The rise of cryptocurrency and its breakthrough in terms of global adoption has been realized through the help of blockchain technology.
Blockchain provides immutability, traceability, and cryptographic security, allowing records of transactions to remain in their original state. Drastically lowering the possibility of fraud or hacking increases trust and transparency.
However, the constant need for better throughput as blockchain networks begin to handle immense transactional requirements has led to developing more layers to increase functionality.
A Brief Recap on Layer 2 Solutions
The layers of any blockchain begin with layer 0. The first stage of blockchain helps the networks like Ethereum and Bitcoin function.
Then Layer-1 solutions upgrade the foundational architecture, introducing consensus mechanisms, security, and coding for blockchain operations. Built on layer-1 solutions, layer-2 networks are implemented to increase transaction speed and throughput.
They take pressure off the base layer and execute transactions off-chain, reducing congestion. Also, most layer two solutions share the security advantages of their L1 blockchains, allowing them to scale without sacrificing decentralization or security.
What is Layer 3?
Layer-3 or L3 is designed to empower cross-chain capabilities among different blockchain networks. It is referred to as the “application layer” as they enable blockchain-based applications to function.
Applications like smart contracts, decentralized finance (DeFi), blockchain games, non-fungible tokens, and distributed storage apps are possible through layer-3 protocols.
L3 applications give real-world applicability to blockchains, as it acts as the interface between these applications and the underlying layers that facilitate everything.
Why are Layer 3 Solutions Needed?
Layer 3 solutions intend to boost distinct blockchains with the cross-chain functionality needed to interact with each other to achieve true interoperability.
Different blockchains like Ethereum and Bitcoin have dApp; however, no one can use Ethereum on Bitcoin decentralized applications. Where it is possible to trade digital assets like crypto across these chains, centralized custodians like bridges come into play.
The importance of L3 becomes clear when services on these platforms become accessible to users, irrespective of the blockchain network. While services on L2 protocols are exclusive to particular chain networks, L3 goes beyond.
Hence, it seeks to promote interoperability without the need for intermediaries or third parties. Subsequently, layer 3 simplifies the operational utility of underlying layers, enabling connectivity between them and the applications existing in the ecosystems.
Examples of Layer-3 Protocols
Layer-3 projects are becoming increasingly popular due to the need for decentralized connections between blockchain networks and L2 protocols.
Interledger Protocol (ILP)
The Interledger Protocol utilizes an open payments network for users to buy, sell, earn and share globally. It features a three-layer architecture that guarantees faster and cheaper transaction rates. Among other layer-3 solutions in the industry, ILP is the most famous L3 solution.
The network focuses on delivering interoperable ecosystems with real-world solutions for comparatively lower costs and fewer risks. It also connects public and private chains through its Overledger DLT gateway service.
Inter Blockchain Communication (IBC) Protocol
Built on the third layer of the Cosmos chain, the IBC protocol establishes a connection between chains and the application layer. It is also instrumental in developing cross-chain applications like interchain accounts and token transfers.
Lightly put, Layer-3 protocols are meant to “supercharge individual blockchains,” empowering them with unique features, including enhanced cross-chain capabilities.
With more sectors embracing blockchain technologies, it stands to reason that as time goes on, layer-3 solutions will attract mainstream attention, especially with the indisputable benefit it has in store for projects.