Learn the principles of Layer 3 and the current market landscape in one article

Layer 3 protocols address issues such as scalability, interoperability, customization, etc.

Original title: Layer 3s In Crypto: What They Are And How They Improve Improves

Original article by Hwee Yan

Source of original text:coingecko

What is a Layer 3 protocol?

The Layer 3 protocol is built on top of Layer 2 to provide better scalability so that developers can create customized, application-specific blockchains according to their needs.

Key Takeaways

• The Layer 3 protocol is built on top of Layer 2 to host app-specific decentralized applications.

• Layer 3 protocols address issues such as scalability, interoperability, customization, etc.

• Examples of Layer 3 protocols: Orbs, Arbitrum Orbit, and zkSync Hyperchains.

How do L1, L2, and L3 work together?

layer 1It is the blockchain that forms the foundation, blocks are added to it, and transactions are finalized. However, Layer 1 faces the blockchain trilemma; they can't balance scalability, decentralization, or security. likeBitcoin和EthereumSuch blockchains prioritize decentralization and security over scalability, and as the number of users on the network increases, the transaction speed of these networks will become very low.

This is the solution to the scalability problemLayer 2'sA place where it can be used. Layer 2 is off-chainVertical expansionThe solution runs on layer 1 such as Ethereum to achieve scalability and provide users with faster transaction speed and lower gas fees.They can be aggregated(rollup) or form of verification, likePolygon 2.0The situation is the same. Many Layer 2 solutions, such asPolygon、zkSync 和 Arbitrum, has released a solution that enables developers to create application-specific chains built on Layer 2, which takes us to Layer 3.

Layer 3 is an advanced protocol built on existing Layer 2 solutions and providesinteroperableand app-specific features. This means that Layer 3 is highly customizable and can meet developers' specific needs, such as providing solutions to target issues such as privacy, or supporting a large number of transactions, while still inheriting the security of the Layer 1 blockchain. Currently, most Layer 3 is built on Ethereum, and at the time of writing, there are blockchains, such as Bitcoin, that aren't suitable for hosting Layer 3 apps.

What problems can Layer 3 solve?

Now that we understand how Layer 1, Layer 2, and Layer 3 work together, let's take a closer look at Layer 3 and how they can further extend the blockchain.

scalability

Layer 3 is designed to enhance scalability, surpass current Layer 1 and Layer 2 features, and is therefore extremely scalable. As a result, Layer 3 networks can handle a larger number of transactions while supporting a wider range of complex applications.

Complex dApp support

Layer 3 provides the necessary infrastructure for developing more complex decentralized applications that require more advanced functionality. This may help improve the web design, include more advanced features in the app, and make it easier for lay users to use. Depending on the developer's needs, Layer 3 can also facilitate more complexsmart contractdesign, which cannot be handled because Layer 1 and Layer 2 have limited scalability.

Blockchain interoperability

Layer 3 also addresses interoperability issues. Layer 3 can act as a bridge between blockchains so that transactions and data can flow across different platforms. This means that Layer 3 dApps have connections to different blockchains (such as Ethereum andSolana) function.

customized

Layer 3 can also be customized to the unique needs of developers. For example, developers can introduce application-specific mechanisms that only allow private transactions and contracts to be executed, thereby disclosing only part of the data. Because of Layer 3's highly customizable features, developers can tailor the governance mechanisms, rules, and functionality of dApps according to their own needs.

Arbitrum Orbit allows developers to customize different aspects of its chain. For example, developers can customize and choose which tokens to accept as transaction fees on their chain. This provides developers with the flexibility to choose and possibly include a platform's native token, allowing developers to tailor the functionality of their decentralized applications (dApps) to their unique needs.

Additionally, developers can tailor their dApps to ensure users have more consistent and reliable gas prices. Developers can also launch their own blockchain networks with specific features, such as Arbitrum's Nitro-powered blockchain network and forEVM+ compatibilityStylus. Some of the other customizations provided by Arbitrum Orbit include privacy, permissions, fee tokens, governance, and more.

Cost-effective

Since the Layer 3 network processes some transactions and operations off-chain, this helps reduce network congestion, thereby greatly reducing transaction fees. This cost efficiency helps lower entry cost barriers and makes it easier to use for developers and users.

For example,Xai NetworkIt's a gaming network that specializes in providing support for Web3 games. Built through Arbitrum's Layer 3 network, the Xai network introduces parallel processing to improve efficiency and scalability while further reducing costs.

barrier-free

Layer 3 can also be made easier to use by the public and easier to implement. For example, Arbitrum Orbit allows anyone to build and deploy their own layer 3 network on Arbitrum Nitro without approval. In contrast, launching Layer 2 requires suggestions around its trust model and how to achieve full decentralization.

Layer 3 use cases

Now that we know what problems Layer 3 solves, here are some possible use cases for Layer 3:

Gaming apps

One use case for layer 3 isBlockchain games. By running on Layer 3, it enables applications to run on specific blockchains, allowing transactions to process larger volumes of transactions at a faster rate. This is especially important for gaming apps and helps developers maintain a silky in-game experience for users.

Gaming apps often need to process many microtransactions, which are usually expensive. Therefore, running these apps on Layer 3 allows developers to ensure cost efficiency for users because Layer 3 has lower transaction fees.

Decentralized finance applications

Another possible use case for Layer 3 is decentralized finance apps. Running on layer 3 is ideal because it allows decentralized finance apps to be customized according to the app's needs. This means that developers will be able to customize the privacy settings and different features of the app. Furthermore, Layer 3 is extremely scalable, which ensures that large numbers of transactions can be processed quickly, which is extremely important for real-time transactions. Layer 3 also allows interoperability between various blockchain networks, allowing users to transfer assets across different networks.

Layer 3 example

While the concept of Layer 3 is still considered a relatively new development in the field of cryptography, here are a few notable projects:

Orbs

OrbsUsed in conjunction with existing Layer 1 and Layer 2 protocols, it is a Layer 3 blockchain focused on solving the scalability problems faced by the Ethereum blockchain. According to its website, Orbs sees its layer 3 as “enhanced execution,” which allows developers to develop smart contracts by running as a decentralized serverless cloud.

Source: Orbs

This means developers can write and deploy their smart contracts on Orbs' own decentralized network without having to worry about the network's underlying infrastructure. This also provides developers with the convenience of not having to maintain physical servers. Currently, Orbs can be used with some Layer 1 and Layer 2 protocols, including Ethereum,BNB Chain、Avalanche, Polygon, etc.

Arbitrum Orbit

In 2023, the Arbitrum Foundation also released a new feature — ArbitrumOrbitIt is conceived as a Layer 3 blockchain built on the Arbitrum Nitro platform. In addition to lower transaction costs and enhanced scalability, developers are also able to create their own self-managed private blockchains on the Arbitrum Nitro platform, which will allow developers to use customized blockchains for their specific needs.

zkSync Hyperchains

Launched by the zkSync teamzkSync HyperchainsThey can be Layer 3, and they use Layer 2 for settlement. zkSync Hyperchains is driven by the same zkEVM engine available on ZK Stack. On this platform, all ZKP circuits are consistent, and no matter who deploys them, they inherit Layer 1 security. One benefit is that there will be faster messaging and interoperability within a wider ecosystem between Layer 3 that settles on the same Layer 2.

Source: zkSync Era

Final Thoughts

The development of Layer 3 is an interesting innovation in the field of cryptography. It improves on our previous features by combining the best parts of Layer 1 and Layer 2, such as making the network more scalable while being more secure. Still, keep in mind that each layer plays a critical role in the blockchain ecosystem and won't compete with each other. Currently, Layer 3 is still in development, but I think it's clear that Layer 3 will play a key role in shaping how we use blockchain technology in the future, making it easier for blockchain to handle high transaction volumes.