In This Article
Layer 1 blockchains are the underlying protocols that perform most of the basic functions.
The primary function of Layer 2 blockchains is to increase blockchain scalability and efficiency.
The third-level blockchain is an infrastructure that hosts decentralized applications and facilitates communication between networks.
BNB Chain, Solana and Ethereum blockchains are examples of Layer 1 blockchains.
Understanding the Differences: Layer 2 vs Layer 3
When people use blockchain, they often face a number of challenges, such as slow transactions and high gas fees. Most blockchains work differently in these key aspects. Some of this functionality depends on the architecture of the blockchain, which include the type of consensus mechanism it uses. As part of their infrastructure, most large blockchains are made up of different tiers such as first, second and third. This guide looks at the first, second and third layers and how they complement each other.
Layer 1 Blockchain
Layer 1 blockchain is the foundation of the entire web3 infrastructure. In other words, it is the blockchain on which all other components exist. Some of the key components of the first layer architecture are hardware, consensus layer, network layer, application layer and data layer.
These basic components of a blockchain perform various functions such as enhancing security, interoperability, and communication. For example, the level of consensus determines the speed and efficiency of transactions. Ethereum, BNB Chain, and Bitcoin are examples of first-level blockchains.
In addition, layer 1 blockchains provide security for the decentralized applications that exist on them. In most cases, they approve transactions that take place on Layer 2 blockchains. In addition, developers are creating decentralized applications on Layer 1 blockchains.
What Challenges Do Layer 1 Blockchains Face?
Layer 1 blockchains face a number of challenges, such as scalability issues. This is because in most cases they do not have the ability to handle large volumes of transactions at once. It is for this reason that many such blockchains are slow and tend to have high transaction fees.
In addition, layer 1 blockchains face a blockchain trilemma, meaning that they must compromise one or two key aspects of the network, namely security, speed, and scalability. This means that a scalable blockchain can have slow transactions or poor security, or both. This is where Layer 2 and Layer 3 blockchains come to the rescue, as they help address scalability, security, speed and interoperability issues.
Layer 2 Blockchains
Layer 2 blockchains provide solutions for scaling the entire networked system. In essence, a layer 2 network runs on top of the main blockchain and increases the scalability and efficiency of the entire system.
Layer 2 blockchains divert transactions away from the main blockchain, thereby reducing network congestion and increasing throughput in the process. They are similar to mini-blockchains, which connect to the central blockchain. Although a blockchain can have different second layer systems; they perform different functions, which improves the performance of the entire network.
It is important to note that most second layer solutions tend to utilize autonomous mechanisms to improve speed and efficiency. For example, some second-tier blockchains perform bulk transactions, which they batch upload to the main blockchain.
An example of a Layer 2 network is Lightning, which exists in the Bitcoin blockchain. Lightning is actually a scalable solution that provides fast transactions and low transaction costs.
Polygon, which exists on Ethereum blockchain, is another layer 2 solution. Similar to the Lightning network, Polygon increases network speed and transaction output.
It also supports many decentralized applications (dApps). In this way, second-level blockchains create a "division of labor" in the network ecosystem.
Different types of Layer 2 solutions
There are different types of second layer solutions that a blockchain can utilize. These include state blockchains, side blockchains, and convolutions.
- State blockchains: a state blockchain is a mini-blockchain that exists in a Layer 1 network infrastructure to facilitate two-way communication between the blockchain and autonomous transactional substructures in order to increase the volume and speed of transactions. Liquid Network, Bitcoin Lightning and Ethereum's Raiden network are examples of state blockchains.
- Sideways blockchains: A sideways blockchain is a subnetwork of the first-level blockchain that processes large packets of transactions offline and transmits them to the main blockchain. In this way, they help to increase the blockchain speed and transaction volume. However, the underlying blockchain is responsible for maintaining the security of the network and resolving conflicts.
- Rollups: A rollup is a mini-blockchain that performs transactions outside the main blockchain and relays them back to the main structure.
Layer 3 Blockchain
Finally, we have third-level blockchains. A layer 3 blockchain is the substructure that hosts decentralized applications. This is why it is also called the application layer. Above all, a Layer 3 blockchain improves interoperability between the underlying protocol and various other blockchains.
We are talking about decentralized applications such as gaming applications existing at this layer. Blockchains like Ethereum and Solana host many decentralized financial applications (DeFi). However, there are some blockchains, such as Bitcoin, that do not host decentralized applications.
There are currently various initiatives to integrate some applications into the Bitcoin blockchain. CakeFi, developed from the DeFiChain fork, provides lending, staking and liquidity mining functions for the Bitcoin blockchain. However, CakeFi is completely independent of the Bitcoin blockchain.
Ethereum is the blockchain that hosts the largest number of decentralized applications. It currently hosts more than 3,000 decentralized applications with a total market capitalization of more than $250 billion.
Solana is another blockchain that hosts hundreds of decentralized Layer 3 applications. In fact, it has over 500 applications with a total market capitalization of over $50 billion.
The fact that the Bitcoin network does not host decentralized applications is the reason why Ethereum is the most used blockchain.
Conclusion
Blockchains face challenges in various activities, such as low transaction speeds 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 network scalability, while Layer 3 blockchains increase interoperability.
