Securing Digital Rights for Communities (Game Theory and Governance of Scalable Blockchains for Use in Digital Network States)

Chapter 6 – What a Social Blockchain’s Layer 2 Should Do

It’s not that difficult to understand why trying to put everything on Layer 1 is a fruitless task

Introduction

The second layer (or Layer 2) refers to the secondary layer or protocol that is built on top of a blockchain. These are designed to enhance the scaling of the ecosystem far above what can occur at the base layer. Blockchains tend to be limited in the number of transactions they can process. There are also memory concerns since individual nodes have limitations

A well-designed Layer 2 (L2) is where most application logic, heavy data, smart contracts, and computationally intensive operations should live, while still relying on Layer 1 for security, finality and account management. By keeping Layer 1 lightweight mainly storing text-based data, social actions, and essential governance, Layer 2 can handle large-scale application services, smart contracts, and non-text data without bogging down the base chain. This division lets the community-run Layer 1 remain forkable, scalable and fee-efficient, while Layer 2 delivers complex functionality to end users.

This chapter explains what Layer 2 should do and how it can build upon a secure, fee-less (or low-fee) base layer.

6.1. Application Operations and Services

6.1.1 Offloading Heavier Logic

• Instead of stuffing all computation into Layer 1, the "business logic" runs on Layer 2.

• Keeps the base chain from becoming overloaded with code or inflated transaction fees.

6.1.2 Front-End Interactions

• Social platforms, smart contracts, games, collaborative editing tools, or advanced finance products can store heavier data or run specialized computations off-chain (or partly off-chain) and only anchor key results and checks to Layer 1 when needed.

6.1.3 Data Efficiency

• Large media files or high-volume data like videos, images, or complex transaction logs are better suited for Layer 2 networks or off-chain storage solutions.

• Layer 1 records essential references (e.g., pointers/hashes) to ensure immutability and censorship resistance for crucial metadata.

This synergy lets Layer 1 remain nimble and secure, while Layer 2 fosters rich application ecosystems.

6.2. Rely on the Security and Account System of Layer 1

6.2.1 Leverages Layer 1 Accounts

• User identities and private keys are established on the base chain.

• Layer 2 applications rely on these same accounts, ensuring a single source of truth for ownership.

6.2.2 Anchors Critical State

• Key events like finalizing token transfers or verifying integrity are committed back to Layer 1 to prevent manipulation. With a zero fee base layer this can happen instantly, all day long, providing the Layer 2 has the required amount of resources staked on Layer 1. This minimises trust in Layer 2's as they can affordably and instantly clear to the base layer (L1) security for finalisation.

6.2.3 Avoids Duplicating Security on Layer 2

• Layer 2 should not require a separate "miner" or "validator" set to replicate the entire chain’s security.

• Reduces complexity and resource consumption while maintaining trust in the Layer 1 consensus.

Because Layer 2's can inherit the reliability and user identity from Layer 1, each new application or service does not have to solve security from scratch. This means Layer 2 builders can focus resources in what they are good at, and not on having to replicate Layer 1 blockchain features and maintaining operation of a decentralised network.

6.3. If Done Correctly, Layer 2 Does Not Need Layer 1 Security

6.3.1 Minimal On-Chain Dependencies

• Layer 2 can store ephemeral or detailed data on specialised, distributed "off-chain," storage systems such as SPK Network, referencing only final states or signatures on Layer 1 (see Chapter 18. “Off-Chain Data Availability Layer for Non-Text Data”). -Layer 1 therefore, functions as a final settlement layer rather than a global CPU or data warehouse.

6.3.2 Reduced Attack Surface

• Since Layer 2 uses Layer 1 only for account identity, finality, and minimal checks, the base layer remains robust. Layer 2 systems can therefore innovate freely without risking or having to replicate the entire network’s stability.

6.3.3 Separate Upgrades

• Layer 2 services can evolve at their own pace and scale independently without putting load on the entire chain.

• Boosts flexibility while preserving Layer 1 continuity and neutrality.

6.4. Smart Contracts / Heavy Data (Non-Text) & Computation

6.4.1 Smart Contracts

• Complex scripting logic, DeFi protocols, advanced NFT mechanics, or multi-step financial flows operate off the base Layer 1 chain, keeping the base Layer 1 light and scalable, while modularised Layer 2 systems can scale individually based on demand and usage while, as a result, not putting additional load on the base layer.

• Only essential confirmations (like final balances or contract triggers) settle on Layer 1. Inter computational information can be kept on the Layer 2 until computation reaches points at which it needs Layer 1 security

6.4.2 Heavy Media / Non-Text Storage

• Videos, large documents, or images do not belong on the base layer chain and can be stored on Layer 2 storage systems.

• Layer 2 or other off-chain networks (e.g., IPFS, SPK Network) store these files, referencing them via hashes or pointers on Layer 1.

• This allows the Layer 1 to scale significantly more. Any non essential action or piece of data can be stored on Layer 2 instead of on the Layer 1.

6.4.3 Computationally Intensive Operations

• Simulations, gaming logic, aggregator queries, or batch updates can operate on Layer 2 nodes or specialized side-chains.

• Summarized or finalised results are recorded on the base layer.

This prevents Layer 1 from becoming bloated and requiring centralised super-nodes.

6.5. Tokens, Wrapping, and Decentralised Finance (DeFi)

6.5.1 Custom Tokens

• Communities can create Layer 2 tokens representing digital assets, reward points, or governance stakes pertaining to that community only.

• Such tokens can be managed by Layer 2 logic but recognized or mapped at Layer 1 for authenticity and security.

6.5.2 Instant, Low Cost Swaps and Wrapping

• External or cross-chain tokens can be "wrapped" into Layer 2 equivalents.

• Multi-sig or bridging mechanisms facilitate this process.

• Fast, Fee-less transfers means that liquidity can be held on both chains by the Layer 2 Smart Contract multi-sig system and thus instant, low fee swaps can be facilitated.

6.5.3 Fee-less DeFi

• DEX's, lending protocols, and yield farms operate on Layer 2.

• They frequently specialise in DeFi lending and value / token swap transactions, which require low-cost execution, making a zero fee Layer 2 the ideal environment for such systems.

By relying on Layer 1 for final settlement and accounts, Layer 2 tokens or DeFi remain trustless, auditable and tamper-resistant.

6.6. Implications: Efficiency, Scale, and User Experience

6.6.1 Lower Fees

• Using this Layer 1/2 division of responsibilities approach, Layer 1 can optimally reduce its load from computations and other high intensity transaction types. Layer 1 transactions can therefore more easily remain near-zero fee or Resource-Credit-based when the chain operates at scale.

• Layer 2 handles heavy transaction flow. This flow can be modularised per Layer 2 smart contract meaning the cost of demand does not have to be passed to the whole community, as it does on many other chains where Layer 1 executes almost everything, including smart contracts and compute. This results in a general reducing of costs across the network and costs raise only in areas where demand is high, not for all end users, as with many of the early blockchains.

6.6.2 Fast, Rich Apps

• Layer 2 is able to offer real-time updates, large datasets, and interactive Dapps at scale, where as Layer 1 can focus on being the security and finality layer. This means Dapps can specialise in making their user experience top quality, and not have to worry as much as with traditional blockchain tech stacks about operating at scale

6.6.3 Protection of the Base Chain

• If something goes wrong with a Layer 2 app, the underlying chain remains intact.

• Financial risk assets and operations can be minimised on Layer 1 and risk taking can be moved to the Layer 2 systems that specialise in generating high economic yield to users for increased risk taking. This reduces risk on the community base layer (Layer 1) and isolates mistakes and over leverage to Layer 2, helping to protect and preserve the Layer 1 in times of financial uncertainty.

6.7. BLS Multi-Sigs on Layer 1 and Escrow & Liquidity Pools on Layer 2

6.7.1 BLS & Escrows

• This type of feature allows two parties to lock funds or assets until certain conditions are met at which point funds can be released.

• These are governed by Layer 2 logic, often with multi-sigs with final "release" transactions on Layer 1.

• If the collateral involved in such transactions is large, in the tens, or hundreds of millions of dollars, the community may opt to use BLS Threshold signatures on the Layer 1, where a multi sig in which a preferred method of on chain fund release requires many hundreds of signatures be obtained in order for funds to be released from liquidity pools or escrow systems.

6.7.2 Layer 2 Liquidity Pools

• Layer 2 automated market makers (AMMs) or multi-asset pools can handle continuous swaps and yield strategies away from the Layer 1.

• High-frequency operations stay on Layer 2, reducing contract calls on Layer 1 where finality clearances happen.

• Some communities may wish to create their own dedicated Layer 2 liquidity pools separate to the Layer 1, reducing risk of hacks on the Layer 1.

Conclusion

Layer 2 is the engine for advanced functionality, heavy data, and day-to-day Dapp logic. By leaning on the secure, fee-less (or low-cost) Layer 1:

• Accounts and final settlements remain tamper-proof.

• Smart contracts, heavy storage, and complex computations stay off the base chain.

• Tokens and DeFi gain flexibility without increasing Layer 1 congestion. Communities and Dapp operators can expand freely, confident their basic user identities and transaction proofs are anchored in an un-bloated, decentralised base layer.

This complementary design empowers vast application ecosystems such as community social tokens, advanced financial instruments and data-rich content platforms while preserving true decentralisation and fork-ability at the root. By separating what Layer 2 should do from what Layer 1 must do, you maximize scalability, lower costs, and open the door to censorship-resistant digital communities at real-world scale.

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