How Do Layer 2 Solutions, like the Lightning Network, Aim to Reduce Transaction Fees?
Layer 2 solutions move the majority of transactions off the main blockchain (Layer 1) and onto a secondary layer. For example, the Lightning Network allows users to open payment channels and conduct numerous transactions off-chain, only broadcasting the final net result to the main chain.
This drastically reduces the number of on-chain transactions, alleviating congestion and lowering fees.
Glossar
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.
Solutions
Mitigation ⎊ Solutions within cryptocurrency, options trading, and financial derivatives represent strategies designed to reduce exposure to adverse price movements or systemic risk.
Payment Channels
Channel ⎊ Payment channels represent a Layer-2 scaling solution within cryptocurrency networks, enabling off-chain transactions that settle on the main blockchain periodically.