Blockchain can be best described as a decentralized type of database that is used to maintain a growing list of records called blocks. Each block contains a list of transactions, a timestamp, and a link to the previous block, which effectively creates a chain of blocks that cannot be altered.
However, as the data stored in the blocks continue to grow, the underlying blockchain network starts facing scalability issues, leading to added problems with decentralization and security. This problem, commonly referred to as the “Blockchain Trilemma,” is among the significant roadblocks that blockchain technology must overcome.
Several novel solutions have emerged in the past few years, most of which focus on helping the base layer (also known as Layer-1) blockchain achieve greater scalability, including standalone Layer-2 and Layer-3 blockchain networks. Each blockchain solves different problems, but the core goal is to decongest the main chain (Layer-1) as well as improve its transaction throughput.
With so many different layers of blockchain, it becomes a bit overwhelming to grasp the fundamentals. To better understand the role of layers, why we need so many layers in blockchains, and how layers solve scalability issues, we invited Stanley Wu, the co-founder and CTO of Ankr blockchain, for a conversation. Stanley commands over a decade of experience across large-scale cloud computing services, including brands like Amazon. He is also highly skilled in web service, decentralized ledger technology, and decentralized finance.
What would be the best way to explain the layers of blockchain in plain language? Why do we need different layers?
Stanley: Blockchain, like most other technologies, requires a stack of layers to provide a higher level of usability and performance. If we think about our phones, there are many layers like the hardware, operating system, applications, and cell service that all play an important role in making things work like magic. These layers are built up and improved upon year after year – the same thing is true for blockchain.
Most people have now heard of Layer-1 blockchains, which are foundational networks such as Bitcoin (BTC-USD) or Ethereum (ETH-USD). Bitcoin could be seen as the first cell phone in terms of functionality, but instead of sending and receiving calls, you could send and receive digital currency (with no financial intermediaries involved). Ethereum expanded on this idea and added new capabilities for applications, kind of like the first iPhone. However, as the popularity of using blockchains increased for sending crypto and using applications, the more burdened these networks became. This is why other layers were created to increase speed and transaction throughput while improving user experience.
Please help our audience understand the differences between Layer-0, Layer-1, Layer-2, and Layer-3 blockchains.
Stanley: Layer-0 nomenclature initially emerged to describe an “internet of blockchains,” functioning as an ecosystem that provides tools for creating customized networks. Layer 0s, such as Polkadot or Cosmos, provide a uniform foundation on which many different Layer-1 blockchains can be built. The benefits of Layer 0s include increased scalability in terms of transactions and interoperability (blockchains working and communicating together seamlessly).
Layer-1 networks, in turn, provide the infrastructure for creating decentralized applications (dApps). They have a native crypto or “token” that allows users to interact with applications developed on the network. However, the increasing use of Layer-1 networks has highlighted their scalability challenges.
Layer 2 was developed to improve the scalability and performance of Layer-1 networks. The improvement in scalability is achieved by taking much of the transaction load from overburdened L1 chains. Layer-2 solutions can operate applications on their own while sending data back to the registry in Layer 1, which keeps the history. This way, Layer 1 is not overloaded and shares its security with Layer 2. Some of the biggest examples of Layer 2 are Polygon, Arbitrum, and Optimism.
Lastly, decentralized applications (dApps) built on top of Layer 1 or 2 are known as Layer 3. Layer-3 applications are what give blockchains their usefulness in the real world. Just like applications on your phone give it more functionality, blockchain applications give us new ways to create apps for DeFi (decentralized finance), gaming, NFTs, social media, and many other use cases.
If Layer 1 is the main blockchain architecture, how do Layer-2 and Layer-3 architectures work with it? How do they achieve compatibility with one another?
Stanley: The different layers of blockchain tech are designed to work together in harmony to provide an end-user experience that is fast, affordable in terms of blockchain gas fees, and as easy to use as any other part of the internet.
The ideal future of “Web3” – a term that comprises all layers – will allow all blockchains to interact seamlessly with one another through solutions like bridging, ZK rollups, and interoperability standards. Paired with Layer-2 scaling solutions, this will provide an experience that is integrated with the internet in a way that lets everyone easily benefit from the underlying principles that drove blockchain’s creation in the first place – true digital ownership, trustless systems, and both enhanced privacy and transparency when desired.
We read that Layer-2 networks extend the functionality of Layer-1 chains. Is that true? Could you please explain how that works?
Stanley: Yes, that is very true. For instance, the Polygon network greatly extends the functionality of Ethereum by taking a large transaction burden off of Ethereum. By building applications and making transactions on Polygon, users still get the underlying security and decentralization benefits inherent to Ethereum while receiving improved transaction speed and affordability.
How does Layer 3 work in blockchain? Please highlight some use cases of Layer 3.
Stanley: Layer 3 is in charge of including the direct user integration component. Layer 3 is also referred to as the application layer. It hosts decentralized applications (dApps), demonstrating how blockchain technology can be used in the real world.
We hear the term “web3 infrastructure” a lot these days. What exactly is web3 infrastructure in laypeople’s terms? How is it different from blockchain infrastructure?
Stanley: Infrastructure is simply the term we use for the building blocks that are required for things to work in technology. Web3 infrastructure is the hardware and software solutions in place that allow apps to talk to blockchains, developers to build apps easier, and chains to function as they should. Web3 infrastructure encompasses the nodes, APIs, bridges, developer tools, and all other solutions across all blockchains.
How do you think the Web3 infrastructure protocol ecosystem should be structured?
Stanley: A Web3 infrastructure protocol should strive to add as much decentralization as possible into its services. This means collaboration between different organizations to provide open-source solutions for Web3 as a whole. To avoid the centralization of blockchain at the infrastructure level, we need to ensure that no one party controls too many of the critical components of its inner workings.
Your company Ankr provides RPCs for developers and decentralized applications. What is an RPC? How does it fit into these blockchain and web3 infrastructures?
Stanley: Ankr operates a global network of blockchain nodes that serve RPC (Remote Procedure Call) requests coming from thousands of developers and applications that need access to different blockchains. On average, Ankr serves approximately 7.2 billion of these requests every day.
Ankr’s RPCs are a type of API that connects applications, crypto wallets, and developers to a variety of different blockchains. Imagine them serving as a messenger that relays blockchain-based information between nodes, applications, and end-users so they can execute transactions, understand wallet balances, access ownership information, and more.
Our readers would love to know more about Ankr, its solutions, and use cases. Could you provide a quick overview of how Ankr works as a web3 infrastructure protocol, what problems it solves, and how it does so?
Stanley: Ankr is designed to serve as an all-in-one portal to support Web3 growth. In addition to our multi-chain dApp development tools, we offer crypto-staking solutions and a decentralized global node infrastructure that can power these services across dozens of blockchains.
The Ankr Network, along with RPC and API tools, are used to cultivate publicly available and incredibly scalable solutions to help Web3 developers and users keep up with an industry undergoing exponential growth. Ankr’s solutions make it easy for anyone to build and earn on Web3 and participate in a crypto economy for a more decentralized, democratic, and user-owned web experience.
Read More: Interview with Ankr’s Stanley Wu