Layer 2 in crypto refers to a secondary framework or protocol built on top of a blockchain network, such as Ethereum, with the aim of improving scalability, efficiency, and reducing transaction costs. It provides an additional layer of infrastructure that operates alongside the primary blockchain, enabling off-chain processing and transactions.

The primary motivation behind layer 2 solutions is to address the scalability limitations of blockchain networks. While blockchain networks like Ethereum are secure and decentralized, they often struggle with high transaction fees and slow confirmation times as the number of users and transactions increases. Layer 2 solutions aim to alleviate these issues by conducting most of the transaction processing off the main blockchain, while still leveraging its security and settlement capabilities.

There are several types of layer 2 solutions, including state channels, sidechains, and off-chain computation. State channels allow participants to conduct multiple transactions off-chain, only settling the final state on the main blockchain. Sidechains are separate blockchains that are connected to the main blockchain, enabling faster and more scalable transactions. Off-chain computation involves moving certain computational processes off-chain, reducing the burden on the main blockchain.

Layer 2 solutions can significantly increase transaction throughput, reduce fees, and improve the overall user experience without compromising on the security and decentralization provided by the underlying blockchain network. They offer an avenue for expanding the capabilities of blockchain technology and making it more practical for various applications, including decentralized finance (DeFi), gaming, and non-fungible tokens (NFTs).

Layer 2 in cryptocurrency refers to secondary frameworks or protocols built on top of a blockchain to enhance its scalability and efficiency. These solutions aim to address issues such as high transaction fees and slow processing times associated with Layer 1 (the base blockchain). By offloading a portion of transaction processing from the main chain, Layer 2 solutions can significantly increase throughput and reduce costs. Examples include the Lightning Network for Bitcoin and Plasma or Optimistic Rollups for Ethereum. Layer 2 technologies enable faster and more affordable transactions, making blockchain networks more practical for widespread use.