# Blockchain Layer 2 and 3

By [Flend Research Group](https://paragraph.com/@flend-research-group) · 2024-08-07

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In our most recent [article](https://mirror.xyz/0xaDf19c9d16D864f25eC6feAf96517778Db0ECc69/tKIfEGnwfjLkCvZzCvzrZIdVrS0sKRhQccCsI82V-8g), we focused on layer 0 and 1 of the blockchain and gave a basic overview of its tiers. In this work, we would talk on Layers 2 and 3.

**Layer 2**

![Layer 2](https://storage.googleapis.com/papyrus_images/1218d9cad1c81e66e942644cc8890c02736a0502e15586bc5d11b74827f6cc70.png)

Layer 2

Additional networks constructed on top of the primary or base blockchain are known as Layer 2 (L2) solutions. By removing several transactions from the main chain, they address **scalability** concerns. Consequently, the main blockchain would only be required to handle deposits, withdrawals, and the verification of off-chain transactions. The Base Network is one instance of this L2 blockchain.

**Layer-2 scaling solutions**

**State Channels:** State channels improve transaction capacity and speed by allowing two-way communication between blockchain and off-chain channels through various methods. Miners do not need to validate transactions on a state channel right away. Instead, these channels are secured using a multi-signature or smart contract mechanism. The final state of the channel and its transitions are posted to the blockchain once a transaction or batch of transactions is completed. Examples include Bitcoin's Lightning Network and Ethereum’s Raiden Network. In the blockchain trilemma, state channels trade some decentralization for better scalability.

**Rollups:** This layer-2 scaling solution process transactions outside the main layer-1 network and then upload the transaction data to the layer-2 blockchain. Layer 1 ensures rollup security by storing the data on the base layer. Rollups benefit users by increasing transaction throughput, promoting open participation, and reducing gas costs.

**Sidechains:** These are transactional chains that run parallel to the main blockchain, handling large volumes of transactions and having their own consensus mechanisms optimized for speed and scalability, often using a utility token for data transfer between the sidechain and mainchain. The mainchain primarily provides security and dispute resolution. Unlike state channels, sidechain transactions are recorded publicly on the ledger, and security breaches on sidechains do not affect the mainchain or other sidechains. Building a sidechain requires significant time and effort.

**Nested Blockchains:** Nested layer-2 blockchains operate on top of another blockchain. Layer 1 sets the parameters, while layer 2 executes the operations. Multiple blockchain tiers can exist on a single mainchain. This structure is similar to a business hierarchy, where a manager delegates tasks to subordinates and receives reports upon completion. This reduces the manager’s workload and enhances scalability. The OMG Plasma Project, for instance, acts as a layer-2 blockchain for Ethereum’s layer-1 protocol, enabling cheaper and faster transactions.

**Layer 3**

![Layer 3](https://storage.googleapis.com/papyrus_images/c36f11804b219ffbecee62ff10f110119e7b01f707165df4d05c3c8413c8522e.jpg)

Layer 3

The application layer, often called layer 3 or L3, serves as a user interface while hiding the technical details of the communication channel. L3 applications bring real-world applicability to blockchains within their layered structure.

**Closing Statement**

Layer 1 is crucial as it forms the foundation for decentralized systems. Scalability issues of the underlying blockchain are addressed by layer-2 protocols. Unfortunately, most layer-3 protocols (DApps) currently operate only on layer 1, bypassing layer 2. It's not surprising that these systems aren’t performing as well as expected.Layer-3 applications are essential for developing real-world use cases for blockchains. However, they will not capture as much value as their foundational blockchain, unlike legacy networks.

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*Originally published on [Flend Research Group](https://paragraph.com/@flend-research-group/blockchain-layer-2-and-3)*