Julian Ivaldy

The different blockchain layers

Blockchain technology is now over 20 years old and the possibilities are nearly endless. Beyond Bitcoin and Ethereum, which are regularly considered the only big players by web3 neophytes, there is a vast and complex ecosystem of interdependent layers that interact to build the world of tomorrow. If you are one of those who want to disrupt this industry, build promising products, and be a part of this revolution, you will need to understand in depth the structure of blockchain and how most dApps are built among it. First of all, it is very important to understand what blockchain overlay is! You can think of the blockchain as a stack consisting of 4 interconnected layers.  

Layer 0 is the ground root of all this mess

This is the start of everything, the ground floor of this technology.
From a purely formal point of view, Layer 0 is a common base for all blockchains. It is a network of components that maintain the functionality of a blockchain and keep it decentralized. It includes all servers, nodes, users, and even the Internet.
Here, hardware and internet connect to allow smooth running for Layer 1 protocols. Why Layer 0 is important for Web3 entrepreneurs? It’s like the basic architecture and structure for everything above and gives developers a Ground infrastructure so you don’t need to build your product from scratch or have to develop your blockchain to release a dApp. Layer 0 protocols such as Cosmos, Polkadot or Avalanche have created toolkits allowing developers to create a set of connected blockchains. This kit allows all networks to share a common base, or Layer 0.

Then comes Layer 1

The celebrity blockchain in web3. It aims at processing and finalizing transactions to improve the base protocol, and creates a more scalable overall system to exploit Layer 0 full power. Bitcoin, Ethereum, and BNB Chain are Layer 1 chains. You will find all consensus dealing with proof of stake, proof of work… But the main problem is that none managed to combine both security, scalability, and decentralization. For instance, Binance Chain is still subject to several scams, shitty coins, security breaches... That’s why we decided to create StaySAFU, the security leading tool for this chain. Since Layer 1 are highly scalable, it made it possible to develop our scanner and a coin tracker directly over the chain. There was a huge market opportunity due to security issues on this blockchain. We can then evaluate in a matter of seconds the probability that a token could be a scam, through a study of its liquidity, its smart-contract code, holders, and numerous other factors. A common problem with Layer 1 networks is their inability to scale. Bitcoin and other big blockchains have been struggling to process transactions in times of increased demand. Bitcoin uses the Proof of Work (PoW) consensus mechanism, which requires a lot of computational resources.  Blockchain developers have been working on scalability solutions for many years, but there is still a lot of discussion going on regarding the best alternatives.

For Layer 1 scaling, some options include:

1. Increasing block size, allowing more transactions to be processed in each block.

2. Changing the consensus mechanism used, such as with the upcoming Ethereum 2.0 update.

3. Implementing sharding. A form of database partitioning.

Layer 1 improvements require significant work to implement. In many cases, not all the network users will agree to the change. This can lead to community splits or even a hard fork, as happened with Bitcoin and Bitcoin Cash in 2017.

Layer 2 was created mainly for third-party integrations.

Layer 2 refers to a secondary framework or protocol that is built on top of an existing blockchain system. The main purpose of these protocols is to solve the transaction speed and scaling issues faced by major crypto-currency networks.

This framework gathers secondary protocols built on top of an existing chain. This makes it possible to solve transaction speed and increase scalability for major crypto networks. In this context, the term “Layer 2” refers to the multiple solutions being proposed to the blockchain scalability problem. Two major examples of Layer 2 solutions are the Bitcoin Lightning Network and the Ethereum Plasma. Despite having their own working mechanisms and particularities, both solutions are striving to provide increased throughput to blockchain systems.

The upper part of the iceberg is Layer 3.

Scalability has become an even more pressing issue as the crypto sector experiences increased customer demand. Layer 3 is represented by blockchain-based applications, such as decentralized finance (DeFi) apps, games, or distributed storage apps. Many of these applications also have cross-chain functionality, helping users access various blockchain platforms via a single app. It gathers all the UI that the consumers will see and use every day through Uniswap, Decentraland, DAOMarker… This Layer hosts dApps and protocols enabling the apps constructed on other Layers. 

When you launch a decentralized & Web3 solution, it is recommended to be
cross-chain (to not depend on a chain) or to create your own blockchain. However, this is not a rule and depending on your needs, some chains may be more advantageous than others (stability, impact, security etc.). Mobula is cross-chain, we chose Avalanche (Layer 0), BNB Chain (Layer 1) and Polygon (Layer 2).