction throughput.
Block Space
Capacity ⎊ This term quantifies the finite data volume available within each successfully mined block, representing a scarce resource for transaction inclusion.
Lightning Network
Scalability ⎊ The Lightning Network represents a layer-two scaling solution for Bitcoin and other blockchains, designed to facilitate micropayments and high-frequency transactions that are impractical on the base layer due to block size limitations and associated fees.
The Lightning Network
Architecture ⎊ The Lightning Network is a Layer 2 protocol built atop Bitcoin, employing bi-directional payment channels to facilitate high-speed, low-cost off-chain transactions.