Blockchains face a hard limit. Every node checks every transaction, so a popular network fills its blocks and fees rise. The industry answers this in two ways. Some teams improve the base chain itself, and others build a second layer that handles activity off the base chain and reports back to it.
This article explains what a layer 1 and a layer 2 are, how each one works, and where they differ. It also covers the main layer 2 designs, their trade-offs, and how these networks appear on an exchange such as CEX.IO.
What Is a Layer 1 Blockchain?
A layer 1 is a base blockchain. It keeps its own ledger, runs its own consensus, and finalizes transactions without help from another chain. Bitcoin, Ethereum, Solana, and Tron are examples. Each one has a native coin, such as BTC or ETH, that pays transaction fees and rewards the miners or validators who keep the network running.
How Layer 1 Blockchains Work
A layer 1 groups transactions into blocks and links each block to the one before it. Participants agree on the next block through a consensus mechanism. In proof of work, miners spend computing power to find a valid block, and Bitcoin uses this model with blocks about every ten minutes. In proof of stake, validators lock up coins as collateral and take turns proposing blocks, and Ethereum switched to this model in 2022.
Once a block gains enough confirmations, reversing it becomes impractical, and the transactions inside it count as final. The number of confirmations an exchange waits for depends on how soon and how firmly a given chain finalizes blocks.
The Scalability Problem
Blockchain designers talk about a trilemma between decentralization, security, and scalability. A chain with thousands of independent nodes stays hard to attack, and every one of those nodes has to process each transaction. That workload caps how many transactions the network can handle. When demand exceeds the cap, users compete for block space, and fees climb.
How Layer 1 Networks Scale
Base chains raise capacity by changing their own design. Some increase block size or block frequency, which lets each block carry more transactions and asks more of node hardware. Others adopt faster consensus methods, as Solana does with its high block rate. Ethereum follows a roadmap that splits data into pieces nodes can verify without storing everything, a concept the community calls sharding. Each change trades some cost or simplicity for more throughput.
What Is a Layer 2 Network?
A layer 2 is a network that runs on top of a layer 1 and relies on it for final settlement. It executes transactions on its own infrastructure and periodically writes a summary or proof to the base chain. Users enjoy lower fees and faster confirmations, and the layer 1 still acts as the source of truth. Arbitrum, Optimism, and Base are layer 2 networks on Ethereum, and the Lightning Network is a layer 2 on Bitcoin.
How Layer 2 Networks Work
Several designs exist, and they differ in how they prove that their activity is valid.
Optimistic Rollups
An optimistic rollup bundles many transactions into a batch and posts it to the layer 1, assuming the batch is correct. A challenge window, typically about seven days, gives anyone the chance to submit a fraud proof against an invalid batch. Arbitrum, OP Mainnet, and Base use this model. The window explains why withdrawals through their official bridges take about a week.
Zero-Knowledge Rollups
A zero-knowledge rollup attaches a cryptographic validity proof to each batch. The layer 1 checks the proof directly, so the rollup needs no challenge window, and withdrawals can finalize much sooner. zkSync Era, Starknet, Linea, and Scroll follow this approach. Generating the proofs takes heavy computation, which shapes how these networks operate.
State Channels
A state channel lets two parties lock funds on the layer 1, trade many times between themselves off chain, and settle only the final result. The Lightning Network applies this idea to Bitcoin payments and routes them across a web of connected channels.
Sidechains
A sidechain runs its own validators and connects to a layer 1 through a bridge. Polygon PoS, for example, saves checkpoints to Ethereum and works with Ethereum tools. Many lists group sidechains with layer 2 networks. A sidechain draws its security from its own validator set, and a rollup draws its security from the layer 1.
Layer 1 vs Layer 2 at a Glance
| Aspect | Layer 1 | Layer 2 |
|---|---|---|
| Role | Base chain that finalizes its own transactions | Network that settles its activity on a layer 1 |
| Security source | Its own miners or validators | Mostly the underlying layer 1 |
| Typical fees | Rise with demand for block space | Usually a fraction of layer 1 fees |
| Gas coin | Native coin such as BTC, ETH, or SOL | Often the layer 1 coin, such as ETH on Ethereum rollups |
| Examples | Bitcoin, Ethereum, Solana, Tron | Arbitrum, Optimism, Base, Lightning Network |
Trade-offs of Layer 2 Networks
Lower fees come with new moving parts. Most rollups use a sequencer, an operator that orders transactions before they reach the layer 1. A sequencer can delay or reorder transactions, and the proof system stops it from posting an invalid state, so the main risk from that role is downtime. Bridges between layers hold large amounts of locked value, which makes them attractive targets for attackers. Liquidity also spreads across many networks, so the same token can sit on several chains at once.
How EIP-4844 Changed Layer 2 Costs
Ethereum activated the Dencun upgrade on March 13, 2024. Its central change, EIP-4844, introduced blobs, a separate and cheaper space for rollup data that nodes keep only for a limited period. Rollups moved their data into blobs, and fees on layer 2 networks dropped sharply in the weeks that followed.
Using Layer 1 and Layer 2 Networks on CEX.IO
Exchanges show these layers as network options for each coin. On CEX.IO, deposits and withdrawals work across many layer 1 networks, including Bitcoin, Ethereum, BNB Smart Chain, Tron, Solana, Avalanche, Stellar, TON, the XRP Ledger, and Cardano. On the layer 2 side, CEX.IO supports Arbitrum, Optimism, and Base, and it also supports the Polygon PoS sidechain.
CEX.IO holds each coin as one asset in the account, whatever network delivered it. A user can therefore deposit ETH through a layer 2 and withdraw it on Ethereum mainnet, or deposit USDT on Tron and withdraw it on Ethereum, as long as the coin supports both networks. Each network comes with its own minimum amounts and withdrawal fee, which the Limits and Commissions page lists.
Final Thoughts
Layer 1 blockchains provide the base ledger and its security, and layer 2 networks add capacity on top of them at a lower cost. Rollups, state channels, and sidechains each take a different path to that goal and carry their own trade-offs. For everyday use, the practical question comes down to choosing the network that both sides of a transfer support and keeping enough of the right gas coin on hand.
FAQ
Is Bitcoin a layer 1?
Yes. Bitcoin is a base blockchain that confirms its own transactions through proof of work, and the Lightning Network operates as a layer 2 on top of it.
Is Ethereum a layer 1 or a layer 2?
Ethereum is a layer 1. Networks such as Arbitrum, Optimism, and Base run on top of it as layer 2 rollups.
Is Polygon a layer 2?
Polygon PoS works as an Ethereum-compatible sidechain with its own validators. It saves checkpoints to Ethereum, and many lists group it with layer 2 networks.
Why are layer 2 fees lower?
A layer 2 spreads the cost of posting data to the layer 1 across many transactions in one batch. Since EIP-4844, rollups also post that data into cheaper blob space.
Do layer 2 networks carry extra risks?
They add components such as sequencers and bridges, and each one brings its own risks. The proof system of a rollup limits what a sequencer can do, and bridges remain a common target for attacks.
What is a layer 3?
A layer 3 is a network that settles on a layer 2, in the same way a layer 2 settles on a layer 1. Teams build them for specific apps, such as games, that need custom settings.
Can I move crypto between a layer 1 and a layer 2?
Yes. Official bridges move assets between them, and optimistic rollup bridges take about a week for withdrawals to the layer 1. Exchanges that support both networks for a coin, such as CEX.IO for ETH and USDC, let users deposit on one and withdraw on the other.