Gate.io Blog The difference between layer-1, layer-2 and Layer and Layer-3 Blockchains.

The difference between layer-1, layer-2 and Layer and Layer-3 Blockchains.

08 November 15:39

[TL; DR]

Layer-1 blockchains are the base protocols that handle most of the major functions.

The main function of Layer-2 blockchains is to increase the scalability of blockchains and enhance efficiency.

The Layer-3 blockchain is the infrastructure which hosts decentralized applications and facilitates communication among networks.

Bitcoin, Binace chain and Ethereum are examples of layer-1 blockchains.

Introduction

Layer 2 versus layer 3

When people use the blockchain they often face several challenges such as slow transactions and high gas fees. Most networks perform differently on these key aspects. Some of these functionalities depend on the architecture of the blockchain which include the type of consensus mechanism it uses. As part of their infrastructure, most major blockchains consist of different layers like layer-1, layer-2 and layer-3. This guide explores layers 1,2 and 3 and how they complement each other.

Layer1- blockchains

The layer-1 blockchain is the base or foundation of the entire web3 infrastructure. In other words, it is the blockchain upon which all other components exist. Some of the key components of the layer-1 architecture are hardware, consensus layer, network layer, application layer and data layer.

These basic blockchain components have different functions such as enhancing security, compatibility and communication. For instance, the consensus layer determines the speed and efficiency of transactions. Ethereum, Binance Chain and Bitcoin are examples of layer-1 blockchains.

Also, layer-1 blockchains provide security for decentralized applications that exist on them. In most cases, they approve the transactions carried on layer-2 blockchains. In addition, developers build decentralized applications on layer 1 blockchains.

What problems do layer-1 blockchains encounter?

Layer-1 blockchains face several problems such as scalability issues. This is because, in most cases, they do not have the capacity to handle large volumes of transactions at once. That is the reason why many such blockchains are slow and tend to have high transaction fees.

As well, layer-1 blockchains face blockchain trilema, meaning that they have to compromise one or two key aspects of the network namely, security, speed and scalability. What this means is that a blockchain which is scalable may have slow transactions or poor security or both. That is where layer-2 and layer-3 blockchains come in as they help to solve the problems of scalability, security, speed and interoperability.

Blockchain layers, 0,1,2 and 3- Zebpay

Layer-2 blockchains

The layer-2 blockchains provide scaling solutions to the entire network system. Basically, the layer-2 network runs on top of the main blockchain and increases scalability and efficiency of the entire system.

The layer-2 blockchain diverts transactions from the main blockchain thereby reducing network congestion and improving throughput in the process. They are like mini-blockchains that feed into the central chain. Although a blockchain may have various layer-2 systems; they perform different functions which improves the entire network.

It is important to note that most layer-2 solutions, usually, use off-chain mechanisms to increase speed and operational efficiency. For example, some of the layer-2 blockchains perform bulk transactions which they feed into the main blockchain in batches.

An example of the layer-2 network is Lightning that exists on the Bitcoin blockchain. As a fact, Lightning is a scaling solution that enables fast transactions and low transaction costs.

Polygon, which exists on the Ethereum blockchain, is another layer-2 solution. Similar to the Lightning network, Polygon increases the network’s speed and transaction output. It also supports many decentralized applications (dApps). Therefore, the layer-2 blockchains create “division of work” in the network ecosystem.

Different layer-2 solutions

There are different types of layer-2 solutions which a network can use. They include state chains, sidechains and rollups.

State chains: A state chain is a mini-blockchain existing on a layer-1 network infrastructure to facilitate two way communications between the blockchain and off-chain transactional substructures in order to increase transaction volume and speed. Liquid Network, Bitcoin Lightning, and Ethereum’s Raiden Network are examples of state chains.

Sidechains: A side-chain is a sub-network of a layer-1 blockchain that processes big batches of transactions offline and feeds them into the main chain. Therefore, they help to increase the blockchain speed and transaction volume. However, the main blockchain is responsible for maintaining security of the network and resolving conflicts.

Sidechains- Exbase

Rollup: A rollup is a mini-blockchain that executes transactions outside the main blockchain and relays them back to the main structure.

Layer-3 blockchain

Finally, we have layer-3 blockchains. A layer-3 blockchain is a substructure that hosts decentralized applications. This is why it is also called the application layer. Primarily, the layer-3 chain enhances interoperability between the main protocol and different other chains.

What we are saying is that decentralized applications such as gaming ones exist on this layer. Blockchains such as Ethereum and Solana host many decentralized finance (DeFI) applications. However, there are some blockchains such as Bitcoin that do not host decentralized applications.

Currently, there are various initiatives to integrate some applications on the Bitcoin blockchain. CakeFi, developed on the DeFiChain fork, provides lending, staking and liquidity mining functionalities for the Bitcoin blockchain. Nevertheless, CakeFi is completely independent of the Bitcoin blockchain.

Ethereum is the blockchain that hosts the largest number of decentralized applications. Currently, it hosts over 3,000 decentralized applications with a total market capitalization of over $185 billion.

Layer 2 scaling- Rejolut

Solana is another layer-3 blockchain that hosts hundreds of decentralized applications. In fact, it has more than 500 applications with a total market capitalization of over $15 billion. The fact that the Bitcoin network does not host decentralized applications is the reason why Ethereum is the most used blockchain.

Conclusion

In the course of carrying out various activities blockchains experience difficulties such as low transaction speed and throughput. As a result, developers have come up with solutions to these fundamental problems. They have introduced additional mechanisms in the form of layer-2 and layer-3 solutions. Layer-2 blockchains increase the scalability of the network while layer-3 ones enhance interoperability.

Author: Mashell C., Gate.io Researcher

This article represents only the views of the researcher and does not constitute any investment suggestions.

Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.

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The difference between layer-1, layer-2 and Layer and Layer-3 Blockchains.

[TL; DR]

There are different types of layer-2 solutions which a network can use. They include state chains, sidechains and rollups.

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