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  • Claudia Campisano

What is a layer in crypto?


"What is a layer in crypto?" article cover

To better understand the full potential of blockchain and its technology, it is essential to know its architecture.


In this article, we will cover the layers of blockchains and analyze the differences between layers 0,1 and 2 by flanking some practical examples of famous blockchains.

The layered structure of the blockchain architecture

The layered structure of blockchains is a sort of pyramid; the base is covered by layer 0, layer 1 on the first step, and layer 2 at the top.


A project does not have to possess all these levels; only layer 1 is indispensable. We can define layer 2 as optional, as it integrates improvements to layer 1, while layer 0 can be integrated into layer 1 (as Ethereum, for example).


Let’s analyze in detail the features of each layer!

Layer 1, layer 2 and layer 3 examples


 

What is Layer 0 in crypto?

As mentioned above, layer 0 is optional; it may not be present in the architecture of a blockchain because some incorporate it directly into layer 1.

This layer is characterized by three fundamental aspects:

  • Security (it means everything that concerns the correctness of transactions, impenetrability from external attacks and so on);

  • Framework (it is a sort of "frame" that makes agile and simple the development of additional components such as dApps, for example);

  • Interoperability (the possibility to interact and cooperate with the various blockchains built on top of the same layer 0).


Two examples of well-known layer 0 are Cosmos and Polkadot.

For what concerns Cosmos:

  • Each chain based on it relies on it to ensure its own safety. (scalability)

  • The Cosmos SDK framework allows you to create blockchains and modules easily, avoiding having to start from scratch. (Framework)

  • Each Cosmos-related project can be put into communication with others effortlessly. (interoperability).


Is Polkadot a Layer 1 or 2?

Polkadot is a Layer 0 blockchain, it allows all layer 1 parachains built on top of it to communicate with each other and benefit from Polkadot’s features (talking a shared language because they are built on the same layer 0, parachains benefit from the security of the Relay Chain and the interoperability).

A deep dive into Polkadot ecosystem.


Layer 0 is used to construct large and complex blockchain ecosystems. It can be integrated into layer 1 or exist alone, as long as at least one layer 1 is built on it.


 

What is Layer 1 in crypto?

A Layer 1 is the core level of the blockchain structure, it executes and validates transactions, and is the most common standard, used without the aid of other layers, especially in older blockchain as Bitcoin and Ethereum.


This category deals mainly with two tasks:

  • Execution: processing all transactions and operations.

  • Consensus: means the mechanisms and rules dedicated to the block validation (PoW and PoS).


While layers 0 and 2 are optional, layer 1 is always mandatory. Without it, no operations of any kind could take place.


If there is no layer 0, layer 1 performs some functions, especially in terms of security.


As we know, all layers 1 suffer or have suffered from the blockchain’s trilemma, which means being able to guarantee decentralization, security and scalability at the same time. Thanks to the transition to PoS, Ethereum is preparing to solve this problem.

Newer chains, such as the layer 1 Solana, try to integrate at the top of their pyramid layer 2 solutions to improve their scalability without disrupting their ecosystem.


In this group, we find chains known as BSC, Fantom, Cronos, Osmosis, Harmony, Solana, Ethereum and Bitcoin, and all the parachains of Polkadot.


 

What is Layer 2 in crypto?

Layer 2 allows for significantly improved performance and functions of layer 1.

Arbitrum for Ethereum (also defined as rollup) and Lightning Network on Bitcoin stand among the various names.


Layer 2 is responsible for downloading the weight of everyday transactions from layer 1, which is only responsible for ensuring security and consent.


Having layer 2 is not mandatory: it is an option available to developers to overcome the possible limits of layer 1, but layer 2 cannot exist without layer 1.


As mentioned above, layer 2 is designed to solve some problems that characterize layer 1.

For example, Ethereum is a secure layer 1 but lacks a lot of scalability: transactions are limited in number, and users are enormous. Waiting times get longer, and the gas fees explode. Arbitrum was designed to solve this problem. Ethereum remains a guarantee of everything related to security and consent, while Arbitrum is responsible for processing the various transactions. This way, many more operations can be carried out, and the costs are significantly reduced.


An important aspect to highlight is that layer 2 should not have its native coin because it rests on layer 1 and inherits all of it, even the consent. Layer 2 ultimately improves and enhances layer 1, reducing its workload.


The Polygon blockchain takes a stand-alone position, as it is identifiable as layer 2 but with some irregularities. This blockchain has its native coin (MATIC) mechanisms of consent and specific validators.

However, Polygon periodically checks with Ethereum for security. Therefore, it is a hybrid solution, a sort of more independent sidechain.


 

Conclusion

We have seen how it is essential to know the architecture of any blockchain to understand all the network's operations and make their own assessments and subsequent investments.


Understanding the stratification of a blockchain helps to better visualize all the indicators of the expansion of a project. The indicator should include:

  • recognising the native coin;

  • evaluating it and understanding what type of layer you are interfacing with;

  • considering use cases and whether this is used for validation and, therefore, for staking;

  • if the chain supports smart contracts and DeFi;

  • observing deposited liquidity and daily volume exchange.


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