The world of cryptocurrencies is evolving rapidly, but with the meteoric growth of their adoption, scalability and fee increase issues have become major obstacles for Blockchains and Layer 1 and 2. Is there a viable solution for these problems? Yes, the Layer 3! What is a Layer 3 crypto? Why does it exist? How to make money with a Layer 3? To know the answers, just read the rest of our Crypto Dictionary.
- What is a Layer 3 in crypto (L3), in short?
- What is a Layer 3 crypto (L3), exactly?
- Layer 3, a Magical and Perfect solution?
- Which Blockchains use Layer 3
- How to make money with Layer 3?
What is a Layer 3 in crypto (L3), in short?
A Layer 3 or L3, is a Layer superimposed on Layer 1 and 2 of a Blockchain.
A Layer 3 has two main purposes:
- Increase scalability : unlike a Layer 2, a Layer 3 is designed for a specific use case. It is precisely this specialization that allows it to increase scalability.
- ATimprove interoperability : thanks to a Layer 3, different Blockchains can communicate information (sending of cryptocurrencies, transactions, etc.), thus allowing the user to easily navigate from one Blockchain to another.
This innovation, although recent, is promising for the birth of “The Internet of Blockchains”, a world in which the user uses Blockchains specially designed for a use case, without even being aware of it.
The most famous Layer 3 to date remains Starknet.
What is a Layer 3 crypto (L3), exactly?
After this brief definition, let’s see in detail what a Layer 3 is. But to fully understand what a Layer 3 is, it is necessary to understand the concept of Layer in the Blockchain world and the reason for their invention: the “Blockchain Trilemma“.
The Blockchain Trilemma, the reason Layer 3 exists
The Blockchain Trilemma is most often represented as a triangle.
Each vertex corresponds to a crucial parameter of the blockchain:
Alas, Trilemme obliges, it is impossible to solve these problems simultaneously, that is to say to reconcile these three parameters. Therefore, blockchains are often forced to sacrifice one of the parameters to optimize the other 2:
- Bitcoin (BTC) is very secure and decentralized, but slower and less scalable.
- Ripple (XRP) sacrificed decentralization at the expense of security and scalability.
- Solana (SOL) is scalable, but has security issues, hence the frequent shutdowns of its ecosystem.
In any case, most blockchains focus on finding solutions to this Trilemma. It is here that the notion of layer comes into play. So what is a Layer? And above all, how does Layer 3 manage to solve this famous blockchain Trilemma?
What are the different types of Layer?
It is possible to build several Layer on the blockchain, each having a specific role. Layers can be classified according to their arrangement.
Layer 0 (L0), the components of the Blockchain
Layer 0 is none other than the base, the very foundations of the blockchain. It is made up of all the stakeholders in its operation, namely the nodes, the validators or miners, the internet, the protocol, etc. In short, Layer 0 is a Development Kit, like the Cosmos SDK.
Layer 1 (L1), the Blockchain itself
Layer 1 is the actual blockchain and its native. This category will be developed in detail in a dedicated article in our Crypto Dictionary.
The best known L1 are Bitcoin and Ethereum.
Layer 2 (L2), Plasma and Rollups: scalability optimization mission
Layer 2 is presented as a blockchain superimposed on the mother blockchain (Layer 1), thus overcoming pre-existing limits, such as scalability, the most recurring problem.
There are several types of L2, Rollups, Plasma, etc. We will also come back in detail in a dedicated article.
The best known L2s are Optimism and Arbitrum.
Layer 3 (L3), optimize the optimization allowed by L2
Less known than Layer 2, it is a superimposed layer on top of Layer 2 to optimize certain specific aspects of the latter. You have to imagine the L3 as a specialization to an already existing L2.
Layer 3 represents an additional layer on top of Layer 2, allowing further customization to meet specific requirements.
Being tailor-made subdivisions of Layer 2, with a series of parameters and tools customized to meet specific requirements on which they are optimized: Layer 3 inherits security from Layer 2.
Due to their over-optimization for a specific use case, L3s are called application-specific blockchains.
Layer 3 can for example allow the establishment of anonymous, faster or interoperable transactions.
Finally, as said before, L3 allow better scalability by deporting part of the transactions and data outside the mother blockchain, and simply providing the final result which is then submitted to the main network.
This approach increases processing speed and performance while taking advantage of the security of the parent blockchain, without hampering its operation. Layer 3 are therefore a possible solution to the Blockchain Trilemma.
Layer 3, a Magical and Perfect solution?
Unfortunately, as you can imagine, the answer is: NO.
As pointed by Vitalik Buterin, the co-founder of Ethereum, in an article published in September 2022 on his personal blog, there are three situations in which Layer 3s can be useful.
- Use L2 for scaling and L3 for custom features, for example, anonymity.
- Using L2 is for general purpose scaling and L3 is for custom scaling.
- The use of L2 for non-confidence scaling (rollups) and L3 for low-confidence scaling.
In the decentralized finance sector (DeFi), which is currently very popular, the implementation of a Layer 3 is particularly interesting. Alas, a Layer 3 relying on a Layer 2 and a Layer 1, it also depends on the security of these two layers.
Which Blockchains use Layer 3
Layer 3 development is still in its infancy. Some companies, including Avalanche, have announced that they are working on this solution. However, at present, only the team of StarkWare seems really invested in a thorough research on Layer 3.
Indeed, since 2018, StarkWare develops scalability solutions for Ethereum. Some of their current functional products include:
- StarkNet, a layer 2 of ZK Rollup,
- StarkEx, a development engine allowing the deployment of scalable decentralized Exchanges, used by Sorare.
According to their roadmap, StarkNet has the ambition to create a unique Layer 2 based directly on Ethereum. Thus, several blockchains for specific applications (Layer 3) will be built on it. For example, there could be:
- StarkNet Updates Focusing On Security, Anonymity, And More
- Layer 3 dedicated exclusively to a particular decentralized application.
How to make money with Layer 3?
Without going into investment advice, you have to stay on the lookout for companies working on the subject.
If some like Avalanche have their tokens, there is no doubt, it is therefore necessary to dig into the subject by following the news, and to do so, nothing better than us follow on our various social networks.
The scalability and cost issues faced by Layer 1 and 2 are well known, but Layer 3 offers a promising solution to improve these key aspects. With the increasing adoption of cryptocurrencies, the importance of Layers will continue to grow and play a crucial role in optimizing the blockchain ecosystem. Starknet is already testing the possibilities of exploring the fourth layer (Layer 4) to enable quadratic scalability, thus offering an interesting prospect for the future of blockchain. But for now, let’s stay focused on Layer 3, we’re only at the beginning of it!
Since 2017, I have been an avid follower of Bitcoin and cryptocurrencies. I love exploring the intricacies of the blockchain and sharing my findings with the community using the power of my words.
My dream is to live in a world where privacy and financial freedom are guaranteed for all, and I firmly believe that Bitcoin is the tool that can make that possible.