Blockchain Layers are constantly being referred to in several articles and news around the crypto world. It is important to clarify what Blockchain Layers can refer to: the blockchain system with a layered architecture (application layer, network layer etc.); or Blockchain Protocols, such as Layers 0, 1, 2 and 3. This article aims to explain the Blockchain Protocol Layers and why they are important for the blockchain technological development and scalability.
Layer 0 protocol stands for the base infrastructure of the blockchain. This Layer 0 could refer to the Network Layer, comprising the network structure, communication, hardware and the internet, when referring to Bitcoin and Ethereum. In addition to that, Layer 0 Blockchains were developed, such as Cosmos and Polkadot. These are known as a network of Blockchains. Each project has their own specificities, but basically they provide a base infrastructure for the development of blockchains that can communicate and operate between themselves. They also provide Software Development Kits (SDKs) so that the blockchains on top of the Layer 0 protocol can be easily built.
Layer 1 protocols refers to a system associated with the base or main architecture of a blockchain network. This system sets the entire network’s rules and parameters, like its Consensus algorithm, block time, transaction throughput, etc. Bitcoin, Ethereum and BNB Chain are examples of Layer 1 blockchains. Besides, Layer 0 blockchains allow the development of Layer 1 blockchains on top of their Layer 0 infrastructure, therefore using a scalable Layer 0 protocol allows for the development of multiple Layer 1 blockchains over it.
Layer 2 protocols are off-chain protocols that sit on top of layer 1 networks in order to take some of the load of the base Layer 1 blockchain, and with that providing scalability. Layer 2 scaling solutions are mostly being developed on Ethereum, and they aim to handle transactions off Ethereum Layer 1, while still leveraging on its decentralized security. Layer 2 solutions are separate blockchains that communicate regularly with the Layer 1 blockchain by submitting bundles of transactions. With this Layer 1 handles security, data availability and decentralization, while Layer 2 handles scaling, and the base blockchain becomes less congested. Rollups are the preferred Layer 2 solution at the time of writing this article, they can reduce gas fees by up to 100 times if compared to Layer 1. There are two main kinds of rollups: Optimistic and Zero-Knowledge (ZK). They differ in the way that the transactions are validated before being the to the Layer 1. Optimistic rollups assume that transactions are valid, but can be challenged in a given period of time, and if an invalid transaction is suspected, a fault proof is ran. ZK rollups use zero-knowledge proofs where transactions are computed off-chain, and then compressed data is sent to the Layer 1 as a proof of their validity. Optimistic rollups are simpler, therefore already offer Ethereum Virtual Machine (EVM) support, meaning that they support Smart Contracts. Zero Knowledge rollups rely on cryptographic proofs, and therefore only one ZK project is starting to support EVM (zkSync).
Finally, Layer 3 consists of protocols that allow applications to run on blockchains, as well as the application themselves, which refers to the famous Decentralized Apps (DApps). These protocols comprise of application and execution layers. The application layer comprises the DApps’ part that facilitates the user interactions with the blockchain, including APIs, user interfaces (UIs) and scripts. The execution layer consists of Smart Contracts, which define the rules of the DApps and are programs built on top of the blockchain. Some known Layer 3 protocols are Uniswap and Medusa Easy Staking Protocol (MESP).