In the cryptocurrency world, what is a third layer blockchain?
The third layer protocol is built on top of the second layer to provide enhanced scalability, enabling developers to create customized application-specific blockchains based on their needs.
Key Takeaways
Layer 3 protocols are built on top of Layer 2 and are used to host application-specific decentralized applications.
The third layer can solve various problems such as scalability, interoperability, customization, etc.
Some examples of third layer protocols include Orbs, Arbitrum Orbit, and zkSync Hyperchains.
How do layers 1, 2, and 3 work together?
The first layer is the blockchain that forms the foundation, where blocks are added and transactions are finalized. However, the first layer is subject to the blockchain trilemma, where they must make trade-offs between scalability, decentralization, and security. Blockchains like Bitcoin and Ethereum prioritize decentralization and security over scalability, and as the number of network users increases, these networks experience slower transaction speeds.
This is where second layers come in, they solve the scalability problem. Second layers are off-chain vertical scaling solutions that run on top of first layers like Ethereum, providing faster transactions and lower gas fees to achieve scalability. They can take the form of rollups or validiums, as is the case with Polygon 2.0. Many second layer solutions, like Polygon, zkSync, and Arbitrum, have released solutions that enable developers to create application-specific chains on top of the second layer, which brings us to the third layer.
Layer 3 is a high-level protocol built on top of existing layer 2 solutions, providing interoperability and application-specific functionality. This means that layer 3 is highly customizable and can adapt to the specific needs of developers, such as providing solutions to targeted problems (such as privacy), or supporting a large number of transactions while still inheriting the security of the first layer blockchain. Currently, most third layers are built on Ethereum, and some blockchains, such as Bitcoin, are not suitable for hosting third-layer applications at the time of writing.
What problems does the third layer solve?
Now that we understand how layers 1, 2, and 3 work together, let’s take a deeper look at layer 3 and how they can further scale blockchains.
Scalability
The third layer is designed to improve the scalability of the current first and second layers and is therefore very scalable. As a result, the network will be able to handle a much larger volume of transactions and support a wider range of complex applications at the same time. Complex decentralized application support
The third layer is able to provide the infrastructure needed to develop more complex decentralized applications that require more advanced functionality. This may help improve web design to include more advanced features in applications, making them easier to use for ordinary users. Depending on the needs of developers, the third layer can also facilitate more complex smart contract designs that the first and second layers cannot handle due to limited scalability.
Blockchain interoperability
The third layer also solves the interoperability problem. The third layer can act as a bridge between different blockchains, enabling transactions and data to flow between different platforms. This means that the third layer decentralized applications have the function of connecting to different blockchains such as Ethereum and Solana.
Customization
The third layer 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, which will only allow certain data to be revealed. Due to the highly customizable features of the third layer, developers can customize the governance mechanisms, rules, and functions of their decentralized applications according to their needs.
Arbitrum Orbit allows developers to customize different aspects of their chain. For example, developers are able to customize and choose which tokens serve as transaction fees on their chain. This gives developers the flexibility to choose and potentially include a platform’s native token, allowing developers to tailor the functionality of their decentralized applications to their unique needs. Additionally, developers can customize their decentralized applications to ensure that users have more consistent and reliable gas fees. Developers can also launch their own blockchain networks with specific features - like Arbitrum’s Nitro-powered blockchain network and Stylus’ EVM+ compatibility. Other customizations offered by Arbitrum Orbit include privacy, permissions, fee tokens, governance, and more.
Cost-effectiveness
Since the third layer network processes part of the transactions and operations off-chain, it helps reduce network congestion, thereby significantly reducing transaction fees. This cost-effectiveness helps lower the cost of entry barriers, making it more accessible to developers and users.
For example, the Xai Network is a dedicated gaming network designed specifically to power Web3 games. Built on Arbitrum’s third-layer network, the Xai Network introduces parallel processing to improve efficiency and scalability while further reducing costs.
Accessibility
Layer 3s can also be made more accessible to the public and easier to implement. For example, Arbitrum’s layer 3, Arbitrum Orbit, allows anyone to build and deploy their own layer 3 on Arbitrum Nitro without the need for approval. In contrast, launching a layer 2 requires proposals around its trust model and how they will achieve full decentralization.
Use cases for the third layer
Now that we have seen what problems Layer 3 solves, here are some possible use cases for Layer 3:
Game Applications
One use case for layer 3 is blockchain gaming. By running on layer 3, it enables applications to run on a dedicated blockchain, allowing transactions to process larger volumes of transactions at a faster rate. This is especially important for gaming applications, helping developers maintain a seamless gaming experience for users.
Gaming applications tend to process many microtransactions, which can be more expensive. Therefore, running applications on the third layer allows developers to ensure cost-effectiveness for users, as the transaction fees on the third layer are lower.
Decentralized financial applications
Another possible use case for layer 3 is decentralized finance applications. Running on layer 3 is ideal because it enables decentralized finance applications to be customized to the needs of the application. This means that developers will be able to customize the privacy settings and different features of the application.
Furthermore, Layer 3 is very scalable, ensuring that a large number of transactions can be processed quickly, which is very important for real-time transactions. Layer 3 also allows for interoperability between various blockchain networks, allowing users to transfer assets between different networks.
Example of the third layer
While the concept of layer 3 is still considered a relatively new development in the crypto space, here are some projects worth keeping an eye on:
Orbs
Working in tandem with existing first and second layer protocols, Orbs is a third layer blockchain focused on solving the scalability issues of the Ethereum blockchain. According to their website, Orbs sees its third layer as “enhanced execution” that allows developers to develop smart contracts in a decentralized serverless cloud environment.
This means that developers can write and deploy smart contracts on Orbs' own decentralized network without having to worry about the underlying infrastructure of the network. This provides developers with the convenience of not having to maintain physical servers. Currently, Orbs works with several first- and second-layer protocols including Ethereum, BNB Chain, Avalanche, Polygon, etc.
Orbit decision
In 2023, the Arbitrum Foundation also launched its new feature, Arbitrum Orbit, which is envisioned as a third-layer blockchain built on the Arbitrum Nitro platform. In addition to lower transaction costs and enhanced scalability, developers can also create their own managed professional blockchains on the Arbitrum Nitro platform. This allows developers to use customized blockchains based on their specific needs.
zkSync Hyperchains
zkSync Hyperchains, launched by the zkSync team, can become a third layer that uses the second layer for settlement. zkSync Hyperchains are powered by the same zkEVM engine available on the ZK Stack, all ZKP circuits remain unchanged and inherit the security of the first layer, no matter who deploys them. One benefit is that third layers settled on the same second layer will have faster messaging between each other and interoperability within the broader ecosystem.
Summarize
The development of the third layer is an interesting innovation in the cryptocurrency space. It improves on what we had before by incorporating the best parts of the first and second layers, such as making the network more scalable while remaining secure. Still, it’s important to remember that these layers each play a key role in the blockchain ecosystem and are not in competition with each other. Currently, the third layer is still in its development stages, but I think it’s clear that it will play a key role in shaping how we utilize blockchain technology in the future, making it easier for blockchains to handle high transaction volumes.
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