The blockchain space is vast and new concepts come out every day.

As my friend says, if you take a break from the blockchain for two months, you’ll find yourself lagging behind by six months😰.

With the ever-evolving web3 landscape, it’s important to stay up-to-date and actively participate to stay ahead of the game.

If you’ve been on Crypto Twitter recently, you’ve probably seen people discussing L2 protocols, L1 protocols, Layer 0, and Layer 3.

Understanding these complex concepts can be overwhelming, so in this article, we’ll break them down simply with examples and simple illustrations.

First, the ultimate question…

Where did these layers come from?

The term ‘Layer’ is used to describe an underlying blockchain.

There are different kinds of layers.

Statistics show that over 420,000,000 people own crypto worldwide.

This staggering number shows that the blockchain has to accommodate a large number of transactions every day.

As a result, blockchain scalability is affected.

Quick Illustration

Imagine you have a large store e.g. Shoprite or Walmart, in your neighborhood where people like to shop. When you visit pretty early, there are no queues, the store is unoccupied and the cashiers are nice and smile at you.

However, during rush hours, there are a lot of queues and not enough hands, the store is jampacked and the cashiers have had it up to HERE with the people. There’s no smiling or small talk.

Blockchains are like that store. The cashiers are nodes that run on the blockchain. The people are crypto traders.

People come to transact daily on the blockchain. And because it is digital and electronic, transactions are automated and users can trade even at odd hours of the day.

What is Scalability?

Scalability refers to the ability of a system or solution to handle increasing amounts of work or data with ease and without any negative impact on performance or efficiency.

In other words, a scalable system can handle growing demands without slowing down or becoming overwhelmed.

However, the basic(public) cannot do these because they have to confirm/settle every transaction in their network.

This leads to the scalability problem.

Blockchain Technology: Solving the Scalability Puzzle

The blockchain scalability trilemma is a concept that refers to the three challenges associated with developing a blockchain system that is secure, decentralized, and scalable at the same time.

According to this trilemma, it is impossible to achieve all three goals simultaneously.

The first goal is security, which refers to the ability of a blockchain system to prevent fraudulent or malicious activities such as double-spending.

The second goal is decentralization, which means that the blockchain network is distributed among many nodes, and no single entity has control over it. This ensures that the network is transparent and resistant to censorship.

The third goal is scalability, which refers to the ability of the blockchain system to handle a large number of transactions quickly and efficiently.

However, as per the trilemma, improving one of these goals comes at the expense of the other two.

For example, improving security or decentralization may lead to reduced scalability.

On the other hand, enhancing scalability may result in decreased security or decentralization.

Therefore, blockchain developers have to make trade-offs between these goals when designing and implementing a blockchain system, depending on the specific use case and requirements.

But how does this connect to the different layers?

The illustration above can be applied to Layer 1 blockchains. They are blockchains that settle every transaction that happens in their network.

Layer 1 protocols are called the basic primary blockchain networks and popular examples are the Algorand, Bitcoin and Ethereum blockchains.

The problem with this, however, is that it causes scalability issues and high fees when there are many transactions in the network, making users pay as high as $50-$100 per transaction.

The nodes on the blockchain, just like cashiers in the store(in our illustration), can be overwhelmed with numerous requests, and thus cause transaction delays.

And as compensation for the high throughput, the transaction fees are increased.

But this is not comfortable for users.

Due to these challenges, Layer 2 protocols emerged.

Layer 2 solutions are constructed on top of Layer 1 blockchains, utilizing their security framework, and are capable of achieving high throughput quickly and cost-effectively, without compromising network security.

What are Layer 2 Protocols?

Layer 2 is a framework built on top of a Layer 1 blockchain. It gets built on top of this chain to improve scalability.

They create a secondary framework where transactions can take place independently of layer 1.

Using our illustration, it’s like partnering with a sales agency to provide sales reps in-store to handle rush hours.

As a result, the queues become shorter, transactions are faster, and the cashiers are happy again.

L2 solutions are built as an extension to the layer 1 blockchain and use the L1 security framework.

An example of Layer 2 solutions are Arbitrum and Optimism blockchains built on the Ethereum network.

The best part about Layer 2 solutions is that they have the potential to achieve high throughput quickly and cheaply without sacrificing network security.

So while layer 1 offers security, layer 2 offers high throughput.

Difference Between Layer 1 and Layer 2 Solutions

Layer 1 solutions aim to improve the base layer of a blockchain protocol. Let’s look at some of them:

1. Sharding: This technique divides the blockchain into smaller parts, or “shards,” which can be processed separately, making the network faster and more scalable.

2. Proof-of-Stake (PoS): Unlike the current Proof-of-Work (PoW) consensus algorithm, PoS allows validators to stake their own cryptocurrency to secure the network, reducing the need for expensive mining equipment and increasing scalability.

3. Lightning Network: This layer 1 solution is specifically designed for Bitcoin and aims to improve the speed and cost of transactions by moving them off-chain, allowing for fast and cheap microtransactions.

Layer 2 scalability solutions, on the other hand, are built on top of Layer 1 and aim to improve the scalability of a blockchain protocol without changing its base layer.

Some notable examples are:

1. State channels: These are off-chain channels that allow for faster and cheaper transactions between two parties, without requiring each transaction to be recorded on the blockchain.

2. Plasma: This solution creates smaller, “child” blockchains that are connected to the main blockchain, allowing for faster and more scalable transactions.

3. Rollups: These are layer 2 solutions that bundle multiple transactions together and then publish them as a single transaction on the blockchain, reducing the amount of data that needs to be processed on the base layer.

Let’s look at general differences in the table below:

How Layer 0 and Layer 3 Fit Into ALL This!

Layer 0 is like the foundation of our store — it’s the underlying infrastructure that supports everything else.

In Web3, layer 0 is the physical layer, which includes things like the internet infrastructure, hardware devices, and protocols that make it all work. A profound example is the Polkadot network.

On the other hand, layer 3 is like the top floor of the store — it’s the part that we actually interact with.

In Web3, layer 3 is the application layer, which includes decentralized applications (dApps) that allow us to interact with blockchain technology.

Think of layer 0 as the pipes and wires that bring water/electricity into the store, and layer 3 as the appliances and gadgets that you use to actually do things with that water and electricity.

Without layer 0, there wouldn’t be an internet or blockchain technology to build on, and without layer 3, we wouldn’t have the exciting and innovative dApps that are changing the way we think about finance, social media, and more e.g Gamefi, DeFi, SaveFi, etc.

Conclusion

There you have it!

Layer 1 and Layer 2 blockchain solutions simplified😃.

Now, rush to crypto Twitter and act like those cool kids who include L1 and L2 in their tweets :). If you enjoyed this, check out entry 6.

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