definition and functioning of the blockchain sublevels

For structural reasons, more and more blockchains are using level 2 to develop their applications. In fact, the Arbitrum, Optimism, Polygon and Lightning Networks are becoming increasingly important.

What is a level 2 for a cryptocurrency?

Layer-2s are sub-layers or networks parallel to blockchains, capable of supporting multiple transactions. In Bitcoin, it is Lightning Network or Omni while Ethereum has Polygon, Loopring or Arbitrum.

Their presence allows you to perform transactions outside the main chain, layer-1. To be definitively validated and thus benefit from the security and immutability of the main networks, these are then transferred en bloc to layer-1 and then finalized.

This eases the load on major blockchains, such as Bitcoin or Ethereum. The maximum number of transactions that can be entered in a block varies depending on the blockchain: about seven transactions per second for Bitcoin, thirty for Ethereum. Compared to the maximum capacity of 65,000 transactions per second claimed by the Visa network, it doesn’t seem like much, but the advantage of blockchains is to guarantee the immutability of transactions once made when payments made on a traditional banking network can be reversible. several days after the broadcast. However, the current capacity of blockchains cannot handle all payment flows in the world.

To support more users, without betraying the fundamental qualities of blockchains, the developers therefore created layer-2.

The relevant analogy would be to imagine a pyramid whose foundation would be the blockchain and a stratum-2 on the upper floors. It is also not uncommon to hear that the Bitcoin network acts as a savings account and its Level 2 Lightning network as a checking account.

Technically, the specificities distinguish these different layer-2, starting with the existence or not of a native token: the Lightning Network token replicates the value of Bitcoin while Polygon has a token other than ether, Matic. Loopring has its own LRC. Arbitrum does not have a full-fledged token and uses Aether. For this reason, the user must be vigilant and make sure that he is using the correct token corresponding to the chosen network; in fact, using a layer-2 requires some precautions to make sure you don’t lose tokens.

For Bitcoin, some wallets facilitate the transition between the main network and the layer-2 Lightning Network: this is the case in particular of BlueWallet, Breez or Satoshi’s Wallet, wallets to be downloaded from the official website of their developers.

For Ethereum it will be necessary to manually integrate the parameters of the secondary networks (RPCs) into Metamask (the most popular wallet). Among the most reliable sources, the Chainlist site provides information on appropriate configurations.

What are the applications of level 2?

Thanks to their ability to absorb a significant number of transactions (Bitcoin’s Lightning Network claims a capacity of 1 million transactions per second, Arbitrum around 40,000 per second), Layer-2s are not only effective as a payment network but also for hosting applications. , commonly known as dApps (decentralized applications).

Video games (Axie Infinity, God’s Unchained, Light Nite, Immortal Game, etc.), trading (dYdX, Uniswap, Sovryn, etc.), finance (Curve, Synthetix) are all applications that benefit from the capacity and low cost of use of these networks.

In 2021, Microsoft launched its own Level 2 on Bitcoin, ION, a decentralized identity management network.

What is a level 1?

Layer-1 is therefore the main blockchain on which the other sub-levels are based: for example, Bitcoin is a layer-1. Ethereum is a Tier 1 and it is in particular due to the increasing execution of smart contracts on its Tier 1 that transaction fees regularly explode, sometimes reaching as high as a hundred dollars to use an application. Moving applications such as Uniswap or Synthetix to level 2 therefore decongests the network and reduces costs.

What is a level 3?

Layers 3 are a third layer, but if layers 2 are versatile networks, capable of supporting different types of use, layers 3 are often considered specific applications, capable of interacting or communicating with other applications on the same network. A type of architecture that is mostly found on the Solana or Avalanche networks. In 2022, however, the Impervious team announced the release of Impervious Browser, a layer 3 built on top of the layer 2 Lightning Network.

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