Layer-0, layer-1 and layer-2: A (very) simple guide to blockchain architecture

As blockchains focus on addressing matters of network scalability and long-term sustainability, a lot of attention is being paid to the different ‘layers’ of blockchain architecture: layer-0, layer-1, and layer-2. You can think of each 'layer' as stacking itself on top of the one below it – so a 'layer-0' is the bottom-most layer, while a layer-1 is on top of the layer-0, and a layer-2 is on top of the layer-1. Layers can also be stacked – such as multiple layer-2s on a single layer-1.

What are these layers? What do they represent? How do they interact with each other, and how do users interact with them? How do they fit into the overall equation of creating a scalable and sustainable system?

In this article, we’ll set out to answer these questions.

Layer-1 (L1) blockchains, explained:

If you’ve heard of a blockchain, the chances are it’s a layer-1. Layer-1s were the first blockchains to be developed and go mainstream. Well-known L1 chains include Ethereum, Cardano, Solana, Tezos, Algorand, among many others. Bitcoin could also be classed as an L1, although you won’t find decentralized applications on Bitcoin.

L1 has traditionally been the layer of the “blockchain economy” – it’s the layer where transactions between users are made, assets are exchanged, decentralized applications (dApps) are built, and so on.

As the blockchain space has evolved, additional layers have been created both (figuratively) beneath and beyond the L1, focusing on different functionalities, with the goal of improving factors like efficiency, scalability, security, and more

Each blockchain layer usually has its own coin or token. A L1’s coin is central to that L1, not least because it’s necessary to pay transaction fees on the network. A L1’s coin also tends to be used for core functionalities like validation and governance. As the underlying token that connects all users and dApps on the network, it is also a key asset for the decentralized finance economy, the art economy, and so on, which spawn from the applications connected to that L1.

As the blockchain space has evolved, additional layers have been created both (figuratively) beneath and beyond the L1, focusing on different functionalities, with the goal of improving factors like efficiency, scalability, security, and more. For example, a traditional L1 blockchain might have its own set of validators securing the network. However, a L1 can also receive shared security from something called a ‘layer-0’.

A foundation for shared security and interoperability – Layer-0 (L0) blockchains

At the strictest and most fundamental level, a L0 is a protocol that is stripped of many of the features you’d find in an L1 blockchain protocol – most notably the ability to create dApps. A L0 may also seek to strip away parts of its governance or staking functionalities with the aim of reducing bloat as much as possible.

Multiple blockchains claim to be 'L0s', but a lot depends on how strictly you define the term. Polkadot’s Relay Chain is the definitive L0. You can’t run a dApp on the Polkadot Relay Chain, and Polkadot is working towards moving governance and staking functionalities from the Relay Chain itself and into parachains (parachains being themselves L1 chains). The reasons for this are related to scalability.

To quote the Polkadot wiki:

'By hosting core protocol logic in parachains instead of the Relay Chain, Polkadot uses its own scaling technology – namely, parallel execution – to host itself. System parachains remove transactions from the Relay Chain, allowing more Relay Chain blockspace to be used for Polkadot's primary purpose: validating parachains.'

This brings up another defining feature of L0 chains – and the core purpose of the Polkadot Relay Chain – the ability to serve as a hub for other blockchains. In Polkadot’s case, the Relay Chain is a hub secured by hundreds of validators that enables shared security amongst Polkadot parachains. Essentially, instead of each L1 blockchain (a parachain) needing its own set of validators, each parachain connects to the Relay Chain and utilizes the Relay Chain’s validators. This allows for greater network security.

However, this 'hub' concept is useful for more than just shared security – it can also be a matter of facilitating communication between different blockchains. A shared communication standard, and shared design features, allows for easier and more secure communication between L1 blockchains surrounding a L0 protocol.

A L0’s native token is used for core functionalities like governance, staking, etc. and can also be used for transactions between L1s. Typically though, it won’t be the main asset used for transactions on the L1 itself, because the L1 will have its own coin.

When we take into account the additional features of shared security and a shared communication standard, other blockchains might be considered part of the 'L0' category, such as Cosmos and Avalanche. Cosmos has a particular focus on interoperability, with interconnectedness between different protocols being one of the biggest appeals of the greater Cosmos network.

However, the more you expand the category of L0, the closer you get to L1 blockchains themselves. Blockchains can already connect to other L1 blockchains – they’re called sidechains, which are classified as 'L2' solutions.

The Blockchain Trilemma

Essentially, every blockchain has to balance three fundamental elements – decentralization, security, and scalability – and in order to increase or improve two of them, you’ll typically need to sacrifice the third. That’s the so-called ‘blockchain trilemma’.

One of the biggest challenges for L1 blockchains is scalability, and this is where L2s come into play.

The challenge of scalability: Enter Layer-2 (L2) solutions:

In very simple terms, L2s are scaling solutions for L1s. For Bitcoin, it’s the Lightning Network. For Ethereum it’s Optimism, Arbitrum, Loopring, Polygon, and a bunch of others. For Cardano, it’s Hydra. For Tezos, it’s Smart Rollups.

L2s come in a variety of different forms – most usually as rollups, sidechains, or state channel solutions. What they all have in common is that they take transactions off the main L1 blockchain, and process them in the L2.

Whereas most L1 protocols focus on having some measure of decentralization, L2s tend to be more centralized than L1s, in order to be significantly more scalable.

Because the L2 takes care of some of the processing overhead, the L1 blockchain’s overall network congestion is significantly reduced; this allows for significantly faster and cheaper transactions overall, which is necessary for applications looking to attract and retain a large user base. Whereas most L1 protocols focus on having some measure of decentralization, L2s tend to be more centralized than L1s, in order to be significantly more scalable.

You might even bridge a L1 to another independent L1, and then use the less congested L1 to process transactions, instead of having to use the more congested L1 – this would in effect turn a secondary L1 into a type of 'L2' solution.

Coda: Layer-3 (un)defined:

You may have seen the term ‘layer-3’ thrown around, possibly in reference to another layer of interoperability beyond L2, or the position that decentralized applications find themselves in within the greater network. The term ‘L3’ isn’t properly defined yet, and whether it’ll ever become mainstream, and how it will manifest itself if it does, is hard to say.

The cryptocurrency/blockchain space is always evolving and spawning new concepts and functionalities. Maybe in the future we’ll be talking about layer-3s, layer-4s, and even layer-5s, but for the purposes of this article, anything beyond layer-2 doesn’t add much to the conversation.

Conclusion

And so, there you have it – a quick, simple explanation of the differences between layer-0s, layer-1s, and layer-2s, and the uses that they serve. While this guide didn’t delve deep into the many nuances between the various different solutions for each layer, hopefully, it’s enough to get you started.

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