Second Layer

"Second layer" (or "layer 2") refers to any protocol built on top of Bitcoin's base chain that processes transactions outside the main chain while ultimately settling back to it. The goal is to add throughput, speed, or features without changing - and without burdening - the base layer.

The major second-layer designs for Bitcoin:

• Lightning Network. Off-chain payment channels secured by Bitcoin scripts, enforced on-chain only if a party misbehaves. Instant, cheap payments; periodic on-chain settlement. The best-known Bitcoin second layer.
• Sidechains like Liquid and Rootstock (RSK). Separate blockchains pegged to Bitcoin via federated or other peg mechanisms. Often used for features Bitcoin lacks (confidential transactions on Liquid, Ethereum-style smart contracts on Rootstock).
• Statechains. Off-chain transfer of the right to spend a UTXO from one user to the next, coordinated by an operator, with the current holder always able to settle on-chain without the operator's permission. Mercury Layer, announced in 2024, is one implementation.
• Ark. A newer design in which many users and an operator share on-chain UTXOs through trees of pre-signed off-chain transactions, built in periodic rounds. Users hold "virtual UTXOs" that expire unless refreshed into a new round, and can always exit to the chain on their own.
• Chaumian e-cash (Fedimint, Cashu). Mints that hold bitcoin and issue blind-signed tokens, so the mint cannot see who paid whom; the tokens can be redeemed with the mint for sats. Users trade self-custody for strong privacy and instant payments, and must trust the mint.
• Drivechain (proposed). A sidechain design from BIP-300 in which withdrawals back to Bitcoin are governed by miners' proof-of-work rather than a federation. Still a draft; not activated.

The shared logic of every second layer: Bitcoin's base chain is the global settlement layer - secure, immutable, expensive to use in volume. Second layers absorb the day-to-day transactional load and only settle back to the base chain when needed.

The trade-offs vary by design. Lightning needs no trusted third party, but it requires liquidity management and someone - you, or a third party you delegate - watching the chain for a cheating counterparty. Sidechains are easier to use but introduce trust in the federation that holds the peg. E-cash mints are convenient but require trusting the mint.

The base + layer model is how Bitcoin scales. The base layer doesn't need to handle every coffee purchase; it needs to settle the final state. See Layer 1 for the base-chain view this builds on.