Blockchain technology is a revolutionary technology that enables peer-to-peer transactions in a safe and secure environment. For the blockchain to achieve mainstream adoption, it must be decentralized, scalable, and secure. However, as Vitalik Buterin emphasizes, most blockchain networks cannot provide all the three functions. For example, Bitcoin can only achieve decentralization and security. Scalability remains a major concern for Bitcoin. This problem is called blockchain Trilemma.

To navigate this challenge, many blockchains utilizes series of layers to manage data and facilitate transactions. Each layer has its function, enabling a comprehensive network that can handle large volume of transactions in a secure and decentralized manner.

Blockchain has four main layers: Layer 0, layer 1, layer 2, and layer 3.

Layer 0

Layer 0 (L0) is the base layer, providing a foundational architecture of data transfer in a blockchain network. It include hardware, software, connections, and mining tools that run underneath the blockchain.

L0 also enable the blockchain interoperability, which is the ability of a blockchain to communicate with other networks. This layer is essential in solving the scalability problem of other subsequent layers. Layer 0 often uses native tokens to provide access to join and grow the network.

Additionally, it significantly contribute to the security of the platform through various mechanisms. Some L0 tokens may also serve as an anti-spam filter by requiring users to stake the tokens before accessing the associated ecosystem.

Layer 0 may adopt various deigns. They allow developers to create custom blockchains that can be tailored to their specific requirements. Developers can combine various elements from different layer 1 blockchain protocols while retaining their ecosystem to achieve further boost in performance. These blockchains are highly versatile and simultaneously compatible with both layer 1 and layer 2 protocols.

Polkadot is one of the popular layer 0 blockchains. Its main chain, Relay Chain, supports its layer 1 called Parachains. Relay Chain operates as a communication bridge between Parachains, which runs on it. Moonriver and Karura are example of layer 1 protocols on Polkadot. Other L0 protocols include Avalanche, Cosmos, and Cardano.

Layer 1

Layer 1 blockchains runs on top of layer 0. The majority of protocols better known to users fall under this class. Bitcoin and Ethereum are examples of layer 1 protocols. This layer maintains functionality of the blockchain network.

One major characteristics of Layer 1 is that they can work independently without other chains. Additionally, they have their own structure and mechanism, which may differ from one chain to another. These include consensus mechanism, nodes for verifying transactions, ledger, encryption algorithm, and native token.

Layer 1 blockchains are designed to handle most of the workloads including programming language, consensus mechanism, dispute resolution, block time, rules, and parameters that maintains basic functions of a blockchain network.

The number of tasks that layer 1 handle must handle often lead to scalability challenges. Different layer 1 blockchains can adopt various consensus mechanisms. Earlier Blockchanins such as Bitcoin and Ethereum 1.0 (ETH1) uses proof-of-work (PoW) consensus mechanism. These platforms rely on mining and validator nodes to secure the network.

PoW layer 1 blockchains often experience congestion when there are many users participating in the blockchain. This may lead to increased computing power that translates to high increased transaction cost.

Also Read: Proof-of-Work (PoW) vs. Proof-of-Stake (PoS) Everything Cryptocurrency Enthusiasts Need to Know

The use of improved consensus mechanism and the introduction of techniques such as sharding partially mitigates the scaling problem. However, these solutions are not enough.

Finally, layer 1 blockchains can support high-level protocols and applications, including dApps. However, some layer 1 protocols such as Bitcoin do not support higher-level applications or protocols. Ethereum 1 (ETH1), on the other hand, supports smart contracts which, support high-level applications. However, ETH1, just like any other layer blockchains, experiences scaling problems.

Other examples of Layer one blockchains are Binance, Solana, Cardano, Ripple, Avalanche, Kadena, and TROIN.

Layer 2

Layer 2 (L2) are built on top of the layer 1 protocol to solve the scalability problems. L2 protocols create a secondary framework known as “off the chain” that enables higher transaction throughput and faster transaction time compared to the underlying layer 1 blockchains. L2 blockchains become highly beneficial when the primary network is congested. It also reduce transaction free costs and improve overall performance of the network.

L2 protocols comes in different forms including:

1. Channel

State channels operates as separate chains (channels) that handles transactions off-chain before reporting to the bass layer. Additionally, L2 protocol enables L1 to store only valid information. This speeds up the transaction, making the entire process more efficient. They are of two types: payment channels and state channels.

Payment channels are specialized chains for payments. State channels, on the other hand, enables much broader activities including those that would normally run on smart contracts.

2. Sidechain

Sidechains are separate blockchains that run parallel to the underlying layer 1. These protocols use their own consensus algorithm, block parameters, and administration to process transactions. However, they use the layer-1 root tokens. For an example, ETH sidechains will trade with ETH and seamlessly integrate to the layer 1 network.

3. Nested Chain

The design of a nested chain involves a main chain (primary blockchain) and multiple levels of secondary chains sitting on top of it. The primary blockchain sets the parameters for a broader network, while the interconnected web of sub-chains performs the transaction execution process.

The many levels of secondary chains are connected to each other to form a parent-child chain connection. The parent chain delegates work among its child chains. The child chains execute the actions and send the result back to the parent chain. The underlying blockchain only gets involved with the activities of the secondary chain when resolving dispute. Nested Chain solution reduces the load in the root chain, and can increase scalability significantly. An example of a nested chain is the OMG Network on Ethereum.

4. Rollups

Rollups are layer 2 protocols that compute transactions outside the primary chain and transfer details to the primary chain at a specific time interval. They group multiple transactions on the sidechain and send it to the base layer as a single transaction.

These solutions can execute transactions without interfering with the primary layer in any way. Therefore, they can ensure higher throughput and reduce transaction cost.

The two types of rollups are ZK rollups and Optimistic rollups. The difference between them lies on the ability to move between layers.

Also Read: Zero Knowledge Proofs (ZKPs) and ZK-Rollups in Crypto: Everything You Need to Know

Optimistic rollups uses virtual machine to allow easier migration from layer 1 to layer. ZK rollups, on the other hand, forgo this feature to achieve higher speed and efficiency.

Layer 3

Layer 3 protocol is the last layer powering the blockchain-based solutions that users interacts with. They are known as the “application layer”. L3 provides instruction for L1 protocols to process. It supports the applications such as games, dApps, DEXs, and distributed storage to function properly. Generally, layer 3 provides real-world applications for blockchain technology.