What is Layer 0, Layer 1, Layer 2, Layer 3?

Overview of blockchain layers

Although there is no common standard for blockchain layers, a 3-layer approach is probably the most common.

We can call blockchain layers a home. While the base (Layer 0), ground floor (Layer 1), and roof (Layer 3) are required, any additional bottom (Layer 2) is optional. Other floors like Layer 2 can help avoid congestion and provide more space for efficiency and scalability.

Without a foundation, you would not be able to build the superstructure and the roof. Although each Layer offers different functions, they are all interconnected.

Layer 0: The Internet of Blockchain

Layer 0 or L0 is the base layer, including the hardware and software that build the backbone of the blockchain ecosystem.

L0 is a network framework running underneath the Blockchain. It is made up of protocols, connections, hardware, and mining tools… that form the foundation of the blockchain ecosystem.

L0 also allows inter-chain operability, i.e., enable the Blockchain to communicate with each other. It plays an essential backbone in solving the scalability problems of subsequent layers. L0 often uses native tokens that provide access to join and grow, and this Layer can be considered the “Internet of Blockchains.”

Examples for L0 are Polkadot, Avalanche, Cardano, and Cosmos.

Layer 1: The Blockchain

If L0 is the base floor, Layer 1 (or L1) represents the ground floor. Therefore, the majority of projects in this class are better known to users. When people talk about Ethereum and Bitcoin, this is the Layer we’re talking about.

L1 represents today’s Blockchain. We need to understand that L1 is the source of most of the workload, such as consensus mechanisms, programming languages, block time, dispute resolution, and rules and parameters that maintain the essential functions of the blockchain network.

The number of tasks this Layer must handle often leads to scalability issues. As more users participate in a particular blockchain, it requires increasing computing power to resolve and add blocks to the chain, thus leading to increased transaction fees and slower processing times.

Improved consensus mechanisms such as equity evidence and the advent of sharding (dividing computational tasks into smaller parts) partially mitigate the problem of scaling. However, the past has proven that all these solutions are not enough.

Examples for L1 are Bitcoin, Ethereum, Binance Smart Chain, and Solana.

Layer 2: Increase speed and scalability

Layer 2 (L2) seeks to provide solutions to the scalability issues of a L1 blockchain.

We’re still going to use the same idea: to solve congestion by taking traffic out of L1. L2 solutions come in different forms, and this article will introduce you to the most common L2 solutions.

State channel

The state channel performs the task of updating the status of the Blockchain. We can treat it as a separate chain (or channel) that handles transactions. Instead of recording every single transaction, L1 stores only valid information (channel status) from Layer 2.

Sidechain

Sidechains are separate blockchains that run parallel to an existing Layer 1, linked to a two-way bridge (pin) for the Layer 1 root token. The sidechain uses its own protocols, consensus algorithms, block parameters, and administration to process transactions but uses Layer 1 tokens. This means that an ETH sidechain will trade with ETH without other tokens, and any Dapp developed on the sidechain will integrate seamlessly into the Layer 1 network.

Nested chain

A nested chain is essentially an internal blockchain, or rather, on top of another blockchain. Nested blockchain architectures typically involve a primary blockchain that sets parameters for a broader network, while execution processes are performed on an interconnected web of sub-chains.

Many blockchain levels can be built on the main chain, with each level using a parent-child connection. The parent thread authorizations work for child threads that are processed and returned to the parent thread after completion. The underlying Blockchain below does not participate in the network functions of the secondary chain unless dispute resolution is required.

Layer 3: Applications (UI)

Layer 3 (L3) is the last Layer visible to the naked eye. So simply, you can imagine it as a mobile app. These are the UIs that the previous participant worked with.

This Layer seeks to provide simplicity and convenience when handling L1 and L2. L3 provides the user interface and utility in the form of the ability to operate internally and inter-chain, such as through decentralized exchanges, liquidity-providing applications, and betting.

Layer 3 is often referred to as decentralized applications (Dapp) that provide real-world applications for blockchain technology.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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