Last time, we discussed the different public blockchain networks available and the fact that there are other types of blockchains besides the public ones.

This time, we will take a closer look at the different layers of Blockchain ecosystems such as Ethereum. The Ethereum Blockchain Ecosystem is pretty versatile, and one of the most developed ones out there, and it will make for a great example. To keep the information flow easy, we will avoid metaphors this time around as they introduce unnecessary complexity to the topic.

Layer 1 or The Base Layer

Ethereum as a Layer 1 is the foundational blockchain itself, where all transactions are processed and validated. In the case of Ethereum, it operates using a Proof-of-Stake (PoS) consensus mechanism (we will get to this one soon), which was adopted in 2022 to improve scalability and reduce energy consumption. Layer 1 blockchains, and specifically Ethereum, come with the following benefits:

• Security: Layer 1 is highly secure due to its decentralized nature and extensive network of validators.

• Trust: As the original blockchain, it has a proven track record and is trusted by users and developers alike.

• Immutability: Transactions recorded on Layer 1 are nearly impossible to alter, ensuring data integrity.

But Ethereum still has some weaknesses, such as:

• Scalability: Layer 1 can process a limited number of transactions per second, leading to congestion and high gas fees during peak usage.

• High Costs: Transaction fees can become prohibitively expensive when the network is busy, which can deter users.

This is where, naturally, Layer 2 blockchains come in to save the day ✨.

Layer 2 = Enhancing Performance

Layer 2 solutions are built on top of Layer 1 (here, Ethereum) to improve transaction speed and reduce costs to compensate for Layer 1's weaknesses. They offload some of the transaction processing from the main blockchain, allowing for faster and cheaper transactions. This has the following benefits:

• Increased Scalability: Layer 2 can handle a much higher volume of transactions, significantly improving throughput.

• Lower Fees: By processing transactions off-chain, Layer 2 solutions can reduce gas fees, making it more affordable for users.

But even Layer 2 blockchains have their weaknesses:

• Complexity: Layer 2 solutions can introduce additional complexity, requiring users to understand how to interact with them.

• Security Trade-offs: While they maintain a connection to Layer 1 for security, some Layer 2 solutions may have different security models that could be less robust.

To name some Layer 2 solutions that you might have come across before:

OP Mainnet, Arbitrum, Polygon (MATIC), Immutable X, Base, zkSync, Loopring, Boba Network, Cartesi, StarkWare, Scroll, Linea, Metis, Zora and more.

Layer 3 = User-Focused Applications

Layer 3’s are still a fairly young invention and focus on environments for decentralized applications (dApps). This layer interacts with both Layer 1 and Layer 2 to provide user-friendly interfaces and functionalities. It encompasses the applications that users directly engage with, such as DeFi platforms and NFT marketplaces. Some recent and more known examples are DEGEN (built on Base) and XAI (built on Arbitrum).

Why Mulitple Layers Matter

The existence of multiple layers within the Ethereum ecosystem is crucial for addressing the blockchain trilemma: balancing security, scalability, and decentralization. Each layer plays a specific role, allowing Ethereum to maintain its strong security while improving scalability and user experience. This layered approach enables Ethereum to support a growing number of applications and users, fostering innovation and adoption in the decentralized finance (DeFi) space and beyond.

As you can see, this topic is better looked at without metaphors as the most important information to remember is the following:

Layer 1 solutions hold the key to a secure, trustworthy, and incorruptible base layer, while Layer 2 solutions improve user and builder interactions while Layer 3 may contribute more seamless user experiences for specific applications.

If you would like to receive some more light and understandable resources concerning Web3, subscribe to the bi-weekly ALANA ⚡NewsFlash⚡: