What is layer in blockchain and cryptocurrencies? simple definition

Introduction

Whether you're a novice investor or a tech enthusiast, understanding layers is essential for navigating the complex world of cryptocurrencies. In English, "layer" means "layer." In the blockchain ecosystem, each layer represents a layer of infrastructure built on protocols and technologies designed to improve network performance.

Each layer plays a specific role in the overall functioning of the blockchain. These layers are the technical foundations that enable more complex solutions, such as faster, cheaper, and more secure transactions. For example, while Bitcoin is highly secure and decentralized, its scalability remains limited, hampering its ability to process large numbers of transactions. Conversely, blockchains like Solana are extremely fast but suffer from a high degree of centralization. It is in this context that the concept of layers emerged as a solution to overcome these challenges.

There are several types of layers in the blockchain ecosystem, each with a distinct role in improving networks. Understanding these layers is essential not only for understanding how cryptocurrencies work, but also for identifying the challenges they face.

Why are layers essential for blockchain?

Layers play a crucial role in solving key blockchain challenges, including scalability , security , and decentralization .

This trio, often referred to as the "blockchain trilemma," represents the three fundamental challenges that the different layers are trying to overcome.

Layers are designed to improve network efficiency while enabling interoperability between different systems. Each layer specializes in a particular aspect: for example, layer 1 handles basic transactions, while layer 2 solutions handle more complex operations without overloading the main blockchain.

This division of labor improves scalability and reduces transaction fees . But that's not all: layers also stimulate innovation. For example, solutions like layer 2 rollups and sidechains help strengthen decentralization while optimizing transactions and boosting network performance.

Layers thus open up exciting new perspectives for the blockchain ecosystem and allow us to overcome current network limitations. They enable blockchains to evolve more efficiently, quickly, and securely .

The Cryptocurrency Trilemma:

Criteria	Description	Impact on other criteria
Security	Protection against attacks and fraud.	May reduce scalability and decentralization .
Decentralization	Lack of centralized control over the network.	May limit scalability and complicate security .
Scalability	Ability to process a large number of transactions.	May compromise security and decentralization .

What is a Layer 0?

A Layer 0 is not a blockchain per se.

When we talk about "Layer O," some people think of projects with that name, which use a protocol that allows communication between different blockchains. We're not really talking about an additional layer, but rather a language compatible with multiple Layer 1 and Layer 2, facilitating the transfer of cryptocurrencies between these layers and blockchains.

Others consider "Layer 0" to be the infrastructure that supports Layer 1, such as the networks of miners that power and operate the Proof of Work consensus for Bitcoin, or the networks that allow nodes on a blockchain to communicate with each other. This amounts to the basic infrastructure required for Layer 1 to function.

An infrastructure that supports Layer 0

In a first conception, layer 0 constitutes the basis of the blockchain architecture, serving as a foundation on which the other layers can be built, ensuring interconnection and interoperability between different blockchains.

This includes fundamental elements like the nodes that validate and confirm transactions, the servers that run those nodes, and of course the users who interact with the protocol. You'll also find miners as part of a Proof of Work consensus layer , or validators (depending on the consensus used), as well as the Internet and all its components.

Communication between different blockchains

Layer 0 not only serves as a common foundation, but also enables communication between different blockchains. Rather than adding new layers on top of existing blockchains, the idea is to build directly on this foundation , thus facilitating interoperability between two separate blockchains.

The idea is to create an ecosystem where each blockchain can operate autonomously while remaining connected to others. Through integrated communication protocols and consensus systems , these platforms allow multiple blockchains to be connected so they can share data without compromising their security or decentralization. This also allows projects based on different blockchains to interact without having to rely on a centralized intermediary, making the entire ecosystem more resilient and secure.

For example, Cosmos or Polkadot are Layer 0 protocols . They aim to solve problems like interoperability, scalability and security, by providing a software development kit (SDK) to facilitate the creation of new blockchains.

Cosmos (ATOM) enabled the creation of Finance Chain and Terra thanks to the use of the same Layer 0 , that is to say the same common base.

Similarly, Polkadot offers a development kit and a communication system that allows different blockchains, such as Moonbeam , Acala or Astar , to develop and operate on its network thanks to this shared base .

What is a Layer 1?

Unlike Layer 0 , which ensures interoperability between different blockchains, Layer 1 is a standalone blockchain that operates independently while having its own rules and mechanisms.

Layer 1 is the blockchain itself . It is the basic infrastructure on which all applications, protocols, and smart contracts are built . Some examples of Layer 1 include Bitcoin, Ethereum , Solana, Cardano , Polkadot , Elrond . Each of these blockchains has its own protocols and technical characteristics.

 It includes fundamental layers such as data, network, consensus, and transaction activation. In other words, Layer 1 represents the independent public chain that has its own consensus mechanism. Layer 1s are often decentralized networks where nodes (computers participating in the network) validate transactions, ensuring security and transparency.

Transactions are processed and validated directly on the Layer 1 blockchain , and each blockchain has its own native token (ETH for Ethereum , BTC for Bitcoin, etc.). However, the Layer 1 blockchain faces the challenges of the trilemma: it can be secure and decentralized, but often at the cost of scalability.

How Layer 1 Works

Layer 1 networks typically consist of several essential components: a consensus layer that establishes the network's rules, an execution layer that manages transactions, security mechanisms to protect the network, and governance tools to manage changes. They also manage data, not just transactions. The main goal is to ensure the validity of transactions while maintaining the integrity of the decentralized ledger. Bitcoin, for example, thanks to its proof-of -work consensus , is considered one of the most secure and decentralized networks.

Layer 1 relies on algorithmic consensus to validate transactions and add new blocks to the chain. Bitcoin uses Proof of Work ( PoWER ) to validate transactions, while Ethereum recently adopted Proof of Stake ( PoS ) , which allows for blocks to be validated in a more environmentally friendly and faster way.

Layer 1 blockchain also has a native token , which plays a central role in the network. For example, Bitcoin (BTC) and Ethereum (ETH) are the tokens used to pay transaction fees and reward validators (miners or stackers ) who keep the network secure.

Layer 1 Developments

Developers are actively working on solutions to improve scalability and reduce fees on Layer 1 networks . For example, Ethereum introduced Ethereum 2.0 , which aims to improve transaction speed and energy consumption by adopting Proof of Stake ( PoS ) . Similarly, Solana stands out for its ability to process thousands of transactions per second thanks to its Proof of History ( PoH ) , making it one of the fastest networks on the market.

Tableau Layer 1 advantages and disadvantages

Benefits	Disadvantages
Security and decentralization : Layer 1s are generally the most secure, thanks to well-established consensus mechanisms.	Limited scalability : For example, Bitcoin can process about 7 transactions per second (TPS) and Ethereum about 30. This can create bottlenecks during times of high demand.
Network Sovereignty : Each Layer 1 blockchain is autonomous and operates independently of the others, ensuring independence.	High fees : During network congestion, fees can become very high. Miners prioritize transactions with higher fees, increasing user costs.

What is Layer 2?

Layer 2s are superimposed on Layer 1s , allowing the workload of the main blockchain to be reduced, notably by improving scalability without compromising security and decentralization. The objective is to manage many more transactions, much more quickly, while benefiting from the security of Layer 1. Unlike Layer 1 , which is an independent blockchain, a Layer 2 builds on existing infrastructure, leveraging the security and decentralization mechanisms of the basic blockchain. For example, solutions like Polygon (MATIC) or Lightning Network for Bitcoin can process thousands of transactions per second, far more than a Layer 1 like Ethereum or Bitcoin can handle alone.

A common analogy is shopping at a supermarket. In the first scenario, you pay for each item purchased, generating many transactions. In the second, you fill your cart and only make two transactions at the checkout. This system reduces transactions while maintaining the same result. Similarly, Layer 2 optimizes scalability by processing operations outside of Layer 1, recording only the essentials.

Layer 2s are therefore essential to solve the problem of network saturation, by processing a portion of the transactions before sending them back to the main blockchain.

Layer 2 networks therefore reduce congestion on Layer 1 networks by allowing more transactions to be processed per second without overloading the main blockchain. These solutions offer improved scalability and reduced fees , which is crucial for the mass adoption of blockchain technologies, particularly for decentralized applications ( dApps ) and smart contracts .

Many investors are banking on Layer 2s to make them as scalable as possible. Some already identify inherent limitations of current blockchains, while others believe Layer 2s could also be used to launch new cryptocurrencies.

How Layer 2 Works

Layer 2 solutions use different approaches to optimize the Layer 1 blockchain . Some of the most common are sidechains , rollups , and state channels . Each approach has its own advantages and mechanisms.

• Sidechains : We can no longer really talk about a "second layer"; it is simply a parallel blockchain that communicates with the first. These are independent blockchains but connected to the main blockchain (Layer 1). They allow for the processing of specific transactions while providing interoperability with Layer 1 .

State channels are used in solutions like the Lightning Network for Bitcoin, Raiden Network for Ethereum , and Celer for other blockchains.

Imagine someone making multiple transactions with you. At the end, they send you a summary of the exchanges (what you sent, received, and what was returned to you). All of this happens outside the main blockchain, which is only used for opening and closing the channel, thus avoiding overloading it.

This allows many calculations to be performed on a second chain, thus reducing the load on the first.

• State Channels or State Channels: These allow off-chain transactions to be processed between two parties and only submit the final result to the blockchain once the transaction is complete.

State channels send information to the main channel only when they are opened and closed, which limits the frequency of communication.

In contrast, rollups send sets of information more regularly, which increases security by allowing the main chain to constantly monitor what is happening. This allows for more complex and heavy computations than in state channels.

• Rollups : These aggregate multiple off-chain transactions and then record them as a single transaction on the base blockchain. The two types of rollups are Optimistic Rollups and ZK- Rollups .

The Optimistics Rollups operate on trust, with a confirmation delay on the main chain to verify the validity of transactions. It's fast, but if an error is detected, a transaction fee is required to reverse it. Networks like Arbitrum and Optimism use this technology. There are delays, and payments can be rejected.

ZK -Roll Ups or Proofs of Non-Disclosure are more advanced. ZK-rollups allow for processing a large number of transactions quickly, while proving their validity without exposing all the details to the main blockchain. They use mathematical proofs ( Zero-Knowledge Proofs ) to validate transactions without having to fully reveal them.

This allows transactions to be proven correct without waiting for a delay, and without overloading the main blockchain.

For example, they allow you to demonstrate, with each transaction, that you have the financial capacity to make the payment. Stackware and Aztec are examples of companies that use this technology.

In summary, ZK-Roll Ups are considered more secure and efficient, although their adoption is still developing. There are also other solutions like Plasma and Validum , which are based on similar principles.

Table: Main Layer 2 solutions, their advantages and disadvantages:

Approach	Description	Benefits	Disadvantages
Sidechains	Parallel blockchain connected to Layer 1.	– Offloads Layer 1. – Interoperability.	– Less secure. – Risk of centralization.
State Channels	Off-chain transactions with summary on the blockchain.	– Fast transactions. – Less load on the blockchain.	– Limited to exchanges between two parties. – Reduced communication frequency.
Optimistic Rollups	Aggregates off-chain transactions, verified by the main chain after a delay.	– Speed. – Scalability.	– Confirmation deadline. – Fees for canceling errors.
ZK -Rollups	Uses mathematical proofs to validate without revealing details.	– Secure and fast. – No confirmation delay.	– Adoption in development. – Technical complexity.

Layer 2 Examples

Layer 2 solutions to improve their performance. Here are some examples:

• Ethereum and rollups : Ethereum uses Optimistic Rollups and ZK-Roll Ups to increase its transaction processing capacity.
• Polygon : Initially designed as a Layer 2 solution for Ethereum , Polygon has evolved to offer various scalability solutions via sidechains and rollups .
• Lightning Network (Bitcoin) : The Lightning Network is a Layer 2 solution for Bitcoin that enables instant payments with very low fees by creating off- chain payment channels .

Tableau Layer 2 advantages and disadvantages

Advantages of Layer 2	Disadvantages of Layer 2
Improved scalability : Process thousands, even millions, of transactions per second without impacting Layer 1 network speed.	Security : Additional risks (centralization of a sidechain , vulnerabilities of rollups ).
Lower transaction fees : Off-chain transactions incur lower fees than Layer 1 transactions.	Technical complexity : Complex implementation requiring adjustments from developers.
Improved user experience : Increased speed and reduced costs make using applications more fluid and accessible.	Interoperability : Compatibility issues between different solutions and blockchains, slowing down adoption.

In summary, Layer 2s are essential to increase the capabilities of Layer 1 blockchains while maintaining their security, decentralization and addressing scalability challenges.

What is Layer 3?

Layer 3 is a rather vague concept and can mean several things depending on the source. Indeed, definitions vary considerably from one site to another. Generally, a Layer 3 can be an additional layer beyond Layer 2, (but it is more relevant to focus on Layer 2 for the moment, as there is still a lot of research and development to be done in this area .) 

Layer 3 is a kind of Layer 2 of Layer 2. It refines specific aspects of Layer 2 to make them even more efficient. These layers are often specialized for specific functions, such as improving scalability , strengthening security , or ensuring anonymity .

It is important not to confuse Layer 2 and Layer 3. Layer 2 serves as a foundation for blockchains to communicate, while Layer 3 facilitates interoperability between blockchains that do not share the same base (Layer 0), such as Bitcoin and Ethereum , which cannot exchange directly without the intermediary of Layer 3.

Layer 3s can also correspond to specific functions or applications built on the Layer 2 network, allowing them to meet specific needs. Finally, some additional layers may focus solely on data management or other specific tasks.

An additional layer beyond Layer 2

A Layer 2, we agree, allows us to optimize certain aspects of the blockchain, its infrastructure. Well, a Layer 3 will allow us to optimize certain very specific aspects of a Layer 2. All these blockchains, Layer 2 and Layer 1, cannot communicate with each other. And Layer 3 will provide a solution that allows blockchains to communicate with each other.

A response to specific needs

Layer 3s are often called application-specific blockchains , because they really have a specialization in their use. In fact, they are concretely sub-parts of Layer 2 that will allow for the improvement of different aspects. We will have a Layer 3 for scalability, a Layer 3 for security, for anonymity, etc.

Use

Layer 3 blockchains aim to simplify the interaction between different blockchains. For example, they allow you to use a single address to send ETH ( Ethereum ) to a Bitcoin address, or to store Bitcoin on an Ethereum address . Currently, many people make the mistake of sending Bitcoin to an Ethereum address , resulting in the irreversible loss of their funds.

Although Layer 3 is still relatively unknown, it represents a major step forward in blockchain optimization. One notable project in this area is Stackware , a Layer 3 that significantly improves scalability by enabling better management of the technology stack and alleviating Layer 2 congestion.

Appearance	Description
General concept	Additional layers beyond Layer 2, specialized in specific functions (scalability, security, anonymity).
Relationship with Layer 2	Optimize and refine specific aspects of Layer 2.
Interoperability	Allow communication between different blockchains (e.g. Bitcoin and Ethereum ).
Specific applications	Specialized to improve aspects such as scalability, security or anonymity.
Project example	Stackware : Improves scalability by optimizing Layer 2 management and reducing congestion.
Usefulness for users	Allows you to send crypto between different blockchains without losing funds.

Conclusion

With the rapid evolution of blockchain technologies, understanding the different layers becomes essential to grasp the major challenges of the blockchain trilemma such as security , scalability and decentralization . It also allows for a better understanding of the solutions proposed by the various cryptocurrency platforms , which seek to address these challenges while improving the overall efficiency of the networks.

The challenge is that these three aspects cannot be optimized simultaneously. This is where Layer 2s come in . Layer 2s appear to be, in whole or in part, a key solution for blockchain scalability.

However, this does not come at the expense of core values of the decentralized community, such as security and true decentralization, values that are primarily guaranteed by a Layer 1 like Bitcoin, for example.

To summarize, Layer 0 really represents the foundations: the basic infrastructure, like the root of a system, that allows everything else to function. Layer 1 is the blockchain itself , it's the architecture of networks like Bitcoin or Ethereum . Layer 2 improves on this architecture, optimizing scalability, for example, for Bitcoin with solutions like the Lightning Network. Finally, Layer 3 concerns applications and connections between different blockchains, facilitating the interoperability and functionality of systems.

Blockchain scalability issues are a key challenge. Innovative solutions that address them will become increasingly valuable as they gain wider adoption.

Ultimately, understanding these technological issues will help identify investment opportunities and gain a real advantage.