Blockchain technology, which dates back to the early 90s, had its first real-world application with Bitcoin’s launch in 2009. Thus, Bitcoin became one of the first blockchains, followed by the likes of Ethereum. However, the technology faces three major roadblocks—security, scalability, and decentralization. To solve these problems, solutions like Layer 1, Layer 2, and Layer 3 were introduced to provide a more adaptable, efficient, and seamless blockchain ecosystem that any industry can tap into. Essentially, these layers handle various functions like data storage and help develop user-facing applications. Let’s learn more about these solutions and the best Layer 3 coins in the crypto market in 2024.
Layer 1 vs. Layer 2 vs. Layer 3 blockchains
The three layers, Layer 1, Layer 2, and Layer 3 are built on top of each other. Each layer signifies an improvement in blockchain technology, catering to specific functionalities and services.
The first protocol, Layer 1, is the base or foundational layer that ensures security and basic blockchain functionality. Layer 1 enables activities such as confirming transactions and adding blocks. Examples include Bitcoin and Ethereum networks.
Layer 2 protocol’s main function is to overcome the limitations in Layer 1 like scalability and transaction speed. To reduce the load on Layer 1, Layer 2 solutions that operate off-chain enhance scalability, reduce gas fees, and clear network congestion. Layer 2 protocols include Arbitrum and Polygon.
Layer 3, built atop Layer 2, brings interoperability to the blockchain ecosystem and contributes to better scalability. Another major advancement that Layer 3 brings is the ability to host application-specific dApps. Layer 3 also leverages the high security of the Layer 1 blockchain. Layer 3 also engendered several Web3 crypto coins like Polkadot, Cosmos, and Chainlink.
Understanding Layer 3 blockchain
Designed to counter the limitations of Layer 1 and Layer 2, the Layer 3 protocol marks an advancement in blockchain technology. It is built on top of the technological foundation laid by Layer 2 and offers functionalities and performance improvement on the Layer 2 protocol. Put simply, Layer-3 blockchains offer interoperability, host application-specific dApps, and improve the overall performance of blockchain technology.
Problems solved by Layer 3 blockchains
Layer 3 protocols solve several limitations of blockchain technology, which include:
- Scalability: Scalability is Layer 2’s thing, but Layer 3 makes the scalability of the blockchain ecosystem even greater by enabling high-volume transactions and complex applications, besides optimizing consensus mechanisms.
- Interoperability: What scalability is to Layer 2, interoperability is to Layer 3. Layer 3 solutions enable seamless data sharing, communication, and cross-chain collaboration between blockchains.
- dApps support: Layer 3 offers the provision to host specialized dApps with sophisticated functionalities and utility to improve the overall blockchain ecosystem and its underlying technology.
- Decongesting the main blockchain: Layer 3 solutions help decongest the main blockchain by processing certain transactions and operations off-chain. This reduces network congestion, which in turn, lowers transaction fees.
- Reduce costs: Layer 3 solutions aim to strike the right balance between lower costs and high performance. By doing so, they make the blockchain more accessible and scalable.
Top Layer 3 coins in the crypto market
Several Layer 3 coins have made their mark in the crypto market, but the top three are the following.
(Note: The price, market cap, and ranking mentioned below are as of 8 May 2024)
Xai (XAI)
Current price: $0.68
Market cap: $187,315,715
Rank by market cap: 303
XAI is often dubbed the first Layer 3 blockchain protocol created for top-tier gaming or AAA gaming. XAI was launched with two major aims—to counter the complexities associated with wallet management and to integrate blockchain into gaming seamlessly. This enabled traditional gamers to seamlessly own, trade, and interact with in-game assets. XAI is built on top of Arbitrum.
XAI was developed by Offchain Labs and overseen by the Xai Foundation. The protocol brings a breath of fresh air into blockchain gaming, solving some of the challenges in the gaming space.
Orbs (ORBS)
Current price: $0.034
Market cap: $149,796,100
Rank by market cap: 351
Orbs is a Layer-3 public blockchain project that uses the proof-of-stake (PoS) consensus mechanism. Orbs improves upon existing smart contracts by adding features not available directly on other blockchain layers. It acts as a decentralized backend, making smart contracts more scalable and efficient. Besides, Orbs uses a multi-chain PoS model, which means people can stake their ORBS tokens on Ethereum and Polygon.
Dream Machine Token (DMT)
Current price: $57.74
Market cap: $34,034,518
Rank by market cap: 823
Dream Machine Games is a gaming platform that operates on the Arbitrum network. It blends NFTs and token-based gaming with social networking features to create a unique gaming experience. DMT is the native token of the blockchain-based gaming platform that powers the games on the Dream Machine. The DMT token also serves as a utility token to reward network participants for their participation and contributions. DMT is used for buying in-game assets such as digital items, power-ups, and unlocking characters and stages.
Upcoming Layer 3 Coins
Layer 3 cryptos are becoming popular among crypto investors. We have listed some upcoming layer 3 projects below.
Arbitrum Orbit
Arbitrum Orbit is a Layer 3 blockchain architecture integrated atop the Arbitrum Nitro platform, backed by Arbitrum Foundation. Arbitrum Orbit enables the creation of new chains within the Arbitrum ecosystem. These chains can settle transactions on other L2 chains. The blockchain also offers low transaction fees and improved scalability, allowing developers to self-manage specialized blockchains. The blockchain hosts a seamless environment for developers to tailor blockchain solutions to their unique needs.
zkSync Hyperchains
zkHyperchains is another innovative Layer 3 blockchain introduced by zkSync. The main goal of zkHyperchains is to solve scalability and interoperability issues in blockchain within the Ethereum ecosystem. ZkHyperchains taps into ZK Stack, a modular framework that allows developers to customize and deploy their ZK-powered blockchains. Using ZK stacks, zkHyperchains enables the creation of custom blockchains called Hyperchains. This allows developers the autonomy to tailor these chains to specific applications in Layer 2 and Layer 3 solutions.
Conclusion
Layer 3 has brought so much innovation and improvement to blockchain technology. Besides tackling blockchain issues like scalability and interoperability, the growth of Layer 3 also gave a boost to Layer 3 coins like XAI, ORBS, and DMT. These Layer 3 coins are poised for growth in the next few years alongside Layer 3 protocols.
