What’s L1, L2 and L3 ? A Deep Dive into Blockchain Layers

Blockchains are transforming how we handle money, data, and trust worldwide. At the heart of this revolution are Layer 1 (L1), Layer 2 (L2), and emerging Layer 3 (L3) solutions. Each of them is a critical component of the blockchain infrastructure. These layers address challenges like speed, cost, and connectivity, shaping the future of decentralized technology.

What Are Blockchain Layers?

Picture a blockchain as a digital city.

Layer 1 is the foundational city plan – its streets and buildings – handling everything from scratch.

Layer 2 adds expressways to ease traffic without rebuilding the city.

Layer 3 acts like an international airport, connecting cities globally.

These layers work together to make blockchains faster, cheaper, and more connected, tackling limitations as usage grows. Let’s dive into each layer with examples and analyze their impact.

1. Layer 1 (L1) – The Core Blockchain Foundation

Layer 1 is the base blockchain network, responsible for its own security, consensus mechanism, and data storage. It’s the original system, built to operate independently, but its capacity can limit speed and cost when demand spikes.

• How It Works: L1s use their own rules (e.g., Proof of Work or Proof of Stake) to agree on transactions and secure the network. For instance, Bitcoin uses Proof of Work, where miners solve complex puzzles, while Ethereum shifted to Proof of Stake in 2022 for energy efficiency.

• Example: Bitcoin, processing 7 transactions per second (TPS), or Hyperliquid, a newer L1 handling 200,000 TPS with its HyperBFT consensus, designed for high-speed trading.

• L1s offer unmatched security and decentralization but struggle with scalability. Bitcoin’s slow TPS leads to high fees ($5-$10 during peaks), while Hyperliquid’s speed supports real-time DeFi, showing how L1 design impacts cost and adoption.

2. Layer 2 (L2): The Scalability Booster

Layer 2 builds on L1 to increase transaction speed and reduce costs by processing most work off-chain, then settling results on the main chain. It’s like adding high-speed rails to a city without altering its core structure.

• How It Works: L2s use techniques like rollups (bundling transactions) or sidechains. Rollups, like Optimistic Rollups or zk-Rollups, compress hundreds of transactions into one, verified on L1. Sidechains operate independently but link to L1 for security.

• Example: Lightning Network for Bitcoin enables instant micropayments (e.g., $1 coffee transactions with fees under $0.01), while Arbitrum, an L2 for Ethereum, boosts TPS from 15 to over 4,000, cutting gas fees by 90%.

• L2s enhance scalability and affordability, making blockchains practical for everyday use. For instance, Ethereum’s L2s have processed over $100 billion in 2025, driving DeFi growth, but they rely on L1’s security, introducing a trade-off if L1 is compromised.

3. Layer 3 (L3): The Interoperability Connector

Layer 3 is an emerging layer aimed at connecting different blockchains or L2s, enabling cross-chain communication and complex applications. It’s like a global transport hub linking multiple cities.

• How It Works: L3 facilitates interoperability through bridges or relay chains, allowing assets or data to move between L1s and L2s. It builds on L2’s scalability while addressing fragmentation across ecosystems.

• Example: Polkadot’s relay chain connects its parachains (like custom L2s) to Bitcoin or Ethereum, enabling a user to trade BTC for ETH-based NFTs. Cosmos’ IBC (Inter-Blockchain Communication) is another L3 effort, with $50 billion in cross-chain volume in 2025.

• L3 promises a unified blockchain world, enhancing liquidity and innovation (e.g., cross-chain DeFi). However, security risks from bridges (e.g., $2 billion lost in hacks in 2024) highlight the need for robust design, influencing trust and adoption.

How Understanding Layers Impacts Your Insight

Grasping L1, L2, and L3 helps you see their real-world effects:

• Scalability: L1s like Bitcoin limit growth, but L2s like Lightning or Hyperliquid’s potential integrations expand capacity, impacting how many users a blockchain can serve.

• Cost: High L1 fees (e.g., Ethereum’s $20+ during 2024 peaks) drop to cents with L2s, affecting accessibility for small transactions.

• Security: L1’s strength secures the network, but L2 and L3 dependencies introduce risks (e.g., bridge hacks), shaping trust.

• Innovation: L3’s interoperability could revolutionize finance or gaming by 2026, as seen with Polkadot’s 300% ecosystem growth this year, offering opportunities for developers and investors.

• Adoption: Understanding these layers reveals why blockchains like Hyperliquid (with HYPE’s 1028% rise) thrive, guiding decisions on which projects to follow as of June 2025.

Conclusion

With crypto market caps exceeding $3 trillion, L1s like Ethereum (market cap $400 billion) and Hyperliquid (emerging with HYPE at $12.06 billion) lead, while L2s handle 60% of Ethereum’s traffic. L3 projects like Polkadot are gaining traction, with cross-chain DeFi volume up 150% this year. This layered approach is key to blockchain’s evolution, balancing speed, cost, and security.

Layer 1 forms the secure foundation (e.g., Bitcoin, Hyperliquid), Layer 2 boosts scalability (e.g., Lightning, Arbitrum), and Layer 3 connects ecosystems (e.g., Polkadot, Cosmos). Understanding these layers reveals their impact on blockchain’s growth, from cheaper transactions to global interoperability. This knowledge empowers you to navigate the crypto landscape with confidence, whether you’re a beginner or exploring investment opportunities.