Layer 2 Scalability

L2 Scalability refers to the ability to increase a blockchain-based system's overall capacity by supplementing a layer one blockchain with an external computation and storage layer. These external layers or networks are commonly referred to as layer two's and include various systems, including Rollups, State Channels, and Plasma constructions, but typically does not include Sidechains. The functionality of layer two systems can differ significantly, with some able to only process simple transfers. In contrast, others can execute complex computations similar or equivalent to that which can be performed on the corresponding layer one blockchain, but all with the common goal of increasing the net transaction capacity for users. Although definitions differ, most commentators generally consider layer two networks as those that inherit their economic security primarily or exclusively from the underlying blockchain rather than depending on their own native economic security; this distinction is a crucial difference between Sidechains and Layer two networks.