🪙 Why Do Bitcoin Layer 2s Matter?

Increasing Scalability
The Bitcoin network takes about 10 minutes to finalize a single set of transactions – only seven transactions per second (TPS) on average.

This clogs the network during peak traffic and spikes transaction fees. For instance, in April 2021, users paid over $62 per transaction. While this may not be an issue for large transactions, it quickly becomes impractical for micropayments and point-of-sale transactions.

What’s more, scaling the Bitcoin blockchain itself is effectively not an option, as this would require a trade-off in security or decentralization, per Vitalik Buterin’s concept of the Blockchain Trilemma.

In essence, The Blockchain Trilemma is the idea that any blockchain network can only optimize for two out of three main pillars: decentralization, security, and speed/scalability. Therefore, as the Bitcoin network settled on the former two pillars, it had to compromise on scalability.

This wasn’t an issue when transaction volumes were low. But as more users worldwide adopted Bitcoin, the network’s inability to scale caused performance bottlenecks. Users experienced this network congestion in the form of high fees and long transaction times

Bitcoin Layer 2s improve scalability by processing transactions off-chain to unburden the Layer 1.