Definition
Layer-2 (Blockchain)
A layer-2 is a secondary network built on top of a base blockchain to process transactions faster and more cheaply, settling back to the main chain. This is informational.
A layer-2 is a scaling solution that handles transactions off the main blockchain (layer-1) and periodically records summarised results back to it, aiming to reduce congestion and gas fees while inheriting some of the base chain's security.
Layer-2s emerged because popular blockchains can become slow and expensive when busy. They enable cheaper micro-transactions and more responsive applications.
This is a technical concept; any tokens transacted still fall under India's VDA tax rules. The entry is informational only, not investment advice, and the space remains high-risk and rapidly evolving.
Related terms
- BlockchainA blockchain is a shared, append-only digital ledger where transactions are grouped into cryptographically linked blocks, making records hard to alter without consensus.
- Smart ContractA smart contract is self-executing code on a blockchain that automatically carries out agreed actions when conditions are met, without an intermediary. This is informational, not advice.
- Gas FeeA gas fee is the payment, in a blockchain's native token, that users pay to have their transaction processed and recorded by the network. This is informational.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.