What is Layer3?
It is believed that in the near future, end-users will conduct the majority of their transactions on L2 due to significantly lower transaction costs, growing support for DeFi tools and the increased liquidity that L2 provides. L2 solutions increase scalability by lowering the cost of gas per transaction and increasing transaction speeds. At the same time, L2s retain the benefits of decentralization, general-purpose logic and composite. However, some applications require special customization, for which it is better to use a new separate layer, L3.
- Layer 3 addresses the problem of interoperability while ensuring the simplicity of processes in underlying layers.
- Layer 3 is able to improve interoperability between L1 and L2 by abstracting different factors, such as technologies, functionalities and user service features in different ecosystems.
- Examples of projects offering L3 solutions: IBC Protocol, Interledger Protocol, ICON, Quant.
- L3 projects can drive the adoption of blockchain technology by providing users with a higher degree of flexibility.
Multilevel blockchain structure
As we move into the new age of Web3, we sometimes don't even notice how quickly this space is evolving. What remains the same, however, is that L1 blockchains are the foundation of the Web3 ecosystem and allow developers to create other protocols on top of them that leverage the security and consensus of the underlying network. L1 blockchains operate independently and holistically without the need for other networks. Their main problem is that most of these blockchains are not capable of scaling on their own.
This problem has found a solution in the creation of Layer-2 solutions, which aims to increase transaction speeds and reduce fees. The more new users come to Web3, the more prominent the role of L2 networks becomes when it comes to scaling large blockchains.
For example, for Bitcoin, the most important solution is the Lightning Network, a network of payment channels between users that act as a special multi-signature wallet that holds a certain amount of bitcoins. Coins can be provided by both parties or only one of them.
But for the Ethereum blockchain, one of the most popular solutions are rollups (Optimistic and zk-rollup), which perform transactions outside the main network, but move the finished transaction data into the main Ethereum blockchain.
In practice, it has been observed that L2 networks often do not meet the need for blockchain interoperability to create an entire Web3 ecosystem, although they do provide the underlying infrastructure for everything else built on top of them and provide a layer of transaction settlement and verification for decentralized applications (dApps), smart contracts and other blockchain layers.
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This fact forces developers to move toward a tiered blockchain structure that will bring more people into the cryptocurrency sphere and make their experience as easy and enjoyable as possible. For the mass adoption of blockchain technology, we simply need a new level of interchain communication. Moreover, popular decentralized finance (DeFi) protocols offer flexibility between chains to improve user interaction using a Layer 3 network, protocol or application.
What is L3?
Layer 3 for the user is blockchain-based applications: DeFi applications, games or distributed storage applications. Basically, these applications have cross-chain functionality, helping users access different blockchain platforms through a single application. That is, Layer 3 addresses the problem of interoperability while providing simplicity of processes in the layers below.
The new Layer 3 application layer has become a necessity in order to achieve actual interoperability between different networks without intermediaries. It is believed that this layer will allow the Web3 landscape to extend into many areas of everyday life and attract more people.
Despite the hype surrounding L2 projects, they do not simplify the user experience. As we said earlier, their main mission is to reduce cost and increase transaction speed, but now the whole Web3 world is coming to grips with the need to work on the interoperability problem of the entire cryptospace: the L1 and L2 chains, and the associated applications.
Layer 3 is able to improve the interoperability between L1 and L2 by abstracting various factors such as technology, functionality, and user experience across ecosystems. It is this "surface" implementation into the underlying layers of the blockchain through L3 solutions that helps different networks and ecosystems communicate, connect, and interact with each other.
A further review of the various new application layer protocols will show in more detail how they work to solve interoperability problems, but despite their different approaches, there is one common emphasis on the similarities to the layered structure of the Internet. They work in the same way as the Internet Protocol of the Internet, providing data transfer in packets between protocols in multiple chains. As a result, we see an improved user experience for cross-chain applications.
How L3 works.
To understand the importance of developing L3 solutions, it is worth looking at examples of protocols that are already being actively developed.
The Interledger Protocol (ILP) is an open protocol suite for sending payments across different blockchains. ILP is designed to enable the development of a global network of interconnected payment hubs that can send payments across any number of different blockchains and networks.
Its decision is a standard for connecting different payment networks together, enabling payments to be sent across different ledgers. ILP was designed by Ripple Labs to address problems in cross-border payments and remittances.
Interledger Protocol from Ripple can be called the most popular L3 solution on the current market among users, because it is available to every owner of iPhone. The Apple Pay payment system has implemented this protocol, which allows to pay with various cryptocurrencies - if you have the appropriate address, two-factor authentication and electronic signatures.
ILP allows any currency or asset to be represented as a single global ledger entry that can move between any participating network without requiring intermediation from an intermediary with more than one account on one ledger.
Ripple took as its basis a multilevel architecture with three separate levels, each of them has its own function: layer 1 works as a blockchain; layer 2 is a local area network or LAN; layer 3 (Interledger Protocol), is supposed to provide faster and more economical transactions. It can be said that the operation of ILP is similar to that of IP or the Internet Protocol.
IBC (Inter-Blockchain Communication) is a protocol that allows blockchain networks to communicate with each other and exchange data. It was developed by the Tendermint team at Cosmos to help solve the problems facing cross-chain interoperability.
The Cosmos Interblockchain Communication Protocol was developed as a standard that would provide secure data exchange between independent blockchains, as well as scaling by sharding and using sidechains for different applications.
The Tendermint Core (a blockchain application platform) serves as the basis for the IBC protocol, and the Cosmos-SDK provides Layer 2 protocol functionality. With such a framework, IBC is able to assist applications in reliable and secure inter-module communication, in multi-chain smart contracts development, and in inter-chain asset transfer.
IBC takes on various tasks such as data transfer, authentication, and ordering across multiple blockchain networks. The IBC protocol enables any application to use other applications’ smart contracts or data services on other blockchains without having to run their own full node or wallet infrastructure. To do this, it uses an abstraction layer that sits between each blockchain’s native network stack and its application layer — these are called “IBC Layers”. In this way, applications can communicate across multiple networks without having to change the way they work at all.
ICON is one example of a unique type of Layer 3 protocol that works as a standalone solution. The ICON protocol is a blockchain network that is focused on connecting different blockchain projects. The goal of ICON is to create an ecosystem where all blockchains can interact with each other and share data. This would allow for a more efficient and interdependent system of decentralized networks.
ICON was developed by a blockchain company based in South Korea. The ICON network uses a proprietary blockchain that allows for interoperability between different blockchains. This means that users can exchange assets across different networks without having to rely on a third-party intermediary like an exchange or gateway.
The technology behind the ICON network is very similar to Ethereum’s Plasma technology, but it has been designed specifically for interconnecting multiple blockchains instead of just one single chain.
ICON is a project that connects independent blockchains together to allow for more efficient transactions. The ICON network operates as a decentralized network that allows independent blockchain communities to interact with each other. The main goal of the ICON project is to create a new type of internet that can be used by all people in the world.
The interoperability protocol works by collecting all blockchain data on a single layer to connect multiple blockchain networks. ICON provides a robust solution for implementing a single interconnection of multiple blockchain networks.
Quant is a blockchain protocol that aims to be an operating system for the future of finance. It positions itself to develop a robust solution for enterprise blockchain networks by connecting public and private circuits.
Quant plans to develop its own public and private DLT networks with L3 protocols on top of them. The Layer 3 protocols will be able to communicate with each other using an integrated messaging solution called "a protocol stack." A protocol stack is a set of standards that allow computers from different manufacturers to communicate with each other via a common language, such as TCP/IP.
Quant uses the Overledger DLT gateway as well as many interesting interoperability solutions. For example, Quant's functionality includes multi-register tokens as well as smart contracts with multiple DLTs. In addition, the Layer 3 protocol has partnerships with popular companies such as Oracle, Hyperledger, and Nvidia.
Examples of Layer 3 protocols show how important they are to the future of the blockchain space. Combining Layer 2 scalability solutions with Layer 3 protocols for interoperability could solve fragmentation problems in the cryptospace.
Pontem sets goals for himself as the entire crypto space moves towards global financial inclusion using blockchain technology. We believe that the future of the blockchain industry will be built on the collaboration of different projects and companies. We are partnering with Aptos and Move to create decentralized applications and all the necessary infrastructure for the implementation of the L1 blockchain.