Introduction

The blockchain ecosystem previously comprised layer one and layer two infrastructures, from the base layer to the scalability layer. But after a series of innovations, a third layer emerged with endless possibilities and use cases. This layer is termed layer three. So what are layer three blockchains, and how do they work?

What are Layer Three Blockchains?

Layer three blockchains are the application layer on a blockchain protocol that houses decentralized applications and protocols, allowing users to carry out various activities.

Layer three blockchains focus on interoperability, customizability, and interconnectivity, giving blockchain networks the infrastructure to create real-world applicability. At the same time, it seamlessly connects users through a series of user-friendly interfaces that hide the complex technicalities behind the underlying infrastructure.

Layer three blockchains also allow developers to deploy custom-made smart contracts that automate intricate processes, shielding users from the complexities of interacting with decentralized apps.

With the current use cases for blockchain projects, layer three blockchains are also set to satisfy various industries and projects, from decentralized social media platforms to online marketplaces. While layer three blockchains have made progress on blockchains like Ethereum and Solana, many other blockchains can host layer three projects. Unfortunately, Bitcoin hasn’t yet fully provided the infrastructure to support layer three functionalities fully.

The Architecture of Layer Three Blockchains

Applications and protocols built on layer three blockchains are built to foster true cross-chain interoperability without relying on intermediaries or custodians. These protocols have unique features that facilitate cross-chain capabilities, seamless interaction, and data transfer between different blockchain platforms, going beyond centralized systems to bring true decentralization.

Layer three blockchain protocols are built for two sublayers, the application layer and the execution layer, to coexist.

The execution layer operates similarly to a conductor, orchestrating the execution of smart contracts and transactions, while the application layer allows decentralized applications and protocols to be built and scaled. With a seamless fusion of innovation, scalability, and practicability, layer three blockchains allow developers to cause technological disruptions efficiently.

They achieve enhanced scalability beyond layer two blockchains by combining the advantages of the layer two infrastructure, such as cost reduction and high-security benefits, with improved privacy protection using zero-knowledge proofs and hyper-scalability.

The Need for Layer Three Solutions

With layer one blockchains acting as a base layer and layer two blockchains solving scalability and bridging interoperability, it’s normal to ask, what is the need for a third layer?

One fundamental issue within the blockchain sector is the blockchain trilemma, the mix of security, scalability, and interoperability. Layer one blockchains had security, lacked scalability, and had zero interoperability, partially solved by layer two blockchains that allowed base one layers to scale or expand.

This didn’t solve the interoperability problem optimally since movement between base layers was done using layer two bridges and centralized or semi-centralized projects. Also, the more layer-two projects created to scale base layers, the more the interoperability problem compounded.

This led to the need for layer three blockchains. Layer three blockchains improved on the other two layers due to the customization feature, which allows it to create applications that meet the specific need of an industry or a dApp, allowing developers to improve scalability and interoperability when needed.

Layer three blockchains also reduce costs by removing unnecessary, inefficient passage of assets. Additionally, layer three blockchains are designed to offer greater privacy and security because they can encrypt data and transactions, which reduces the need for intermediate passages or centralized parties, improving decentralization and reducing cost.

History of Layer Three Blockchains

The concept of layering is embedded into all human network structures. It has been dramatically influenced by the Open Systems Interconnection (OSI) model, which was used in initial traditional computer networks.

The concept first came with the emergence of scalability and interoperability issues that affected users’ experiences on platforms. The idea to create layer three started with layer two protocols. With layer two designed to solve scalability problems, layer three was initially meant to provide scalability further.

Yet, with the concept of different layers serving different functionalities, layer three blockchains had to focus on a different functionality from layer two. So, where an L2 focuses on scaling, an L3 would go towards more specialized functionality like privacy. This led to discarding the idea of wanting to ‘improve’ upon the compression of layer two and instead gave L3s something new to work and focus on.

As the application layer, layer three protocols are designed to host and enable customization for applications in the decentralized space. Yet the customization function can scale applications and enhance compressed data for specific applications and formats other than EVMs.

How Do Layer Three Protocols Work? Recursive Proving, Zero Knowledge Proof, Seemeless Interoperability and Payments Atomicity

As the application layer, layer three blockchains leverage the base layer (layer one) and scaling layer (layer two) infrastructure to operate.

Layer one protocols, such as Ethereum or Solana, handle the fundamental aspects of consensus, security, and transaction validation. While layer two solutions, like Optimism or Arbitrum, help enhance scalability by processing transactions off-chain and periodically settling them on the layer one blockchain.

Layer three functionalities include:

Recursive Proving

Recursive proving is a technique that allows the protocol to create a single proof for a large number of transactions that have been broken down into smaller batches. This single proof can then be used to verify all the transactions in the batch, reducing the computational load and improving overall efficiency.

This technique enables layer three blockchains to handle more transactions without sacrificing security or performance. Layer three infrastructure leverages the cost reduction of layer two blockchains while offering hyper scalability through recursive proving.

Zero Knowledge Proof

Layer three also improves on existing data security with zero-knowledge proofs. Zero-knowledge proof is a cryptographic technique that allows users to verify the validity of a statement without revealing the actual underlying data. This feature is valuable in applications that require confidentiality, such as financial transactions or identity management systems.

Seamless Interoperability

The main aim of layer three projects is to achieve true cross-interoperability without the need for bridges or centralized intermediaries. Layer three projects enable seamless communication and data exchange between blockchain networks, enhancing the connectivity and functionality of the decentralized ecosystem.

This interoperability would allow decentralized apps on layer three blockchains to interact, creating the “Internet of value.” In theory, such layer three applications would be blockchain-agnostic, providing the possibility of trustless multi-asset transactions.

Payments Atomicity

Atomicity is the ability of a system to ensure that either all of a set of actions is performed or none is performed at all. In the context of payments, atomicity means that if payment is initiated, it is either completed successfully or entirely reversed.

One of the critical features of layer three blockchains is the ability to achieve atomicity for payments. This is done with techniques such as off-chain transactions, hash time lock contracts (HTLCs), and payment channels.

Off-chain transactions are transactions that are processed outside of the blockchain network. HTLCs are a custom smart contract that specifies a timelock and a hash. A payment is reversed if the recipient does not receive the hash before the timelock expires. At the same time, payment channels establish secure and private channels between the parties in the transaction.

Layer Two vs. Layer Three Blockchains

Layer two and layer three infrastructures have similarities in scalability and security, yet the two layers have distinct features that play a crucial role in performance. Here’s how layer two projects differ from layer three projects.

• Network Infrastructure: The first distinction lies in the network’s infrastructure. Layer two projects reduce network congestion by moving transactions away from the main chain and relaying compressed transactions to the main chain. However, layer two networks do not inherently offer interoperability among different protocols.

  Layer three projects, on the other hand, provide scalability but with added interoperability features. Their infrastructure excels in cross-chain communication, which facilitates interoperability, and bridges the communication gap between layer one and layer two networks, enabling seamless interactions.

• Network Security: Another distinction is network security. Layer two projects are built directly on layer one blockchains, benefiting directly from the superior security infrastructure. In contrast, layer three blockchains are typically built on layer two platforms, providing less security. Layer three projects are also more complicated to implement due to the added functionalities that can be potential penetration points for bad actors.

• Scalability and User Experience: Layer two projects usually focus on scalability with little focus on user experience, making it challenging to be mass adopted by new users in the crypto space. On the other hand, layer three projects focus on real-world applicability and user experience, protecting users from the underlying complexities of the platform.

Examples of Layer 3 Protocols

Orbs

Orbs is an open, permissionless layer three blockchain protocol built on Ethereum and Polygon. This allows it to utilize Ethereum’s (layer one) security and Polygon’s (layer two) scalability while deploying applications on its layer three infrastructure.

Orbs acts as a decentralized backend, enhancing the capabilities of EVM and non-EVM smart contracts. Orbs currently has multiple validators, with hundreds of millions staked across all validators cumulatively. Orbs has two execution services, namely Orbs Lamda and Orbs VM.

Orbs launched its first project on its layer three blockchain called the Open DeFi Notifications Protocol. This application provides users with mobile notifications when decentralized on-chain events occur. This is a valuable tool for DeFi traders, as it is designed to assist them to stay up-to-date on the latest market movements.

Xai

XAI is a new blockchain protocol built on Arbitrum (the layer two network) and Ethereum (the layer one). Xai provides enhanced scalability, efficiency, and security for gaming applications.

The Xai Foundation is the pioneering entity behind the creation of the Xai multiverse. The Foundation is dedicated to exploring the web3 gaming niche in the fullest possible way. On its official website, the Xai team stated that its ultimate goal is to pioneer an era in which technology and creativity harmonize, granting users the ability to traverse boundless virtual domains in an ever-changing multiverse.

XAI uses multiple innovative technologies like parallel processing, sharding, state channels, and rollups to achieve enhanced efficiency and scalability. Although the project is still under development, it has the potential to become a major player in the GameFi space.

Conclusion

One fundamental problem that has hindered web3 product adoption is a need for more usable and seamless interfaces. With the layer three innovation, user experience in the web3 ecosystem would improve. This innovation will surely boost web3 adoption and the crypto ecosystem in the coming years.