Layered Blockchain Solutions: Enhancing Scalability and Functionality.
Every system aims to ensure accessibility and widespread adoption, with the goal of onboarding the next billion users. Blockchain technologies face this challenge, as their throughput capability(the number of transactions the network can process in a specific time frame) is crucial for usability.
The pursuit of scalability — the ability of a computer application or product to maintain performance and functionality when scaled in size or volume to meet user requirements — has driven advancements in the blockchain ecosystem, leading to the development of layer blockchains, from Layer 1 to Layer 2 and now Layer 3. Each layer builds on the shortcomings of its predecessors, expanding capabilities and functionalities.
So, what exactly are these layers, and what roles do they serve?
Currently in blockchain there are four layers
- Layer 0
- Layer 1
- Layer 2
- Layer 3
Layer 0
This foundational framework of a blockchain infrastructure allows other Layer 1 blockchains to be built for seamless interoperability — the exchange and usage of information across different blockchain networks. It aims to overcome the limitations of rigid Layer 1 architectures by offering a more flexible and adaptable design, enabling developers to create specialized blockchains with improved scalability and interoperability, Polkadot and Cosmos are examples of Layer 0 blockchain.
This framework enhances data exchange across Layer 1 and Layer 2 without needing specialized bridge mechanisms, using advanced technologies like sharding — a technique that splits the blockchain into smaller parts called “shards” that can run independently and distinctive consensus mechanisms. Layer 0 ensures that Layer 1 blockchains built on it can interact by default, focusing on optimizing the underlying infrastructure for data transmission and providing the hardware support for blockchain networks.
Layer 1
This refers to the base layer that allows developers to create decentralized applications. It encapsulates the core functionalities, consensus mechanisms, and security. Layer 1 is responsible for security, scalability, and decentralization, which other layers build upon and expand.
However, the “Trilemma problem” states that achieving optimal security, scalability, and decentralization simultaneously requires trade-offs. A system can achieve security and decentralization but may compromise scalability, meaning all three cannot be optimized at once. Therefore, prioritizing the most important feature for each system is essential.
Examples of Layer 1 blockchains include Bitcoin, Ethereum etc. Any attempt to achieve greater speed and efficiency in this layer often requires a hard fork — a change to the blockchain with no backward compatibility(the inability of a system to work with older versions of itself). A hard fork usually results in two separate branches: one with the previous version and the other with the newer version. It necessitates changes to the rules, core functionalities, architecture, and mechanisms of the protocol.
Layer 2
With the popularity and widespread adoption of Layer 1 blockchains, high demand has led to slower confirmation times, network congestion, and higher gas fees. This has given rise to Layer 2 blockchains.
Imagine your favorite store opening a new location: initially, shopping is quick and easy, but as demand peaks, it becomes crowded with long lines, frustrated customers, and slower service. This is similar to the current reality of Layer 1 blockchains.
Layer 2 solutions are secondary blockchain frameworks built on top of Layer 1 to enhance scalability and extend capabilities, offering higher throughput, lower gas fees, and faster transaction times. They achieve scalability without compromising security and decentralization, as they leverage and inherit these from Layer 1. By improving user experience, Layer 2 solutions make the technology more attractive for adoption.
Layer 2 solutions typically include two main components: a network for processing transactions and a smart contract on the primary blockchain. The smart contract addresses disputes and finalizes the Layer 2 network’s state by linking it to the main blockchain.
Examples of Layer 2 blockchains include Base, Starknet, Polygon, Optimism etc. These solutions enhance Ethereum’s scalability and are typically categorized into the following types:
Rollups:
This scaling solution executes transactions off-chain and bundles multiple transactions into batches, which are then sent to the mainnet for finality. It has two main approaches:
- Optimistic Rollups: These assume that transactions are valid by default — an optimistic assumption and rely on a fraud-proof mechanism to assert their validity e.g Base, Optimism, Arbitrium. It typically includes a 7-day challenge period to address suspicious transactions. During this time, a validator can challenge a rollup transaction by computing a fraud-proof. If the fraud-proof is valid, it nullifies the transaction and imposes a penalty on the guilty sequencer.
- Zero-Knowledge (ZK) Rollups: These use zero-knowledge proofs(ZK SNARKS, ZK STARKS). Unlike Optimistic Rollups, ZK Rollups do not assume transactions are valid by default. Instead, they generate cryptographic proofs to show that all transactions in a batch are valid e.g Polygon zkEVM, Starknet, Scroll zkEVM etc. These proofs, along with the batched transaction data, are submitted to the Layer 1 blockchain. The Layer 1 chain can verify the validity of the entire batch using the cryptographic proof without needing to verify each transaction individually.
Sidechains:
These are independent blockchain networks connected to the main layer via a two-way bridge that facilitates the transfer of assets between both chains. Operating parallel to the Layer 1 blockchain, sidechains have their own set of validators, consensus rules, tokens, and other features. They manage their own security and do not inherit the security features of the mainnet. Additionally, sidechains do not publish state changes or transaction data to Layer 1.
Validium:
This solution uses validity proofs to validate transaction data executed off-chain. However, unlike other solutions, it does not store this data on the main layer. Instead, it relies on an off-chain data availability model.
Channels:
These are peer-to-peer networks that enable an unlimited number of transactions between parties using multisig contracts for fast and private off-chain transactions. Final settlement and validity are confirmed on Layer 1 through cryptographic proofs. Managed by a multisig contract on Ethereum, channels streamline transactions and enhance privacy. It is usually of two types
- Payment Channels: This solution supports an off-chain payment transaction system where tokens are deposited and locked into a contract at the channel’s creation. These tokens can be transacted among peers off-chain, with final updates sent to the main layer once all participants sign off.
- State Channels:Unlike payment channels, which facilitate off-chain transactions of on-chain tokens, state channels solve the broader issue of general state transition logic for scaling general-purpose computation. They enable off-chain execution of various types of transactions and computations, with final updates recorded on the main layer.
Layer 3
This is the latest evolution in blockchain technology, built on top of Layer 2 solutions to enhance functionality, interoperability, and performance. Its primary goal is to expand blockchain capabilities by connecting different blockchains and enabling seamless communication between them.
Layer 3 explores interconnectivity and advanced smart contract functionalities. It aims to create a more adaptable, efficient, and user-friendly blockchain ecosystem. It offers significant opportunities for the future of decentralized technology, being highly customizable to meet developers’ specific needs. Orbs is an example of Layer 3 blockchain.
Conclusion
The progression from Layer 0 to Layer 3 in blockchain technology underscores the industry’s commitment to overcoming scalability, security, and interoperability challenges. Each layer builds on the previous one, enhancing capabilities and addressing limitations.
This layered approach not only improves the efficiency and accessibility of blockchain networks but also paves the way for innovative applications and broader adoption. As blockchain technology continues to evolve, the potential for a more interconnected, scalable, and versatile ecosystem grows, promising a future where decentralized solutions are seamlessly integrated into everyday life.
