2.3 k
views

Understanding Layer 3 Blockchains

Scalability has become an even more pressing issue as the crypto sector experiences increased customer demand. Many of us have come across terms like “layer one” and “layer two” protocols in the blockchain world.

Blockchains must be very secure due to the lack of a centralized authority. They must also be incredibly scalable to cope with growing users and transactions.

Today we will learn more about layer three solutions, a technology aiming to provide scalability while maintaining top-notch security.

A Look into Multi-Layer Blockchains

If you’ve spent any time in the crypto world, you’ve probably heard of the “blockchain trilemma.” Simply said, present blockchains can only satisfy two of the three attributes listed below:

  • Decentralization: the exclusion (either partial or complete) of a centralized entity in the system.
  • Scalability: a blockchain’s capacity of accommodating a larger volume of transactions.
  • Security: a blockchain’s capacity to protect data from various forms of attacks or double-spending.

As a result, all blockchain initiatives must sacrifice one area to flourish in the other two. This is a typical trade-off, with traditional blockchains (ETH or BTC) betting on decentralization and security.

On the other hand, a system like Solana relies on security and scalability with a less decentralized framework.

The scalability trilemma only becomes an issue when blockchain systems require all three attributes on their first layer. A system that cannot go beyond its first layer (or L1) will need to sacrifice one of the features.

As a result, blockchains’ multi-layer structure provides a cost-effective solution to the scalability trilemma. Theoretically, a well-designed system can achieve security, decentralization, and scalability.

Why Does the Market Need Layer 3 Solutions?

Creating a new layer (L2) can enhance the feature sacrificed by L1. In this context, one may wonder why we need an additional layer. We will keep the reasoning simple so that everyone can follow it regardless of their technological knowledge.

The blockchain trilemma is not the only fundamental issue affecting crypto traders. Interoperability refers to the capacity to observe, access, and share information between computer systems.

It implies two blockchains with different ecosystems (like ETH and BTC) may connect and interact without a centralized intermediary.

It is not feasible to shift BTC to Ethereum and use it across numerous decentralized finance (DeFi) apps. Several initiatives have constructed bridges between BTC and Ethereum on the first layer. However, they often include trusted intermediaries or some sort of centralization (e.g., centralized custodians).

On the one hand, L2 solutions overcome the scalability difficulties of conventional chains. On the other hand, the increase in the number of new L2 solutions makes system interoperability a greater issue.

While Uniswap and SushiSwap are both on Ethereum, they are working on independent L2 solutions (Optimism and Polygon, respectively). Consequently, taking a token from one swap portal to another will require an intermediate passage.

Anyone labeling this matter as “trivial” should probably know better. Inefficient processes result in increased prices and longer processing times. Ironically, this is precisely the problem L2 solutions planned to solve.

Therefore, interoperability between multiple blockchains and layer-two solutions is a significant issue. The trick invented by some developers is to introduce another layer (L3) to the system.

What Is a Layer 3 Blockchain?

Layer-three solutions supercharge separate blockchains with cross-chain capabilities to achieve real interoperability. At this point, it’s essential to underline that the whole system does not rely on any custodian or intermediary.

Because L2 and L1 solutions are closely related, creating interoperability protocols on a different layer is a reasonable idea. This intuition led to the creation of L3 services.

Without useless overcomplication of the matter, think of L3 protocols as a way to simplify all the layers. They act as the messenger between L1 and L2 systems, disregarding most of their operating differences.

Real-life Examples

We often see multi-chain interoperability teams mention the potential of L3 technology. While all this may sound very theoretical, we already have a few L3 examples on the market.

Think, for example, of Cosmos’s Inter-Blockchain Communication Protocol (or IBC). We can see Cosmos as the merge of three layers:

  • Tendermint Core
  • Cosmos-SDK
  • IBC

Any application that relies on dependable and secure inter-module communication can use IBC. Cross-chain asset transfers and multi-chain smart contracts are only a few examples of this technology’s potential.

One could argue that Ripple’s Interledger Protocol (ILP) is the most famous L3 solution on the market. Ripple proposes the following structure:

  • Layer 1: blockchain ledgers
  • Layer 2: LANs (Local Area Networks)
  • Layer 3: Interledger Protocol

ILP aims to constitute an L3 system to guarantee faster and cheaper transactions on Ripple.

We could go on with other examples, but, in general, the pattern is pretty straightforward. Developers build a new layer on top of existing systems working with L1 and L2 technology.

Final Thoughts

L3 protocols have a lot of ambitions, and they may transform the way blockchains function in the digital market.

Ethereum live price
Eth
Ethereum
$1.766,1
price
0.821%
price change
BUY NOW

L3 technology aims to achieve full interoperability, avoiding a future of complex and incompatible blockchain systems. Behind a seemingly technical concept, we find the future of blockchain and cryptocurrency mass adoption.

Stay up to date with our latest articles

More posts

What is Tornado Cash, and How Does It Work?

Decentralized and non-custodial, Tornado Cash is an Ethereum-based solution for privacy and anonymity. Severing the on-chain link between those who send and receive coins enhances transaction anonymity.  This guide will provide our readers with more insight into Tornado Cash. We will start with a general introduction and move deeper into how Tornado Cash works. We will also add a list of pros and cons to this system for the reader's benefit. Understanding Tornado Cash Decentralized protocols such as Tornado Cash…

What Is the Blockchain Scalability Trilemma?

In the context of decentralization, security, and scalability, the Blockchain Trilemma refers to the generally held notion that decentralized networks can only deliver two of the three benefits at any given moment. In this article, we more closely into the matter, assessing all the most relevant aspects of the blockchain scalability trilemma. The Trilemma Vitalik Buterin invented the term "blockchain trilemma," which refers to a conundrum that blockchain engineers face while balancing three competing demands at once: decentralization, security, and…

Do Smart Contracts Represent Legal Contracts?

When industry players use the term "smart contracts," they may mean different things. Words matter, as any contract lawyer will be able to explain. Is the word “contract” a technical overstatement, or does it trigger actual legal bindings? The industry needs to agree on the consistency of its terminology. What exactly is a smart contract? Does it have any legal implications? When attorneys and technologists use this terminology, do they understand each other? Our article will provide a short analysis,…

How Do Crypto Anti-Dumping Policies Work?

Scammers utilize social media platforms to impersonate celebrities or acquaintances to persuade victims to make fake investments. The rise of cryptocurrencies and the lack of regulations gave new tools to these criminals. We'll look at how the market is attempting to safeguard investors today. Crypto commentators frequently emphasize anti-dumping regulations as a deterrent to online fraudsters. What Are Pump and Dump Operations? Before dwelling on the concept of anti-dumping policies, we need to understand what is a “pump and dump”…

Understanding Layer 3 Blockchains

Scalability has become an even more pressing issue as the crypto sector experiences increased customer demand. Many of us have come across terms like “layer one” and “layer two” protocols in the blockchain world. Blockchains must be very secure due to the lack of a centralized authority. They must also be incredibly scalable to cope with growing users and transactions. Today we will learn more about layer three solutions, a technology aiming to provide scalability while maintaining top-notch security. A…

Venezuela – How Does the Petro Crypto Work?

Venezuelan President Nicolas Maduro suggested the creation of a national cryptocurrency in 2017. Officials claim that the country's oil, gas, and mineral riches back its value. However, as of today, Petro seems to fail fulfilling its purpose of rescuing the national economy. Some foreign observers believe the Petro digital currency is a trick to circumvent international restrictions. These sanctions prevent Venezuela from borrowing cash on global markets. This article will provide an analysis of the creation of this national cryptocurrency.…

Understanding Advanced Smart Contracts

The clever use of smart contracts has contributed significantly to the exploding popularity of blockchain technology. Initially proposed by computer scientist Nick Szabo, a smart contract is a collection of instructions executing automatically. This technology aims to make the contract execution as automated as possible. Many know how basic smart contracts work, but it is rare to find a guide on their advanced versions. After a basic overview, we will analyze two typical cases of advanced smart contracts. The article…

Layer 2 Blockchain Projects – A Guide for Beginners

One of the critical difficulties confronting the blockchain community is the matter of scalability. While the technology has proven its high potential over the years, several aspects limit its applicability to a large scale. The scalability problem has been on our minds since humankind came up with the first technological inventions. We'll expand on that in this post, looking at the particular case of Layer 2 blockchains. Layer 2 (L2) blockchain definition The "Layer 2 blockchain technology" concept is gaining…

A Beginners’ Guide to Permissioned Blockchains

It has been a few years since the topic of blockchain technology invaded the market for the first time. Today, people are gradually learning to see a blockchain and a cryptocurrency as two distinct concepts. The technological and financial culture is growing, and, as a result, the industry is attracting more developers and users. Among the many consequences of this trend, we find the appearance of new tools. Today we will talk about one of the many new applications of…

Hyperledger Fabric – What Is It and How Does It Work?

The cryptocurrency world continues to see new developer ideas enter the market. Today, we will simplify a technical aspect: the Hyperledger Fabric technology. Any reader interested in learning about the most complex aspects of the topic can refer to the official documentation. This article will analyze the main elements of this system, also highlighting important criticisms in the sector. Understanding Hyperledger Fabric Let's start, first of all, by understanding the origin of the instrument name: Hyperledger is an open-source distributed…