Trail notes
- Layer 2 networks process transactions away from the main chain and settle the results back on it, which usually lowers fees.
- Optimistic rollups assume batches are valid unless challenged; zero-knowledge rollups post a cryptographic proof that they are valid.
- Sidechains run their own validators and consensus, so their security does not come from the main chain.
- Withdrawing from an optimistic rollup through its official bridge can take days; faster exits rely on third parties.
- Check who runs the sequencer, who can upgrade the contracts and whether you can exit if the operator stops.
Why layer 2 networks exist
A base blockchain such as Ethereum, often called layer 1, has limited room in each block. When demand is high, fees rise, as our gas fees guide explains. Making the base layer much bigger would make it harder for ordinary participants to run and verify it.
Layer 2 networks take a different route. They run transactions on a separate network, then post compressed results to layer 1. Many users share the cost of one layer 1 transaction, so each pays less. The trick is doing this without asking you to fully trust the layer 2 operator.
Not every cheaper network is a layer 2. Some are separate blockchains connected by a bridge. The difference is all about where security comes from.
Rollups: the core idea
A rollup executes transactions off the main chain, bundles them into batches and posts the batch data to layer 1. A set of contracts on layer 1 holds the funds deposited into the rollup and decides which state is accepted as final.
Because the transaction data is published on layer 1, anyone can in principle reconstruct the rollup’s state and check it. That is what lets a rollup borrow security from the main chain: if the operator posts something false, there is a way to prove it, at least in a mature design.
Most rollups today rely on a sequencer, an operator that orders transactions and posts batches. A single sequencer can be fast, but it can also delay or censor transactions, which is why exit mechanisms matter.
Optimistic vs zero-knowledge rollups
| Optimistic rollup | Zero-knowledge (ZK) rollup | |
|---|---|---|
| How validity is shown | Batches are assumed valid; anyone can submit a fraud proof during a challenge window | Each batch comes with a validity proof that layer 1 checks |
| Withdrawals to layer 1 | Wait for the challenge window to pass, often several days | Possible once the proof is verified, usually faster |
| Main trade-off | Simpler, but slow official exits and reliance on someone watching for fraud | Faster finality, but complex cryptography and proof systems |
| What to check | Are fraud proofs live and open to anyone? | Is the proof system complete and audited? |
As an example of the optimistic design, Arbitrum is generally described as an optimistic rollup. That is a description of its architecture, not a recommendation, and network designs evolve, so always read a network’s current documentation.
Sidechains and commit chains
A sidechain is a separate blockchain with its own validators and consensus rules, connected to a main chain by a bridge. It may be compatible with the same wallets and apps, which makes it feel like a layer 2, but its security comes from its own validator set. If enough of those validators collude or fail, the main chain can’t step in to fix things.
Some networks sit in between. A commit chain runs its own validators but regularly posts checkpoints of its state to the main chain. Checkpoints add a public record, but they don’t by themselves let the main chain verify every transaction the way a rollup aims to.
Polygon’s original proof-of-stake chain is commonly described in these sidechain or commit-chain terms, in contrast with an optimistic rollup such as Arbitrum. Both projects have changed over time, and naming them here is only to illustrate the categories.
Marketing often calls any cheaper network a “layer 2.” Look past the label to the question that matters: if the operators misbehave, what stops them, and can you still withdraw?
Bridging in and out
To use a layer 2 or sidechain, you move tokens there through a bridge. The official, or canonical, bridge locks your tokens in a contract on layer 1 and credits matching tokens on the other network. Moving back reverses the process.
Third-party bridges and liquidity providers offer faster exits by paying you on layer 1 right away and waiting out the delay themselves, for a fee. That adds another contract and another operator to trust. Bridged tokens can also have different contract addresses on each network, so a token with a familiar name may not be the version you expect. Read bridges explained and use our bridge checklist.
Security assumptions to check
- Proofs. For a rollup, is the fraud or validity proof system live, or still under development?
- Sequencer. Is there one operator? If it stops or censors you, can you force a transaction through layer 1?
- Upgrades. Who can upgrade the bridge and rollup contracts, and is there a delay long enough for users to exit first?
- Data availability. Is transaction data posted to layer 1, or kept somewhere else that could withhold it?
- Validators. For a sidechain, how many validators are there and how independent are they?
- Bridge history. How long has the bridge held funds, and has it been audited?
A bridge contract can hold the deposits of everyone using a network. That makes it an attractive target. See our bridge risk explainer before moving meaningful amounts.
Canadian notes
CRA has published no DeFi-specific guidance on lending, liquidity pools or wrapping. Its record-keeping guidance asks you to keep the addresses of each wallet you use, so record your address on each network along with every bridge transaction, its date and CAD value. CDIC does not cover crypto-assets on any network.
Moving tokens between your own wallets on different networks can create several transactions and fees in one go. Keep the transaction ID from both sides of every bridge so you can match them later. If a bridge involves swapping into a different token, treat that as a trade in your records.
Your checklist
Questions people ask
What is a layer 2 network?
A layer 2 network processes transactions off a main blockchain and settles the results back on it, so users share the main-chain cost and usually pay lower fees. Rollups are the most common type.
What is the difference between an optimistic rollup and a ZK rollup?
An optimistic rollup assumes its batches are valid unless someone proves fraud during a challenge window, which delays withdrawals. A ZK rollup posts a cryptographic validity proof with each batch, so withdrawals can finalize once the proof is checked.
Is a sidechain the same as a layer 2?
No. A sidechain has its own validators and consensus, so its security depends on those validators rather than on the main chain. A rollup aims to inherit security from the main chain by posting data and proofs there.
Why does withdrawing from a layer 2 take so long?
On optimistic rollups, the official bridge waits for a challenge window, often several days, so anyone can dispute an invalid batch. Faster third-party exits exist but add another party to trust and a fee.
Sources and dates
- Layer 2 — ethereum.orgreference
No date shown on page · checked 2026-10-31. Rollups and other scaling networks. - Blockchain bridges — ethereum.orgreference
No date shown on page · checked 2026-10-31. How bridges move assets between networks, and bridge risks. - Gas and fees — ethereum.orgreference
No date shown on page · checked 2026-10-31. How transaction fees (gas) work on Ethereum. - Keeping books and records of crypto-assets for tax filing — Canada Revenue Agencyin force
Page date 2025-11-10 · checked 2026-10-30. What to record per transaction, wallet addresses, yearly balances; export platform history; keep records at least six years. - Information for crypto-asset users and tax professionals — Canada Revenue Agencyin force
Page date 2025-10-29 · checked 2026-10-30. CRA's current crypto-asset guidance set (replaced the older 'Guide for cryptocurrency users'). - What's covered — Canada Deposit Insurance Corporationin force
No date shown on page · checked 2026-10-30. Up to $100,000 per category per member institution; cryptocurrencies, including stablecoins, are not covered.
Education only. Nothing on this page is financial, investment, tax or legal advice, or a recommendation to buy, sell, stake, lend or borrow any crypto-asset. Crypto-assets can lose some or all of their value and are not covered by CDIC. Canadian rules change: check the dated sources above and talk to a qualified professional about your situation. Full disclaimer.