What is a layer 2 blockchain?

Blockchains need a layer 2 because every node checks every transaction, and that caps throughput. The usual comparison is a card network. The Lightning Network paper of January 14, 2016 states that Visa "achieved 47,000 peak transactions per second (tps) on its network during the 2013 holidays", while Bitcoin "supports less than 7 transactions per second with a 1 megabyte block limit" (Poon and Dryja, 2016).

Ethereum has the same limit. Its documentation puts the capacity of Ethereum Mainnet at "roughly 15 transactions per second". When demand is high, fees rise (ethereum.org, July 23, 2026). A layer 2 takes most transactions off the main chain and writes only a summary back to it.

Layer 2 in crypto is a network that runs on top of a base chain and relies on it for security; layer 1 is that base chain. As explained in the Ethereum documentation, "A layer 2 is a separate blockchain that extends Ethereum." It calls Ethereum and Bitcoin layer 1 blockchains, "the underlying foundation that layer 2 projects build on top of". That is the meaning of layer 2 in crypto: a chain built on such a foundation.

Mainnet is another name for the base chain: Ethereum Mainnet is the layer 1. The layer 1 holds the ledger and the consensus. The layer 2 executes transactions off chain and posts data or proofs to the main chain. For a rollup, the reversal of a transaction would require a reversal on Ethereum itself. The documentation adds a warning: "no layer 2 is as battle tested as Ethereum Mainnet."

Rollups bundle "hundreds of transactions into a single transaction on layer 1" and share the layer 1 fee among the users. The two types differ in how the main chain learns that the batch is correct.

A zero-knowledge proof in blockchain use is a proof that reveals "no information about private inputs beyond what follows from the public statement". The Ethereum documentation adds a limit: "using validity proofs for scaling does not, by itself, make a rollup's transactions confidential" (ethereum.org, September 8, 2026).

The Bitcoin Lightning Network is a layer 2 for payments in which two parties open a channel and exchange many payments off chain. The paper describes "a network of micropayment channels" whose "transfer of value occurs off-blockchain". Banks know the idea as netting: two parties that trade often settle only the net amount. The paper uses a similar term, "net settlement of their relationship at a later date".

Paying onchain or over Lightning is the choice between one blockchain transaction per payment and one transaction for the net balance when a channel closes. The payments in a channel "are real bitcoin transactions", signed by both parties, and either party can broadcast them to the blockchain if the other stops cooperating.

A sidechain is no layer 2 in the Ethereum definition, because it keeps its own security. The documentation calls a sidechain "an independent EVM-compatible blockchain that runs in parallel to Mainnet", linked by bridges. Rollups and state channels "derive their security directly from layer 1 Ethereum consensus"; sidechains and validiums derive theirs separately (ethereum.org, April 13, 2026). For a risk manager the question is who can freeze or change the balances: the layer 1 or the operators of the second chain.

No law in Germany, Austria or Switzerland licenses a layer 2 network as such. In Germany and Austria MiCA applies directly. A service provider that moves client assets between a layer 1 and a layer 2 provides transfer services, which Article 3(1)(26) of MiCA defines as the transfer of crypto-assets "from one distributed ledger address or account to another". BaFin is the competent authority under section 3 of the Kryptomärkteaufsichtsgesetz, the FMA in Austria.

For a bank or asset manager the choice of network changes the risk review, from withdrawal times to the parties that run the layer 2 and its bridges. Switzerland is outside the EU, so MiCA does not apply there; FINMA supervises banks and securities firms under Swiss law. This page gives no legal advice.

One of the examples from banking comes from Frankfurt am Main: Deutsche Bank published the DAMA 2 litepaper with Memento Blockchain and Interop Labs on June 18, 2025. It describes a privacy-enabled layer 2 built with ZKsync technology, a permissioned ledger anchored to Ethereum as the layer 1 (Deutsche Bank, June 18, 2025).