A Layer 2 (L2) is a secondary blockchain that derives its security from a Layer 1 (L1) like Ethereum or Bitcoin while processing most transactions independently. Periodically, the L2 commits a compressed proof or state root back to the L1, anchoring its state to the L1's security. The result: 10-100x cheaper fees and 10-1000x more throughput than the underlying L1, while inheriting most of the L1's security guarantees.
Two main families dominate. Rollups (the most common) bundle thousands of L2 transactions into one L1 transaction containing either fraud proofs (optimistic rollups) or validity proofs (ZK rollups). State channels (Lightning Network on Bitcoin) and sidechains are alternative L2 designs with different security models.
For users, an L2 looks like a separate network with its own RPC endpoint, gas token (often the native L1 token), and explorer. Bridging assets between L1 and L2 takes minutes (deposits) to days (optimistic withdrawals) depending on the design.
Ethereum L1 alone cannot host the world's transactions; gas fees would price out everything except institutional flows. L2s are how Ethereum scales without sacrificing decentralization. Major L2s in 2026: Arbitrum, Optimism, Base, zkSync, Starknet, Linea.
TerminalFeed's premium credit system runs on USDC on Base, which is an Optimism-style L2. See how AI agents pay for the technical flow.