Layer 1 vs Layer 2 vs Layer 3: A Comparison of Blockchain Layers

Layer-1, Layer-2, and Layer-3 blockchains may bring layers of confusion. Here’s a breakdown of each layer’s role, architecture, and why this modular stack matters in Web3.

Introduction to Blockchain Layers

Blockchain’s architecture isn’t flat. It’s layered, by design.

What began as a single-layer system (Bitcoin) has since evolved into a multi-tiered stack, each layer solving for a different piece of blockchain’s core dilemma: How to stay decentralised, secure, and scalable all at once.

Those who wonder what separates Layer-1 from Layer-2, or why Layer-3 is necessary, this guide will shed light on them. Whether for the purposes of Web3 building or just following the blockchain tech’s direction of travel, knowing how the layers interact is critical.

But before diving into these layers, it’s important to grasp one of the core challenges in blockchain design: The blockchain trilemma.

The Blockchain Trilemma: Why Layers Exist

The blockchain trilemma — scalability, security, decentralisation — is the reason these layers exist. No single blockchain has perfectly balanced all three.

• Security ensures transactions are immutable and censorship-resistant.
• Decentralisation distributes power away from central authorities.
• Scalability enables blockchains to handle high transaction volumes.

Layered design is how developers attempt to optimise for all three without forcing extreme trade-offs.

Layer-0: The Hidden Foundation

Before Layer-1 comes Layer-0, the infrastructure that connects blockchains and supports interoperability.

Layer-0 protocols (like Cosmos and Polkadot) serve as the interoperability backbone, enabling different chains to talk to each other. This layer also includes the foundational elements of the blockchain stack: Physical hardware, internet protocols, validator networks, and shared consensus systems.

These components allow blockchains to be created, connected, and scaled. Without them, blockchains would remain isolated silos, lacking the interoperability and shared security that drive today’s multi-chain ecosystems.

Key Features

Inter-chain Communication

Protocols like Cosmos’s Inter-Blockchain Communication (IBC) and Polkadot’s Relay Chain allow multiple blockchains to interoperate securely, removing the need for centralised exchanges or custodial bridges.

Shared Security and Consensus

Some Layer-0s offer a base layer of security for the chains built on top. For example, parachains on Polkadot rely on the main Relay Chain for consensus and finality. This allows newer chains to benefit from an existing security model without having to bootstrap their own validator network.

Developer Frameworks

Layer 0 platforms often include toolkits for launching custom Layer-1 blockchains. Cosmos SDK and Substrate (used by Polkadot) let developers build chains tailored for specific use cases, like DeFi and gaming, while remaining interoperable.

Layer 1: The Base Protocols

Layer-1 is what most people think of when they hear ‘blockchain’: Bitcoin, Ethereum, Solana, Avalanche.

These are the foundational networks. They handle consensus, settlement, and block validation directly on-chain. Each has its own native token (e.g. BTC, ETH, SOL) and its own rules for reaching consensus.

Store of Value

Bitcoin exemplifies Layer-1’s use as a digital store of value. Its robust Proof of Work (PoW) system offers unmatched network security, but at the cost of speed and energy efficiency.

Smart Contracts

Ethereum pioneered Layer-1 smart contracts. Its EVM (Ethereum Virtual Machine) enables developers to build decentralised applications directly on-chain. The move to Proof of Stake (via The Merge) reduced its energy use by 99.95%.

DeFi Base Layers

Solana and Avalanche serve as high-throughput DeFi platforms. Solana uses a unique Proof-of-History mechanism for sub-second finality. Avalanche leverages multiple interoperable chains for parallel processing.

Benefits vs Limitations

Layer 1 is secure but not infinitely scalable. In another example of Layer-1 limitations, Solana is known for its speedy prowess, but it sacrifices some level of decentralisation. To further tackle the blockchain trilemma, Layer-2s come in to shine.

Layer 2: Scaling Without Sacrifice

Layer-2 protocols are built on top of Layer-1s. They take the execution load off the base chain and settle final results back on it, effectively increasing throughput while inheriting L1’s security.

Take for instance, Arbitrum, which executes transactions off-chain and periodically posts compressed summaries back to Ethereum, achieving faster speeds and lower costs without compromising on decentralised security.

Let’s take a look at these three main types of L2 scaling solutions.

Optimistic Rollups

These assume all transactions are valid unless challenged. If a fraudulent transaction is detected, it can be disputed within a 7-day window. Arbitrum and Optimism lead this space, offering up to 6,000 tps on record.

ZK-Rollups

ZK-Rollups use zero-knowledge cryptographic proofs to batch and validate thousands of transactions instantly. Starknet and zkSync achieve high throughput with near-instant finality and lower gas costs.

State Channels

Used mainly in payment scenarios, like Bitcoin’s Lightning Network. Two parties transact off-chain and settle only the final state on-chain, dramatically reducing fees and latency.

Benefits vs Limitations

Layer-2s are where most scalability progress is happening.

Notable Examples

• Arbitrum: Popular for Ethereum scaling, processing a significant share of DeFi traffic.
• Starknet: Utilises ZK-proofs for sub-second confirmations.
• Polygon zkEVM: Offers EVM compatibility with significantly higher throughput and lower costs.

Layer 3: Application-Specific Chains

Layer 3 is still an emerging and debated concept within the blockchain community. While some treat it as a distinct layer focused on application-specific rollups or custom extensions beyond Layer 2, others see it as part of a broader Layer 2 design space. 

For the purpose of this guide, take Layer 3 as an evolving term for advanced infrastructure built atop L2s to serve highly specialised needs: Think gaming, social media, data privacy, enterprise tooling. 

Rather than general-purpose chains, L3s act as specialised execution environments.

Custom Virtual Machines

Projects like Immutable X use custom-built virtual machines (VM) optimised for specific applications such as gaming and digital assets. These VMs strip out unnecessary general-purpose logic to streamline performance and reduce costs, making them ideal for high-frequency, low-cost interactions like in-game asset trading.

App-Specific Rollups

Frameworks like Arbitrum Orbit allow developers to launch their own dedicated rollups tailored to enterprise or gaming needs. These chains offer flexibility with cost efficiency.

Hyperchains

zkSync’s Hyperchains let apps run their own ZK Rollup environments, fine-tuning privacy settings and execution logic, all while settling back to zkSync’s L2 for security.

Benefits vs Limitations

Still, L3s hint at a modular future where apps own their own stack.

Notable Examples

• Immutable zkEVM: Built for Web3 gaming at scale.
• Degen Chain: Processes millions of daily transactions for niche crypto activity.
• Orbs: Supports cross-chain execution for DeFi applications.

Why the Need for Layered Interdependence

No layer exists in isolation. Each tier relies on the one below it:

• L3s depend on L2s for scalability
• L2s anchor to L1s for security
• L1s need L0s to talk to other ecosystems

As interoperability frameworks like IBC (Cosmos) and CCIP (Chainlink) mature, these boundaries blur. We’re heading toward a modular blockchain stack where each layer can be swapped, upgraded, or specialised.

Conclusion: Blockchain’s Future Is Modular

Blockchain’s future isn’t monolithic. It’s modular.

Instead of a one-size-fits-all chain, blockchains are moving toward tailored, layered infrastructure where each layer optimises for what it does best. Layer-1 ensures security, Layer-2 boosts scalability, and Layer-3 brings application-level customisation.

Understanding these layers isn’t just technical trivia, it’s strategic knowledge for builders, investors, and policymakers.

Because the next generation of the internet will be built in layers.

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