What Is Layer 2 In Crypto?

Should you’ve hung round in crypto circles, you then’ve most likely heard of the time period “layer 2,” which is normally used to explain numerous crypto property. However what’s layer 2 crypto, and is there any layer 1 (or 3, or 4…)? What do layers should do with blockchain, anyway? Let’s discover out!

How Does Layer 2 Work?

Blockchains is probably not onions, however they do have layers… Nicely, no less than technically. “Layer 2” merely refers to any extra frameworks constructed on high of present blockchains, that are known as layer 1. You may consider it as placing race automobile wheels and engine in your trusty previous Honda.

Designed to resolve elementary points that plague most blockchain networks like Bitcoin, layer 2 options stability scalability, transaction velocity, and throughput with a excessive stage of safety. They do that by processing transactions off-chain after which passing them again to the principle chain for settlement.

Forms of Layer 2 Frameworks

Layer 2 options are extra integrations used along with the unique blockchain, not as an alternative of it. Though these options aren’t 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 varieties, and listed here are the commonest 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 aren’t a layer 2 framework however another 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’ll 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 sooner and cheaper BTC transactions, steadily flip to sidechains.

Plasma

Ethereum’s Plasma combines sensible 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 largely impartial and solely periodically report back to the principle community in case of disputes or points.

This layer 2 resolution sort might be pictured as a tree — that’s as a result of it usually has quite a lot of baby chains that every one have their function and might be constructed on high of one another. 

Plasma isn’t a extremely popular layer 2 resolution sort because it nonetheless has quite a lot of drawbacks, comparable to lengthy withdrawal time frames. Nevertheless, it’s presently being totally researched, so any and all points might quickly be addressed and resolved.

Validium

Validium is a layer 2 framework in a position to dramatically decrease transaction charges whereas concurrently growing transaction speeds. It’s a zero-knowledge proof resolution that processes blockchain transactions off the principle community. These off-chain operations get verified utilizing sensible contracts.

This layer 2 framework sort doesn’t retailer knowledge on its underlying blockchain, which sacrifices some community safety however permits for a lot sooner and cheaper transactions.

State Channels

State channels are, properly, channels that get hooked up to the bottom layer — the unique blockchain — and carry out numerous operations that later get reported again to the principle chain. They usually discover purposes as cost channels of their simplified type.

State channels are extremely efficient, permitting customers to make any variety of transactions whereas solely submitting two situations of transaction knowledge to the underlying chain. Sadly, they are often fairly pricey 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 lots of 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 identical time, for the reason that execution of transactions truly occurs on the layer 1 blockchain, all knowledge concerned stays absolutely safe.

There are two sorts of rollup chains, zero-knowledge and optimistic ones. They differ in how they relay transaction knowledge again to layer 1. ZK rollups, additionally known as zero-knowledge proofs, are sooner than optimistic rollups however much less user-friendly and assume a sure stage of unverifiable belief.

What Is the Distinction between Layer 1 and Layer 2?

As we now 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 could possibly be a rise in block dimension, an introduction of a brand new consensus mechanism, and extra.

Layer 2 options, alternatively, function off-chain. They improve the way in which transactions and knowledge are processed and arranged as an alternative of utterly overhauling them. Whereas they switch transactions again to the blockchain, it’s essential to notice that a lot of them aren’t as safe as the unique layer 1 blockchain.

Is There a Layer 3?

Trendy blockchain networks don’t cease at layer 2: aside from it, they have an inclination to introduce layer 3. Actually, there’s additionally layer 0: let’s take a short take a look at it.

Layer 0

Layer 0 is the inspiration and the premise that permits blockchains to perform as easily as they do. Whereas layer 2 options are constructed upon present networks, layer 0 ones can help numerous crypto initiatives, no matter what they’re like. They’ve a number of capabilities:

1. Offering baseline infrastructure

An enormous entry barrier many blockchain builders face is having to code a complete challenge from scratch, which isn’t any straightforward activity. Not solely does it require quite a lot of abilities, it is also fairly heavy on sources, most significantly, one’s time. Layer 0 options repair that by offering baseline important infrastructure to all blockchains that use their service.

2. Enabling interoperability

One of many huge downsides of crypto initiatives is that they usually should be on the identical chain as some other challenge they wish to connect with and work with. Although there are 3–4 major networks that home nearly all of DeFi initiatives, this nonetheless creates points and, in a method, makes the business much less decentralized. 

Interoperability fixes that: so long as two blockchains initiatives are constructed on the identical layer 0, they are going to work together as if they’re housed on the identical chain.

3. Facilitating cross-chain exchanges

Cross-chain exchanges are powerful to execute and might be extremely time-consuming and cost-ineffective. The charges can rise sky-high. Nevertheless, layer 0 initiatives can come to the rescue: in contrast to layer 2 options, they enhance the effectivity of cross-chain interplay as an alternative of the velocity and the price of any explicit blockchain.

The perfect examples of layer 0 initiatives embody Cardano, Cosmos, and Polkadot. Please word, nonetheless, that regardless of the way it could seem, layer 0 isn’t 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 business.

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, numerous 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 reinforce it.

What’s the perform of layer 2?

Layer 2 protocols normally 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, similar 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 word that the contents of this text aren’t monetary or investing recommendation. The knowledge supplied on this article is the writer’s opinion solely and shouldn’t be thought-about 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 acquainted with all native rules earlier than committing to an funding.