Understanding Layer Three Protocols: Bringing Layers One and Two to Life
While layer one protocols refer to the system associated with a blockchain’s underlying architecture, layer two protocols are designed to solve scalability issues and operational difficulties specifically pertaining to transaction processing.
Now, we will take a look at layer three protocols and how they bring the work from layers one and two into the world in the form of decentralized apps (DApps).
What are layer three protocols?
Layer three protocols consist of the protocols that allow applications to run on blockchains – as well as the applications themselves. Layer three protocols can be split into two primary sub-layers: the application and the execution.
The application component deals with user-facing applications meant to facilitate user interactions with a blockchain, the key aspects of which are APIs, user interfaces, and scripts. DApps in this category interact with the base blockchain using APIs.
The execution component, on the other hand, has to do with the handling of rules and smart contracts. It is the execution piece that contains the actual code behind the application. This is also where the intersection between the two sub-layers appears.
For example, when a user initiates a transaction, the process moves from the application layer to the execution layer. It is important to note that different blockchains support different programming languages when creating smart contracts, with Ethereum using Solidity and EOS using C++.
Examples of layer three protocols
Layer three protocols most often make themselves known in the form of DApps. Here are a few of the most noteworthy DApps in the industry today making use of layer three protocols.
Uniswap, powered by the Ethereum network, is a DeFi protocol used for exchanging different types of crypto. Uniswap facilitates automated transactions on the Ethereum blockchain by using smart contracts. It operates without an order book unlike centralized trading platforms such as Binance and Coinbase, instead using its automated market-making framework to provide trading liquidity.
NBA Top Shot
NBA Top Shot is a leading NFT platform that offers NBA highlights in video format known as Moments. Users can buy and trade respective Moments which vary in value and rarity, from a LeBron James dunk to a Steph Curry three-pointer. Like all NFTs, the draw toward these Moments is primarily tied to the concept of collectability, such as you might find with high-end art or trading cards.
Yearn.finance is one of the leading yield aggregators in the DeFi space, serving as a suite of DApps operating on the Ethereum blockchain to help users automatically earn the highest yields on funds deposited on decentralized platforms. Yearn.finance provides its services using only code, removing the need for a financial intermediary like a bank or custodian. Products within the yearn.finance suite include Vaults, Earn, APY, and Zap, all of which serve different purposes from visualizing interest rates across different lending protocols to relaying investment strategies designed to generate the highest returns from other DeFi projects.
Get online and grow with Compute North
Compute North helps miners and investors achieve high-performance capability at an affordable cost through our TIER 0™ data centers – designed specifically to blockchain, machine learning, image rendering, and other applications . We help you get online quickly and make sure you maintain flexibility to grow and expand as you need to in the future.
Benefits of our blockchain colocation and cloud services include:
- Cost-competitive infrastructure for ASIC and GPU hardware, powered by a mix of carbon-neutral energy
- Proactive management with technicians handling things like daily monitoring, troubleshooting, and miner configuration changes
- Access to detailed analytics in MinerSentry®
Contact us to learn more.