A Layer 2 solution is a technology built on top of an existing blockchain (Layer 1) to improve its scalability, speed, and efficiency. Popular blockchains like Bitcoin and Ethereum often struggle with congestion, slow transaction times, and high fees when demand is high. Layer 2 solutions address these issues by processing transactions off the main chain, while still relying on the security and decentralisation of the underlying Layer 1 blockchain.

The idea is to shift some of the workload away from the base chain without compromising trust. Transactions are bundled, executed, or validated off-chain and later settled on the main blockchain, which reduces strain on the network. This makes Layer 2 solutions essential for handling large-scale adoption, such as payments, decentralised finance (DeFi), or gaming applications.

Different types of Layer 2 solutions exist. State channels allow users to transact directly off-chain and record only the final result on-chain. Sidechains operate as separate blockchains connected to the main chain. Rollups, another widely used method, batch many transactions into one, compressing data before submitting it back to Layer 1.

By increasing throughput and lowering costs, Layer 2 solutions make blockchain technology more practical for everyday use. They are considered a crucial step in enabling blockchains to scale while maintaining security and decentralisation.