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In the event you’ve hung round in crypto circles, then you definitely’ve most likely heard of the time period “layer 2,” which is often used to explain varied crypto property. However what’s layer 2 crypto, and is there any layer 1 (or 3, or 4…)? What do layers need to do with blockchain, anyway? Let’s discover out!
How Does Layer 2 Work?
Blockchains will not be onions, however they do have layers… Nicely, at the least technically. “Layer 2” merely refers to any extra frameworks constructed on high of current blockchains, that are known as layer 1. You’ll be able to consider it as placing race automobile wheels and engine in your trusty outdated Honda.
Designed to resolve elementary points that plague most blockchain networks like Bitcoin, layer 2 options steadiness scalability, transaction velocity, and throughput with a excessive degree of safety. They do that by processing transactions off-chain after which passing them again to the principle chain for settlement.
Sorts of Layer 2 Frameworks
Layer 2 options are extra integrations used along with the unique blockchain, not as a substitute of it. Though these options will not be as well-known to the general public, there are fairly just a few examples of them within the crypto market already. They arrive in several sorts, and listed below are the most typical ones.
Sidechains
Sidechains are precisely what they appear: separate networks that may effectively course of transactions and have full interoperability with their unique blockchains. They don’t seem to be a layer 2 framework however an alternate scaling resolution that always comes up in discussions of the blockchain expertise trilemma concern.
Every sidechain can have its personal consensus protocol, block dimension, safety, and so forth. Sidechains function independently from the blockchain they will help and to which they’re related utilizing a two-way bridge.
Bitcoin blockchain scaling options such because the Liquid Community, primarily utilized by exchanges to facilitate quicker and cheaper BTC transactions, continuously flip to sidechains.
Plasma
Ethereum’s Plasma combines good contract expertise and cryptographic verification to allow quick and low cost transactions on layer 1 networks. Such a result’s achieved by offloading transactions to aspect chains often called plasma or baby chains. Plasma chains are principally impartial and solely periodically report back to the principle community in case of disputes or points.
This layer 2 resolution sort may be pictured as a tree — that’s as a result of it usually has a whole lot of baby chains that each one have their function and may be constructed on high of one another.
Plasma will not be a very talked-about layer 2 resolution sort because it nonetheless has a whole lot of drawbacks, corresponding to lengthy withdrawal time frames. Nonetheless, it’s presently being totally researched, so any and all points might quickly be addressed and resolved.
Validium
Validium is a layer 2 framework capable of dramatically decrease transaction charges whereas concurrently rising transaction speeds. It’s a zero-knowledge proof resolution that processes blockchain transactions off the principle community. These off-chain operations get verified utilizing good contracts.
This layer 2 framework sort doesn’t retailer information on its underlying blockchain, which sacrifices some community safety however permits for a lot quicker and cheaper transactions.
State Channels
State channels are, effectively, channels that get hooked up to the bottom layer — the unique blockchain — and carry out varied operations that later get reported again to the principle chain. They usually discover purposes as cost channels of their simplified kind.
State channels are extremely efficient, permitting customers to make any variety of transactions whereas solely submitting two situations of transaction information to the underlying chain. Sadly, they are often fairly expensive to arrange and have to be periodically checked on.
This framework sort is the layer 2 scaling resolution utilized by Bitcoin’s Lightning Community.
Rollup Chains
Rollup chains can roll up a whole lot of transactions right into a single one on the layer 1 community. Ethereum particularly favors this resolution as a result of it dramatically reduces charges by splitting them amongst all of the transactions within the rollup. On the similar time, because the execution of transactions really occurs on the layer 1 blockchain, all information concerned stays totally safe.
There are two kinds of rollup chains, zero-knowledge and optimistic ones. They differ in how they relay transaction information again to layer 1. ZK rollups, additionally known as zero-knowledge proofs, are quicker than optimistic rollups however much less user-friendly and assume a sure degree of unverifiable belief.
What Is the Distinction between Layer 1 and Layer 2?
As now we have already talked about, layer 1 refers back to the blockchains everyone knows and love — Bitcoin, Ethereum, the Binance Good Chain — the listing goes on. Any layer 1 resolution equals a elementary change within the construction of the blockchain itself, a modification. It may very well be a rise in block dimension, an introduction of a brand new consensus mechanism, and extra.
Layer 2 options, however, function off-chain. They improve the best way transactions and information are processed and arranged as a substitute of utterly overhauling them. Whereas they switch transactions again to the blockchain, it’s essential to notice that a lot of them will not be as safe as the unique layer 1 blockchain.
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Is There a Layer 3?
Fashionable blockchain networks don’t cease at layer 2: other than it, they have an inclination to introduce layer 3. The truth is, there’s additionally layer 0: let’s take a short have a look at it.
Layer 0
Layer 0 is the muse and the premise that enables blockchains to perform as easily as they do. Whereas layer 2 options are constructed upon current networks, layer 0 ones can help varied crypto initiatives, no matter what they’re like. They’ve a number of features:
- Offering baseline infrastructure
An enormous entry barrier many blockchain builders face is having to code a whole mission from scratch, which isn’t any simple activity. Not solely does it require a whole lot of expertise, it is also fairly heavy on assets, most significantly, one’s time. Layer 0 options repair that by offering baseline important infrastructure to all blockchains that use their service.
- Enabling interoperability
One of many massive downsides of crypto initiatives is that they usually need to be on the identical chain as some other mission they need to connect with and work with. Regardless that there are 3–4 foremost networks that home the vast majority of DeFi initiatives, this nonetheless creates points and, in a means, makes the trade much less decentralized.
Interoperability fixes that: so long as two blockchains initiatives are constructed on the identical layer 0, they’ll work together as if they’re housed on the identical chain.
- Facilitating cross-chain exchanges
Cross-chain exchanges are powerful to execute and may be extremely time-consuming and cost-ineffective. The charges can rise sky-high. Nonetheless, layer 0 initiatives can come to the rescue: not like layer 2 options, they enhance the effectivity of cross-chain interplay as a substitute of the velocity and the price of any specific blockchain.
One of the best examples of layer 0 initiatives embrace Cardano, Cosmos, and Polkadot. Please observe, nevertheless, that regardless of the way it could appear, layer 0 will not be needed, and lots of blockchains don’t have it. Nonetheless, it’s very helpful and can undoubtedly play a giant function in the way forward for the crypto trade.
Layer 3
Layer 3 is all of the purposes customers make on high of blockchains. These enhance the usability facet of networks, making their options much more digestible and user-friendly. Some examples of layer 3 options are Uniswap, varied gaming initiatives like Blockchain Cuties, and so forth.
FAQ
What does layer 2 imply?
Layer 2 is a further framework/protocol constructed on high of the prevailing blockchain community to boost it.
What’s the perform of layer 2?
Layer 2 protocols often make blockchains extra scalable, permitting them to course of extra transactions per hour at decrease prices and so forth. All in all, their principal perform is to make the prevailing blockchain higher.
Is Bitcoin a layer 2 cryptocurrency?
Bitcoin is a layer 1 cryptocurrency, identical to Ethereum or Solana.
What’s a layer 3 crypto?
Layer 3 refers to blockchain-related purposes like dApps, distributed storage, and video games.
Disclaimer: Please observe that the contents of this text will not be monetary or investing recommendation. The knowledge offered on this article is the creator’s opinion solely and shouldn’t be thought of as providing buying and selling or investing suggestions. We don’t make any warranties in regards to the completeness, reliability and accuracy of this info. The cryptocurrency market suffers from excessive volatility and occasional arbitrary actions. Any investor, dealer, or common crypto customers ought to analysis a number of viewpoints and be aware of all native laws earlier than committing to an funding.