Definition
Layer 2 refers to a system built above a base blockchain to handle some activity outside the base chain while using it for settlement or enforcement. The term covers different designs, so the actual relationship to the underlying chain matters more than the marketing label. Bitcoin's Lightning Network uses payment channels, while Ethereum rollups use different methods for executing transactions and establishing their results. A separate chain or custodial service does not automatically become a layer 2 merely because it accepts deposits from a well-known network. Important distinctions include who can withdraw funds, what information remains available, how disputes are resolved, and whether a privileged operator can halt activity. Faster or cheaper transactions can come with liquidity requirements, exit delays, or additional software assumptions. Layer 2 therefore describes an architectural relationship, not a universal guarantee of base-layer security in every circumstance.
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