Understanding blockchain layers
When investing in various cryptocurrencies, it is easy to get caught up in market volatility and trends, however, some people, especially those who are new to cryptocurrencies, overlook the fact that purchasing a coin also entails purchasing the project it stands for.
An investor must be fully informed of his investment plan, just like with traditional investing.
Understanding how each project fits into the greater ecosystem is crucial, beyond the overarching messages it may deliver.
One of the simplest ways to begin categorizing various currencies is to use the layering principle (and, in turn, various companies).
It is possible that one may have heard of Blockchain Layers like 0, 1, 2, or even Layer 3 solutions.
However, what do these Layers signify?
Let's use an analogy to try and understand different blockchain Layers.
The foundation of a blockchain is offered by Layer 0 technology, which consists of hardware and software components, that may be used to build blockchains.
Think about nodes and anything else that is required to connect them and transfer data, such as mining equipment and protocols.
Layer 0 makes interoperability possible (i.e. different blockchains built on the same layer 1 foundation can converse with each other)
Dapps may "cross-chain" if two chains are built on the same layer, which is extremely advantageous for developers.
It combines a conventional network with a blockchain.
Cosmos, Avalanche, Polkadot, and Avalanche are among the examples.
Layer 1 blockchain
Layer 1 is like the first floor of a residence.
L1s, the examples of which are Bitcoin and Ethereum, are those that you are most likely aware of.
These utilize the L0 infrastructure to execute the data transport.
Consensus mechanisms, ledger systems, a coding language, and usually a special token are all possible components of the individual structure that each L1 possesses.
The work required to run a blockchain's core processes, which consume the most energy, is essentially done on L1.
At Layer 1, the decentralization, open-source, and immutability of a blockchain begin to manifest themselves completely.
At Layer 1, each blockchain can operate independently of every other chain.
The chain's operation, data sharing, and documentation are all outlined by its special structure.
Develop guidelines and procedures for decentralized applications (Dapps).
Some examples are Bitcoin, Ethereum, Solona, Cardano, Tezos, and Algorand.
Layer 2 blockchain
The second floor of the house is Layer 2, which has certain benefits but is not essential for a blockchain to function.
They are third-party integrations that enhance efficiency (system throughput) or scalability on top of L1 chains.
"Off-chain" transactions are those that take place at Layer 2.
The main goal of Layer 2 solutions, which should not be confused with applications, is to reduce L1 congestion by off-chaining some transactions.
Greater flexibility for L2 nodes (i.e., they can be any number of servers owned by a company or an individual, rather than decentralized.)
Chains at Layer 1 should be secured.
Layer 3 blockchain
The third layer is made up of rooftops and the surrounding area.
When creating apps and utilizing blockchain technology, L3 incorporates the visual user interface component to create use cases that are applicable to average people.
They are often referred to as Dapps.
Improve the usability of blockchain technology.
Provide clear use cases for a typical end user.
Essential to wide acceptance.
Uniswap, Curve, and Opensea are a few examples.
You may probably hear about them on a variety of levels in regard to the solutions it provides.
Since they have so much information to handle, layer-1s struggle to maintain speed and scalability.
This is particularly true since expanding requires either granting security or decentralization (Vitalik Buterin defined this as the "blockchain trilemma").
As more and more individuals join the blockchain ecosystem, L1s are having a harder and harder time keeping up with transactions.
Users are compelled to decide between paying excessive fees and having to wait hours—or even days—for their transactions to be validated.
Numerous solutions have been offered in response.
Examples of layer 1 solutions include sharding, block size, and modifications to the consensus mechanism (such as forks).
Examples of layer 2 solutions include state channels, nester blockchains, side chains, optimistic rollups, zero-knowledge rollups, Plasma, and Validium.
There are several ways to split the various blockchain technologies and the developing industries they support.
As you continue to study and explore, pay attention to the efforts that support the tokens and be aware of activities that are merely looking to sell tokens.
Understanding the sophisticated technology behind each project and assessing the value it stands to deliver is necessary for making sense of the blockchain industry's deluge of noise.