The evolution of blockchain technology has brought about many many advancements in the industry. These advancements have made blockchains more interoperable, further pushing the industry toward greater scalability.
Starting with layer 1, the blockchain landscape quickly realized the siloed nature of blockchains was limiting the growth of the industry, and soon, Layer 0 and Layer 2 were introduced.
Now, layer 3 networks are coming in hot and this article shall explain how these blockchains will transform the web3 landscape.
What are Layer 3 Protocols?
A layer 3 protocol is what is known as an application layer of a blockchain protocol. Layer 3 will help in providing customized functionality to the blockchain in terms of dApps, APIS, UIs, and smart contracts.
Using L3s, cross-domain interoperability with the same blockchain ecosystem becomes extremely cheap compared to layer 1.
Examples of Layer 3 protocols include Arbitrum, Orbits, Orbs, and zkSync Hyperchains.
How Layer 3s Improve Scalability
Layer 1 is the base blockchain or network. Typical examples here include Ethereum, Bitcoin, Solana, and Cosmos. Layer 2s are ‘blockchain solutions’ and usually exist as a second layer on top of Layer 1 to reduce transaction costs and scaling. Good examples here include Arbitrum, Optimism, Lightning Network, and zkSync.
Layer 2 works by moving transactions off the main chain, ensuring that the finalizing of transactions happens quickly as a result of decongesting the network.
Layer 3s do not directly interact with the base blockchain. Rather, they work with L2s to increase their functionality. L3 protocol introduces concepts such as fractional scaling, L2 nesting, and exponential scalability. With L3, users get to enjoy seamless interoperability between the nested L2 blockchains.
Security & Privacy
The complexity of Layer 3 protocols, being 3 layers above the base chain improves the privacy and security of end users. L3s also use advanced cryptographic methods to secure the network. With better data handling practices, the risk of data loss or leaks is prevented.
Fractal scaling is a concept in mathematics where irregular shapes appear similar regardless of the level of magnification at which they are viewed. In Blockchain, Layer 3 protocols are the smallest of the blockchains, followed by Layer 2s and then Layer 1s.
Hence, if Layer 2 can process transactions at 1000 TPS, Layer 3 built on the said L2 should do it at 1,000,000 TPS. This is what is referred to as exponential scaling.
Layer 3 enables an intricate system of dApps that can be able to communicate seamlessly within an ecosystem. Hence, instead of having siloed blockchains, we now have siloed ecosystems, such as the Ethereum ecosystem in which an L3 protocol like Uniswap is usable across over 10 EVM-compatible blockchains.
On the Cosmos ecosystem, Osmosis DEX is usable across over 20 blockchains connected by the IBC module.
Top 3 Pioneers in the Layer 3 Protocol Race
Chainlink is one of the oldest L3 protocols, and perhaps the best and most popular one. The protocol markets itself as an oracle network, standing in the gap to connect off-chain data to on-chain networks.
Ethereum Name Service
Ethereum Name Service (ENS) is a name to reckon in the space of decentralized Domain Name Services (dDNS). ENS allows web3 users to name their wallet, websites, and other blockchain dApps with recognizable names, as opposed to hard-to-memorize addresses.
ENS names can be used across EVM-compatible blockchains, making ENS an L3 network leading the quest for decentralized digital ID.
Aragon is a Decentralized Autonomous Organization (DAO), and is among the oldest DAOs on the blockchain. Over and above that, perhaps, is that Aragon is not simply a DAO. It can be called the DAO Maker since it provides a complete suite of products to help anyone build and manage their DAO.
While L2s improve scalability and efficiency only, L3s provide a complete ecosystem upgrade—layer 3 protocols clever scalability, interoperability, user experience, privacy and security. Vitalik Buterin, Ethereum’s co-founder, thinks that L3s are going to be a critical component in the evolution of blockchain technology.
Many other L3 protocols are launching every month, and we shall cover them as they come out. The ones mentioned here are those protocols that have stood the test of time.
Stay tuned for more newer ones in upcoming articles.