Blockchain Solution Layers
What are the different layers in the blockchain system? What do these layers do?
A blockchain-based solution is composed of many layers. These layers are stacked one over the other. Each layer has complementary functionality and the higher layers are dependent on the previous layer and not vice versa; ie layer 2 depends on layer 1 but layer 1 does not depend on layer 2.
Disclaimer- None of the links are referal links. They just provide extra information on certain topics or projects.
Layer zero (L0) is the network framework that works under a blockchain. It has all the protocols, connections, hardware miners, and everything else that forms the foundation of the blockchain ecosystem. This layer is important in terms of allowing cross-chain interoperability.
Layer one (L1) is blockchain systems like Bitcoin and Ethereum. It has the task of providing decentralization and security to the system. This layer deals mainly with the consensus protocols that are fundamental infrastructure to the blockchain system. The main problem is that L1 lacks the power of scalability(Blockchain Trilemma). Eg- Bitcoin, Ethereum, Solana, Avalanche, NEAR, etc.
Layer two (L2 ) are solutions that are built on top of L1 to mainly improve the scalability. This layer provides for a framework where the execution of transactions can take place independent of the original L1 blockchain. The main purpose of this layer is to provide scalability to a blockchain system. The smart contracts or apps using ERC 20 application lie here. Then a summary of these transactions can be stored in the original blockchain. Eg- Polkadot and Matic on the Ethereum L1.
Layer three (L3 ) is as of now the final layer where applications on top of L2 are built. The concepts like Dapps, DAOs, and autonomous agents reside in this layer. They mostly mask away from the technical implementation and provide a user interface to the blockchain. Eg. PancakeSwap, Uniswap, etc.
Let's take an example and see all the layers for the application. The world's most popular decentralized exchange is UniSwap. UniSwap being a Dapp is the L3, where we as users interact with the main blockchain. UniSwap recently selected Arbitrum to provide it with the L2 scaling up solution. Arbitrum provides optimistic rollup-based scalability as part of it being the L2 solution. Arbitrum uses the security features provided by Ethereum as an L1 solution and the main blockchain in use. Ethereum interacts with multiple validators using the internet protocols, which both form a part of the L0 ecosystem.
Summary- L1 is the blockchain infrastructure layer the decentralized systems are built upon. L2 resolves the scalability issues by taking some of the activity off-chain to facilitate fast and cheap transactions. Most of the Layer-3 projects are decentralized applications that we interact with.