Layer 1 solutions improve scalability and optimize performance by making structural and fundamental changes to the base protocol itself. These are incorporated onto the chain and are often referred to as On-Chain Solutions. These changes involve accelerating the speed of block confirmation as well as increasing the amount of data being stored in each block, all directed at enhancing overall network throughput.

L2 solution is built on top of an existing blockchain with the primary purpose of improving scalability and efficiency. Most prominent examples include Bitcoin Lightning Network and Ethereum Plasma. An L2 solution offloads the transactional burden from the L1 blockchain. The creation of an auxiliary framework enables L2 to operate and process transactions independently off the chain. L2s manage and handle all the processing load and report to L1 for result finalization. It is for this reason that L2 solutions are also referred to as Off-Chain solutions.

A major benefit associated with L2 frameworks is the ease of deploying the solution. These solutions are integrated as an extra layer on top of the base layer and require no structural or fundamental changes to the mainchain. A majority of the data processing is delegated to L2, reducing congestion on L1, thereby improving scalability, TPS and lowering transaction fees.

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