Tl:dr
Layer 1 blockchain provides the underlying protocol or infrastructure of a blockchain network. Layer 2 protocols build on top of L1s to improve scalability and increase transaction speed. Layer 3 protocols enable cross-chain capabilities and interoperability between different blockchain networks. Layer 0 refers to the physical infrastructure that supports the network and provides the resources necessary to run a blockchain network.
In blockchain technology, layer 1 refers to the underlying protocol or infrastructure of the blockchain network, such as Bitcoin or Ethereum. Layer 1 protocols provide the basic functionality of a blockchain, including maintaining a decentralized ledger of transactions and providing consensus mechanisms to validate new blocks of transactions.
Layer 2, on the other hand, refers to protocols built on top of the layer 1 infrastructure to provide additional functionality or improve scalability. Examples of layer 2 solutions include the Lightning Network for Bitcoin and Arbitrum for Ethereum. These solutions aim to increase the speed and reduce the cost of transactions by moving some of the processing off of the main blockchain.
Transactions on layer 2 blockchains tend to be “rolled up” with either a ZK-rollup or optimistic rollup and then get settled on the L1. Many L2 blockchains tend to require the base currency of the L1 to pay for transaction fees on their chain.
Smart contracts and tokenization are key features of most modern L1 blockchains, and they are meant to compete with Ethereum. Some examples include EOS, Cardano, Solana, and Aptos.
In summary, Layer 1 is the foundation protocol of a blockchain network, while Layer 2 protocols build on top of it to improve scalability and increase transaction speed.
What Are Layers in Blockchain?
In blockchain technology, the term "layers" refers to the different levels or components of a blockchain network and how they interact. Generally, blockchain networks are composed of multiple layers, each with its specific function and purpose.
The most common layers in a blockchain network include
Layer 1: The underlying protocol or infrastructure of the blockchain network. This layer provides the basic functionality of the blockchain, such as maintaining a decentralized ledger of transactions and providing consensus mechanisms to validate new blocks of transactions. Examples of layer 1 protocols include Bitcoin and Ethereum.
Layer 2: Additional protocols or technologies that build on top of the layer 1 infrastructure to provide additional functionality or improve scalability. Examples of layer 2 solutions include the Lightning Network for Bitcoin and the Arbitrum for Ethereum. L2 solutions increase the speed and reduce the cost of transactions on the blockchain by moving some of the processing off of the main blockchain.
Layer 3: Interoperability layer that allows different blockchain networks to communicate with each other and exchange data and assets.
Layer 4: Application layer where most dApps run, using smart contracts to execute their business logic.
Layers in a blockchain network can interact in various ways, and new layers can be added over time as the technology evolves.
What is Scalability in Blockchain, and Why is it Important?
Scalability in blockchain refers to the ability of a blockchain network to handle a large number of transactions and users without experiencing delays or disruptions. It is an important consideration for blockchain technology because, as more people and organizations adopt blockchain-based solutions, the demand for transactions on the network will increase. If the network is not scalable, it will become congested and slow, making it less useful for real-world applications.
There are several ways to improve scalability in blockchain technology, including:
Off-chain transactions: By moving some of the transactions and processing them off the main blockchain, it's possible to increase the speed and reduce the cost of transactions.
Sharding: Sharding is a method of dividing a blockchain network into smaller, more manageable pieces called shards. Each shard can process transactions independently, allowing for increased parallel processing and faster transaction speeds.
Layer 2 solutions: Layer 2 solutions build on top of the existing layer 1 infrastructure to provide additional functionality and improve scalability.
Improving scalability is important for blockchain because it allows the technology to handle a larger number of users and transactions, making it more useful for real-world applications. Without scalability, blockchain networks can become congested and slow, making them less attractive for businesses and individuals to use.
How Do Layer 1 Blockchains Work?
Layer 1 blockchains, also known as the foundation layer or protocol layer, provide the underlying infrastructure for a blockchain network. They are responsible for maintaining the decentralized ledger of transactions, providing consensus mechanisms to validate new blocks of transactions, and securing the network through cryptography.
Here's a general overview of how layer 1 blockchains work:
Transactions: Transactions are initiated by users on the network and are broadcast to the network for validation. Transactions typically include the sender's address, the recipient's address, and the amount of cryptocurrency transferred.
Validation: Transactions are grouped into blocks and are validated by a consensus mechanism. The most common consensus mechanisms are Proof-of-Work (PoW) and Proof-of-Stake (PoS). In PoW consensus models, miners compete to solve complex mathematical problems in order to validate a block of transactions and receive a reward.
PoS is an alternative to (PoW) consensus mechanism, where validators are chosen based on their stake in the network (how many coins they have).
Block creation: Once a block is validated, it is added to the blockchain, creating a permanent and unchangeable record of the transactions. Each block contains a reference to the previous block, creating a chain of blocks or a blockchain.
Security: The blockchain is secured through cryptography, which ensures that once a block is added to the chain, it cannot be altered or tampered with. This helps to prevent fraud and maintain the integrity of the network.
Decentralization: Most layer 1 blockchains are decentralized, meaning that a single entity does not control them. Instead, the network is maintained by a network of users and validators, making it resistant to censorship and manipulation.
These are the basic functionalities that are present in most of the Layer 1 blockchain networks. However, different blockchain networks may have different variations of these functionalities.
How Do Layer 2 Blockchains Work?
Layer 2 blockchains, also known as off-chain solutions, build on top of the existing layer 1 infrastructure to provide additional functionality and improve scalability. They are designed to handle many transactions and users without experiencing delays or disruptions.
Here's a general overview of how layer 2 blockchains work:
Off-chain transactions: Transactions are processed off the main blockchain in a separate layer. Off-chain transactions allow faster and cheaper transactions because they don't need to be validated by the entire network.
Security: Layer 2 solutions are secured by the underlying layer 1 blockchain, and transactions are only settled on the main blockchain in case of a dispute.
Interoperability: Layer 2 solutions can also facilitate interoperability between different blockchain networks, allowing for the exchange of data and assets across other platforms.
Layer 1 vs. Layer 2 Blockchains
In a nutshell, different L1 blockchains tend to compete with each other, while L2 blockchains are used to enhance L1 blockchains.
Layer 1 is the foundation protocol of a blockchain network.
The term "layer" refers to the different levels or components of a blockchain network and how they interact. Generally, modern blockchain networks are composed of multiple layers, each with its specific function and purpose.
What Other Blockchain Layers Exist?
What is a Layer 0 blockchain?
Layer 0 in blockchain technology refers to the physical infrastructure that supports the network. Physical infrastructure includes the hardware, software, and network infrastructure necessary to run a blockchain network. It also includes the data centers, cloud providers, and other physical infrastructures that support the blockchain network.
Layer 0 is responsible for providing the resources such as computing power, storage, and bandwidth to support the network.
It is important to note that Layer 0 is not considered a separate layer in the blockchain stack but rather an underlying infrastructure that supports other layers. Without a robust and reliable layer 0, the blockchain network will not be able to function appropriately and effectively.
What is a Layer 3 blockchain?
Layer 3 protocols are solutions for enabling cross-chain capabilities on blockchain networks. The main goal of layer 3 solutions is to achieve interoperability without depending on intermediaries or custodians.
FAQ
Is Cardano a Layer 1 Blockchain?
Yes, Cardano is a L1 blockchain developed by Charles Hoskinson, Cardano Foundation, IOHK, EMURGO. Cardano is the second most popular Proof-of-Stake blockchain after Ethereum.
Is Ethereum a Layer 1 or Layer 2?
Ethereum is the second most popular L1 blockchain after Bitcoin.
What is a Layer Zero Blockchain?
The physical infrastructure that supports blockchain technology is called layer 0 or layer zero. A blockchain network requires hardware, software, and network infrastructure to operate. Also included are the data centers, cloud providers, and other physical infrastructures that support blockchain technology.
What is the Consensus layer in Blockchain?
The consensus layer is sometimes called layer 1 in a blockchain. This layer provides the basic functionality of the blockchain. Layer 1 maintains a decentralized ledger of transactions and provides consensus mechanisms to validate new blocks of transactions.
What Solutions do Layer 2 Blockchains provide?
Through L2 solutions, some of the transaction processing is moved off the main blockchain, increasing transaction speed and reducing transaction costs.
