Understanding Layer 3 Protocol In Blockchain & Why Real Chain Link Network Is A Better Solutions For Building Your Real -World Use Case Defi Application
The overall market capitalization of Bitcoin was more than $1 trillion in April 2021. Ethereum is growing with the constant rise of the DeFi ecosystem, ensuring a favorable platform for decentralized applications. The constantly expanding demand for multi-layer blockchains has created favorable implications for the possibility of layer 3 protocols in the blockchain ecosystem.
What are these layer 3 solutions in the world of blockchain? How do they contribute value to the blockchain ecosystem in general? The following discussion offers an introductory overview of layer 3 solutions and protocols in blockchain. You can learn about the advantages of layer 3 blockchain protocols and the examples alongside the necessity of such solutions.
Why Does Blockchain Need a Layer 3?
The obvious question on everyone’s mind regarding layer 3 solutions in blockchain would refer to the necessity of the same. Any individual familiar with the blockchain space must have heard about the blockchain trilemma. The phenomenon pits three important factors against each other, and blockchain networks are often stuck on the choice of attribute they would like to skip. Interestingly, the origin of blockchain layers started from the trilemma, which implies that blockchain networks could satisfy only two of the three attributes.
The Blockchain Trilemma
The three elements in the blockchain trilemma include decentralization, security, and stability. Almost every blockchain project must sacrifice one of the factors to achieve better performance with the other two. You can find the trade-offs in common examples such as Ethereum and Solana. Ethereum and Bitcoin focus more on security and decentralization, while Solana focuses more on stability and security. The scalability trilemma presents a formidable issue for integrating the three elements in a layer 1 blockchain. Therefore, a multi-layer structure can provide an efficient and cost-effective solution tailored effectively for achieving scalability, security, and decentralization.
Why Real Chain Link is a better solution for building your Defi application
Since scalability is the biggest challenge in today’s blockchain realm. Even eminent blockchain networks in the market suffer from this deficiency and are working out many alternatives to increase the scalability of their networks. Also, crypto enthusiasts are not elated when they are asked to pay a very high gas fee (transaction fee), even for a small transaction. In order to jounce off this stumbling block, the concept of side chains was introduced for this problem. A sidechain is a separate blockchain network that aims to increase the scalability of the parent blockchain and reduces their workload by taking its transactions off-chain. The network will have its own consensus algorithm and facilitates a seamless asset exchange between the parent chain and the sidechain. The transfer of assets between the blockchain network will be highly secure, and it directly allows projects developed on the chain to broaden their ecosystem.
What can be the possible reason behind introducing layer 3? Blockchain Interoperability
The basic reasons for introducing the multi-level architecture in blockchain networks showcase the perfect solution to scalability issues. Layer 2 blockchain solutions can help in solving problems pertaining to scalability. What is the need for layer 3 blockchain projects, then? As a matter of fact, the blockchain trilemma is not the single fundamental issue affecting crypto market participants. On top of it, layer 2 solutions fail to address the concerns of interoperability. Layer 2 protocols did not offer anything for viewing, accessing, and exchanging information between different computer systems.
The definition of interoperability in the blockchain space is also referred to as cross-chain functionality. It implies that two different blockchain networks with their own ecosystems could communicate with each other and engage in transactions without centralized intermediaries. For example, it is practically impossible to move Bitcoin to Ethereum blockchain and use the Bitcoin across multiple DeFi apps. Almost all solutions offering the flexibility for trading crypto across multiple dApps and DeFi solutions feature some form of centralized control. The necessity of layer 3 blockchain protocols becomes prominent when you think of popular DeFi apps. The lending protocol, Aave, and the decentralized exchange, Serum, are working on different blockchain networks. Therefore, it is practically impossible for anyone to access the services on these platforms. As a result, the lack of interoperability among blockchain networks serves as the foremost reason for introducing layer 3 solutions.
What is a Layer 3 Blockchain?
The layer 3 protocols are basically unique solutions for empowering different blockchain networks with cross-chain capabilities. The primary objective of the layer 3 solutions would focus on achieving actual interoperability without depending on intermediaries or custodians. One of the interesting highlights of layer 3 solutions refers to the emphasis on similarities with layered structure of the internet.
Just like the layer 1 blockchains, layer 2 protocols have distinct traits, which differentiate them from one another. Services on layer 2 protocols are generally associated with particular blockchain networks. For example, the Lightning Network has been tailored specifically for Bitcoin, while the Optimism protocol works for Ethereum.
How Does Layer 3 Solve Interoperability Problems?
The interplay between layer 2 and layer 1 solutions creates the necessity for implementing interoperability protocols on a different third layer. If you seek answers to “What is a Layer 3 in blockchain?” you must notify the multiple differences between layer 2 and layer 1 blockchains. Layer 3 aims at resolving the problem of interoperability while ensuring simplicity of processes in the underlying layers.
Layer 3 works on abstraction of different factors such as the technologies, functionalities, and features for serving users in different ecosystems. The abstraction of such differences through layer 3 or L3 protocols helps different networks and ecosystems communicate, connect and interact with each other.
The overview of every Layer 3 protocol type would show how they work for resolving interoperability problems. They work in the same way as the internet protocol of the internet and ensure transfer of data in packets. The advantages of layer 3 solutions also focus on quantifying value in packets alongside routing the value packets across multiple DLT networks. Subsequently, layer 3 protocols can ensure effective connectivity between layer 1 and layer 2 chains, alongside the associated applications and services within them.
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