Blockchains are decentralised, peer-to-peer, immutable digital ledgers designed to record transactions, store data, and track the movement or exchange of digital assets without the need for a central authority. The decentralised nature of blockchains ensures that no single entity controls the network. 

 

Since Satoshi Nakamoto launched Bitcoin in 2009, blockchains have come a long way. A notable milestone was the advent of Ethereum in 2015, which introduced smart contract capabilities to the blockchain. 

 

Although the technology is still relatively nascent, it has grown and evolved. Today, blockchains are categorised into different layers, each with its unique characteristics and purposes:

• Layer 0
• Layer 1
• Layer 2
• Layer 3

 

 

This article will break down the different blockchain layers, examine their features, and highlight their interrelationships. 

 

Layer 0 (L0)

 

Source: blogtienso

 

Layer 0o are “blockchain for blockchains” in the sense that they act as the base layer of multiple chains providing all digital technologies that power the blockchains they host and the essential physical infrastructures like hardware, electricity, and internet services that keep them running smoothly. 

 

One of the key roles of Layer 0 is to optimise data transfer and communication across different blockchain layers. By facilitating seamless communication, Layer 0 protocols enable blockchains to synergise and leverage each other’s dApp ecosystems. This enhances the accessibility and interoperability of blockchain networks, creating a more unified and efficient ecosystem.

 

Blockchains built on the same Layer 0 protocol can interact seamlessly without the need for dedicated bridges. This interconnected ecosystem and cross-chain interaction are crucial for improving transaction speeds and overall efficiency, ultimately enhancing the user experience and attracting more participants to the network. 

 

Layer 0 protocols also provide software development kits (SDKs) and interfaces that offer developers a high degree of flexibility. These tools enable the creation of specialised, custom blockchains, known as parachains. Developers can tailor these blockchains by defining unique token issuance models and controlling the types of dApps built on their networks, making Layer 0 a powerful foundation for innovation in the blockchain space.

 

Some examples of layer 0 blockchains are Polkadot, Cosmos and Kusama. 

 

Layer 1 (L1)

Source: Builtin

 

Layer 1 blockchains are the base and foundational networks where transactions and blocks are added, validated, and finalised. These blockchains establish and ensure security, immutability, block time, block size, and the rules and parameters that maintain the network’s basic functionality, including network-specific programming languages. They are also responsible for managing the consensus processes. 

 

Each Layer 1 blockchain has its consensus model to determine how and what data is added to the network.

 

The most popular consensus mechanisms are Proof of Work (PoW) and Proof of Stake (PoS), which are used by Bitcoin and Ethereum to validate transactions. Layer 1s operate independently and do not rely on any other network. Some, like Ethereum and Solana, also support smart contracts, enabling the creation and operation of decentralised applications (dApps). 

 

Layer 1 blockchains provide the basic infrastructure and security required to host secondary blockchain networks as a result  Layer 1 blockchains often operate in isolation, which significantly hinders interoperability. A Layer 1 blockchain and the secondary networks it hosts exist separately from other Layer 1 blockchain. 

 

This contrasts with Layer 0, which fosters interoperability across/between different blockchains and parachains.

Source: Cointelegraph 

 

Layer 1 blockchains suffer from the “blockchain trilemma,” where they sacrifice one of the three key attributes; 

scalability, 

decentralisation,

security.

i.e. they disproportionately prioritise two of these attributes at the expense of the third. For example, Layer 1 blockchains like Bitcoin and Ethereum prioritise decentralisation and security over scalability. This prioritisation leads to slower transaction speeds and lower throughput, which can result in high gas fees. 

 

Layer 2 (L2) 

Source: pixelplex

 

Layer 2 blockchains are secondary networks built on top of existing Layer 1 blockchains to improve scalability by offloading some of the processing from the main chain. This approach increases throughput and lowers transaction fees addressing the inherent limitations of Layer 1 blockchains, which often sacrifice scalability to achieve higher decentralisation and security. 

 

These networks are often referred to as Layer 2 solutions because they are not standalone blockchains; instead, they rely on the underlying Layer 1 blockchain for security and finality.

 

 Layer 2 acts as a second layer of protocols that process transactions off-chain (usually more efficiently)  before settling the final state on the Layer 1 blockchain. Transaction data must, in some form be eventually transferred to the underlying Layer 1 network for verification and final settlement. 

 

By processing transactions off-chain and settling them on the main chain (Layer 1), Layer 2 solutions can offer increased speed and reduced costs without compromising decentralisation or security.

Some examples of Layer 2 solutions are Optimism, Arbitrum, and Polygon, all of which are designed to improve Ethereum’s scalability.

 

See: Bitcoin Layer2s: What Are and How They Work 

 

Layer 3 (L3) 

Source: Serkan Koc

 

Layer 3 blockchains serve as the application layer built on top of Layer 2 solutions, which, in turn, are based on Layer 1 blockchains. Their primary function is to provide a highly customisable and interoperable environment where decentralised applications (dApps) can thrive and perform optimally. 

 

Layer 3 networks represent the latest advancement in the blockchain stack, aiming to make blockchain technology more accessible and user-friendly. With their customizability, developers can implement solutions tailored to specific needs, such as enhancing privacy or supporting high transaction volumes. 

 

For example, in gaming applications, where maintaining a seamless in-game experience requires the network to handle hundreds or thousands of microtransactions simultaneously, operating on Layer 3 allows developers to ensure cost efficiency for users due to the reduced transaction fees. 

 

This flexibility allows for the creation of complex dApps that improve both performance and accessibility for users, all while inheriting the security benefits of the underlying Layer 1 blockchain. Ethereum Layer 2 solutions, like Arbitrum and Optimism, have released tools to facilitate the deployment of bespoke Layer 3 networks, further enhancing the blockchain ecosystem.

 

Closing Thoughts 

 

Here is how L1, L2 and L3 all compare to each other: 

Source: CoinGecko 

 

The quest for mainstream adoption and growth has powered the evolution and development of blockchains up to this very point and it is interesting to see where blockchain innovation will take us next. 

 

‍‍[Author’s Note: This article does not represent financial advice, everything written here is strictly for educational and informational purposes. Please do your own research before investing.] 

 

‍Author: Godwin Okhaifo 

 

Also Read: What is The Ethereum Pectra Upgrade?