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LESSONS

Why layers?

Every node checks every transaction, so the base layer is capped. Layers move everyday payments off-chain and settle on it when needed.

4 MIN READ
COURSE · Lightning and layersSTAGE 4 · GO DEEPLESSON 1 OF 8
Payment layers above a settlement layer.
LEVEL · Intermediate
IN THIS LESSON · 1 OF 8
BY THE END YOU WILL BE ABLE TO ANSWER
  • Why is the base layer capped?
  • What does every layer above the base trade for speed?
  • What does the lesson say money has always done?
  • With roughly 2,500 transactions per block and a block every 10 minutes, about how many transactions per second does the base layer settle?

Then prove it: a 3-question quiz · a challenge. The lesson marks itself complete at 100%.

After this lesson you can: explain why the base layer is capped and what layers are for.

Bitcoin's base layer handles a few transactions per second. That is not a flaw someone forgot to fix. It is the cost of every node checking everything on ordinary hardware, which is what keeps the rules enforced by everyone rather than by data centres. The 2017 Blocksize War settled this: the chain stays small and verifiable.

Table comparing how gold, the dollar and bitcoin each split into a settlement layer and an everyday layer.
Money has always scaled in layers. Bitcoin follows the same shape.

Layers

Money has always scaled in layers. Gold moved between banks rarely; notes and cheques circulated daily. Fedwire settles between banks; cards run on top. Bitcoin's base layer is the settlement layer. On top of it:

  • Lightning: payment channels for instant, near-free payments, settling on-chain only when channels open or close.
  • Federated systems (Fedimint) and e-cash (Cashu): trade some trust in a group or a mint for privacy and simplicity.
  • Sidechains (Liquid): a separate chain pegged to bitcoin, run by a federation.
  • Custodians: an exchange moving numbers in its database, settling on-chain in batches.

The trade-off at every layer

Ladder of layers from the base chain, which trusts no one, up to custodians, which trust a company fully.
Higher up, faster and cheaper, and more trust in someone.

Each layer adds speed and takes something: trust in a counterparty, the need to be online, liquidity management, or privacy. The skill is knowing which layer you are on and what you are trusting. The base layer trusts no one; everything above it trusts someone, a little or a lot.

What Is Layered Money? · ExplainerWatch on YouTube ↗
MINI CHALLENGEBase-layer ceiling

With roughly 2,500 transactions per block and a block every 10 minutes, about how many transactions per second does the base layer settle?

per second
CHECK YOURSELF
1/3 Why is the base layer capped?
2/3 What does every layer above the base trade for speed?
3/3 What does the lesson say money has always done?
pick an answer for each question

SOURCES

  1. The Bitcoin Lightning Network (Poon and Dryja, 2016)
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