Understanding Blockchain’s Layer 3 Protocol

Understanding Blockchain’s Layer 3 Protocol

Blockchain
June 20, 2022 by Diana Ambolis
292
In April 2021, the total market capitalization of Bitcoin was more than $1 trillion. With the continuous growth of the DeFi ecosystem, Ethereum is assuring a favorable foundation for decentralized apps. The ever-increasing need for multi-layer blockchains has paved the way for Blockchain layer 3 protocols to become a viable option in the blockchain ecosystem.
Understanding Blockchain's Layer 3 Protocol

In April 2021, the total market capitalization of Bitcoin was more than $1 trillion. With the continuous growth of the DeFi ecosystem, Ethereum is assuring a favorable foundation for decentralized apps. The ever-increasing need for multi-layer blockchains has paved the way for Blockchain layer 3 protocols to become a viable option in the blockchain ecosystem.

What are these Blockchain layer 3 solutions? What value do they add to the blockchain ecosystem as a whole? The following discussion provides an overview of layer 3 blockchain technologies and protocols. You can learn about the benefits and examples of layer three blockchain protocols and the need for such solutions.

Why Do We Need a Layer 3 in Blockchain?

The obvious question on everyone’s mind when it comes to Blockchain layer 3 solutions in the blockchain is whether or not they are necessary. Anyone familiar with the blockchain space has undoubtedly heard of the blockchain trilemma. Three significant aspects collide in this occurrence, and blockchain networks are frequently stuck on which attribute they want to skip. Surprisingly, the trilemma led to the creation of blockchain layers, implying that blockchain networks could only satisfy two of the three criteria.

The Blockchain Conundrum

The three parts of the blockchain trilemma are decentralization, security, and stability. Almost every blockchain project has to give up one of the factors in order to improve the other two. The trade-offs can be seen in common instances like Ethereum and Solana.

For integrating the three parts in a layer 1 blockchain, the scalability trilemma poses a severe challenge. While Ethereum and Bitcoin are more concerned with security and decentralization, Solana is more concerned with stability and security. As a result, a multi-layer structure can offer a cost-effective and efficient option for providing scalability, security, and decentralization.

It’s crucial to consider whether Blockchain layer 3 protocols are required when layer 2 protocols are available. What could be the rationale for creating layer 3?

Interoperability on the Blockchain

The primary motivations for using multi-level architecture in blockchain networks demonstrate that it is the ideal solution to scalability difficulties. Layer 2 blockchain technologies can aid in the resolution of scaling issues. So, what’s the point of Blockchain layer 3 projects? The blockchain trilemma, in fact, is not the only fundamental issue facing crypto market participants. Furthermore, layer 2 solutions fail to solve compatibility difficulties. Layer 2 protocols did not provide any means of viewing, accessing, or sharing data between computer systems.

The term “cross-chain functionality” is used to describe interoperability in the blockchain environment. It means that two independent blockchain networks, each with its own ecosystem, might communicate and transact without the use of centralized intermediaries. Almost every solution that allows you to trade cryptocurrency across numerous dApps and DeFi solutions have some type of centralized control. Moving Bitcoin to the Ethereum blockchain and using Bitcoin across numerous DeFi apps, for example, is nearly impossible.

When you consider popular DeFi apps, the need for layer 3 blockchain protocols becomes clear. Aave, a lending protocol, and Serum, a decentralized exchange, are both built on blockchain networks. It is nearly impossible for anyone to use these sites’ services. As a result, the primary motivation for implementing layer 3 solutions is the lack of compatibility among blockchain networks.

What is a Blockchain Layer 3, and how does it work?

The layer 3 protocols are essentially one-of-a-kind solutions for providing cross-chain capabilities to various blockchain networks. The layer 3 solutions’ major goal would be to provide true interoperability without the use of middlemen or custodians. One of the most intriguing aspects of Blockchain layer 3 solutions is the emphasis on similarities with the internet’s layered structure.

Layer 2 protocols, like layer 1 blockchains, have various characteristics that distinguish them from one another. Layer 2 protocols are frequently associated with certain blockchain networks. The Lightning Network, for example, is designed particularly for Bitcoin, whereas the Optimism protocol is designed for Ethereum.

What role does Layer 3 play in resolving interoperability issues?

“What is a Layer 3 in Blockchain?” you should be aware of the numerous differences between layer 2 and layer 1 blockchains. The interaction between layer 2 and layer 1 solutions necessitates the use of a third layer to develop interoperability standards. Layer 3 tries to solve the challenge of interoperability while keeping the lower layers’ procedures simple.

Blockchain Layer 3 is concerned with the abstraction of many aspects such as technologies, functionalities, and features in order to serve consumers in various ecosystems. By abstracting such differences, layer 3 or L3 protocols let diverse networks and ecosystems communicate, connect, and interact with each other.

An overview of each Layer 3 protocol type would demonstrate how it works to solve interoperability issues. They function like the internet’s internet protocol, ensuring packetized data transport. The benefits of layer 3 solutions also include the ability to quantify value in packets as well as the ability to route value packets across several DLT networks.