What is Layer 1 and 2 in Crypto?

hi guys welcome to today's video and today i'm going to be talking about something quite technical and that is called network layering now this is important because a lot of you have heard about things like layer one and layer two so um without further ado let's jump into the video if you follow d5 very closely which is your decentralized finance tokens you've probably come across the term layer two okay now many crypto folks will talk about this because um you have layer one and layer two and they often speak about this in terms of blockchains when we use the term blockchain we are talking about this distributed ledger that processes transactions it allows you know funds to move from from a to b um these transactions are recorded everything like that so a blockchain should be three things it should be scalable it should be secure and it should be decentralized now blockchains like uh bitcoin and ethereum are often described as layer 1 blockchains or layer 1 chains because they settle every transaction that happens in the network this is unfortunately led to scalability problems and high fees when there are many transactions taking place in the network we've seen this recently with ethereum i know i was using uh uni swap and uh at times the transaction fees was around somewhere between 50 to 100 dollars per transaction and i want you to think of it this way if you go to the shop early in the morning there's not many people there's a few cashiers you can go in get what you want take it to the toll pay for it boom you're done okay but think about performing that same transaction when everyone comes home from work everyone pops into the shop there are now fewer cashiers there are more people standing in line and what happens to your transaction for you to actually transact is going to take much longer now when it comes to your layer one block chains when this happens the transaction fees go up on the ethereum blockchain skyrocket it has come down now where we this is the 16th of june um it has come down to a few dollars but it was up between the 50 and 100 mark per transaction because of the congestion on the network so what then is layer 2 and how can it help so layer 2 is basically the framework that gets built on top of your layer 1 blockchain and it gets built on top of this chain in order to improve scalability layer 2 basically creates a secondary framework where these transactions can now take place independently of layer 1 or what we call these transactions taking place off the main chain right and this allows for scalability to happen as a result of this layer two solutions have the potential to actually achieve high throughput in in other words it means that transactions can go through very very cheaply and very quickly without sacrificing network security a great portion of the work that would have been performed by the layer 1 chain or the the main chain has now moved over to the second layer so while the main chain provides security the second layer offers the throughput being able to perform hundreds and thousands of transactions every single second so if i can use an example i know ethereum is busy with ethereum 2.0 and when it does that that second layer will be there a token like electric cache right um this one has layer two that is in final development as well so what that is gonna mean is that when that token is fully operating on layer 2 you'll be able to perform very fast extremely cheap transactions using that particular crypto so i hope this helps you understand the difference between layer one and layer two um when you year of a crypto and it's only on layer one you know that everything it needs to do is only in that one blockchain but with uh any crypto that has layer two operating it means that there's a second framework on top of it that does all the you know the the processing of those transactions it's going to be fast it's going to be cheap while not sacrificing network security okay folks thanks for joining me today don't forget to leave a like subscribe and hit that notification bell to remain updated on any and all videos that come through from this channel have a blessed day [Music] you

Channel: Crypto Education with Carlin

Views: 6,633

Keywords: network layering, layer 1 blockchain, layer 2 blockchain, blockchain technology, crypto, crypto education, understanding network layer 2 in crypto, network layer 2, crypto fast transactions, electric cash, electric cash layer 2, layer 2 in crypto currency, network layers in cryptocurrency, understanding blockchains, what are layer 2 solutions, crypto layer 2 solutions

Id: 8OQkY3g7e7w

Length: 5min 0sec (300 seconds)

Published: Mon Jun 28 2021