Layer 2 vs Payment Channel

Layer 2 refers to secondary protocols and networks built on top of a blockchain's base layer (Layer 1) that process transactions off-chain while inheriting the security of the underlying blockchain, enabling higher throughput, lower fees, and faster confirmations without changing the base protocol.

A payment channel is a direct, bilateral connection between two parties that enables unlimited off-chain transactions by locking funds in a multi-signature smart contract on the blockchain, allowing instant exchanges of signed balance updates that can be settled on-chain at any time.