Blockchain technology has revolutionized the tech space by bringing the concept of decentralization to the mainstream and transforming the way data is stored, shared, and managed. This breakthrough technology has opened up new possibilities for organizations to operate without a centralized authority. While Bitcoin was the first blockchain to intrigue the interest of the masses for DLT or digital ledger technology, it marked only the dawn of a new era. Ethereum, Avalanche, Solana, Tezos, and other advanced blockchain protocols soon followed, introducing innovative features, services, and solutions that could reconstruct the traditional working styles of many industries.

However, like any technology, blockchain also has its vulnerabilities, and various challenges must be addressed before it can ensure optimal scalability, speed, and gas fees. In response, developers have introduced solutions like layer 2 blockchains and side chains to improve the blockchain ecosystem. The ecosystem is continuously upgraded by introducing novel ideas that aim to overcome existing challenges and enhance what’s already working. Hence, layer 2 and 3 solutions, side chains, interoperability solutions like bridges, app chains, and more have been designed to optimize the ecosystem’s usability.

This article provides an in-depth look into layer 2 blockchains, side chains, and app chains to equip readers with a deeper understanding of the working of blockchain technology.

Public vs Private Chains

There are two main categories of blockchain networks: public and private chains. Public chains, such as Ethereum, Solana, and Tezos, are decentralized blockchains that allow developers to create decentralized applications and solutions. They are permissionless, meaning anyone can join, write, read, and participate in the network. Once data is validated on the blockchain, it cannot be modified or deleted, ensuring maximum data security.

Public chains are also known as layer 1 (L1) blockchains and serve as a general-purpose ecosystem. Transactions on the public network are available for anyone to view.

In contrast, private chains are permissioned and managed by a network administrator. Participants must obtain the administrator’s approval to join the network or engage in on-chain activities. Private chains are commonly used in enterprise settings, where businesses only want individuals within their organization to access the network. Prominent examples of private chains include Hyperledger Fabric, Quorum, and Corda.

Private chains are usually designed for specific use cases, with the primary focus being data protection and privacy within a closed environment.

What is a layer 2 blockchain?

A layer 2 blockchain (L2) is a type of blockchain that relies on a layer 1 (L1) blockchain to exist. L2 blockchains are separate chains that connect to L1 chains and use the security of the main network to provide a specific function, such as scalability for the L1 chain.

An L2 blockchain serves as a second layer on top of its base main net, and it depends on an L1 blockchain to function. In contrast, an L1 chain does not require an L2 blockchain to operate.

The primary purpose of an L2 blockchain is to enhance the functionality of its supporting blockchain without affecting the operations of its underlying protocol. In summary, an L2 chain is designed to improve the performance and capabilities of its parent blockchain by operating as an extension of it.

How do layer 2 chains support the main net?

Layer 2 chains support the main net or the base blockchain network in a few ways. One way is by reducing congestion on the main net by facilitating transactions to be processed off-chain or outside of the primary network. These transactions are then bundled up and settled on the main net, reducing the workload of the underlying blockchain and making transaction processing faster and more efficient.

Another way layer 2 chains support the main net is by providing additional features and functions that the main net may not have. For example, layer 2 chains can provide additional scalability, privacy, and security features that the main net may not be able to provide on its own.

In summary, layer 2 chains support the main net by reducing congestion, increasing transaction throughput, and providing additional features and functions. By doing so, layer 2 chains help to improve the scalability and overall performance of the main net.

Why use a layer 2 blockchain?

Developers create a layer 2 (L2) blockchain to ease the heavy workload of a public blockchain. The benefits of an L2 chain are numerous, some of which are:

Enhanced scalability – By offloading some of the heavy tasks of the main chain, L2 chains can improve the scalability of the main chain and increase transaction throughput.

Reduced transaction fees – As transaction throughput increases, the demand on the main chain decreases, which can result in lower transaction fees and cost-effectiveness.

Quicker transaction times – L2 chains can significantly decrease the time taken to verify and record transactions on the main chain by processing transactions off-chain.

Compatibility with existing systems – Since an L2 solution is built on top of an existing L1 protocol, it can be integrated with existing systems and infrastructure without requiring changes to the underlying protocol.

Additional functionality – Layer 2 blockchains can add new capabilities to a blockchain, such as atomic swaps or privacy features.

Layer 2 solutions are becoming increasingly popular, and some notable examples include:

ZK-Rollups – ZK-Rollups, also known as zero-knowledge Rollups, improve the scalability of the Ethereum network by executing transactions off-chain and then settling them on the Ethereum main net. This helps to prevent network congestion.

Lightning network – This layer 2 protocol allows for off-chain transactions to be carried out on the Bitcoin blockchain, enabling faster transaction processing.

X-Dai – X-Dai chain is a layer 2 solution that enables faster and more cost-effective transactions on the Ethereum network.

Immutable – This platform provides a way for users to mint, buy, and sell NFTs on the Ethereum network with zero gas fees, instant trade confirmation, and scalability without compromising custody.

What is a side chain?

If you operate a decentralized exchange and want to secure it with the main blockchain network, but you find it inconvenient to pay for small transactions, execute smart contracts, and create new orders, you may opt to build your project on a side chain.

A side chain is a separate blockchain that links to the primary blockchain and facilitates the transfer of digital assets and data between them. Although it may seem similar to a layer 2 blockchain, they differ in their fundamental principles.

A side chain functions as a miniature main net with reduced functionalities. However, the crucial difference between a layer 2 solution and a side chain is their reliance on the main network. Whereas a layer 2 chain requires an underlying protocol, a side chain can operate independently. Because it operates independently of the primary network, a side chain can be customized for specific use cases by developing its protocols and set of rules.

A side chain can back nodes with its coin, offer a public block explorer, and allow new users to launch nodes to interact with the primary chain. Like a layer 1 blockchain, it is publicly accessible and aims to be transparent.

How does a side chain work?

A side chain is a blockchain network that operates parallel to the parent network, having its own set of rules, regulations, consensus protocol, and network nodes. Unlike the parent chain, the consensus mechanism of the side chain may differ. The network nodes of the side chain are typically operated by individuals or organizations who want to participate in securing it.

To connect to the parent blockchain, a side chain is established via a two-way peg, which enables the transfer of assets between the two chains. When users transfer assets from the parent chain to the side chain, the assets are locked on the parent chain, and an equivalent amount of assets are issued on the side chain. This process is reversed when assets are transferred back to the parent chain.

Reasons to use a side chain

Users can reap several benefits from side chains, such as:

1. Customization – Since side chains are built separately from the main network, they can be customized with unique rules and protocols that cater to specific use cases.
2. Security – Side chains can add an extra layer of security to a blockchain network by allowing sensitive or high-value transactions to be processed off-chain, reducing the risk of compromised transactions on the main network.
3. Experimentation – Side chains provide a safe environment to test new features or technologies without affecting the stability of the main network. This allows developers to experiment with new ideas continuously.

One notable example of a side chain-based scaling solution for public networks, specifically Ethereum, is Polygon.

What is an app chain?

Consider a situation where you require a private blockchain designed for a specific use case and accessible only to a selected group of users, but you also want to connect it to a more secure and extensive network. This is where an app chain comes into play. An app chain is a type of private blockchain designed precisely for a particular use case that can be linked to other chains, such as the main net, to enhance security. Let’s delve into app chains further.

App chains are an emerging solution in the web3 ecosystem, similar to private chains, except they can connect to other chains, whereas private chains cannot. An app chain functions like a permissioned or private chain that is singular, closed off, and has limited user access but can connect to other chains as needed, including a public main net or a layer 2 chain. One of the greatest advantages of app chains is that they take all the finest enterprise-grade features from the connected chains and merge them to offer superior features.

An app chain allows you to create your blockchain with the following features:

• Scalability
• Zero gas
• No competition
• No exposure of your smart contracts to the public
• Runs close to your app

Instead of building an app that relies on remote, geographically distant nodes, app chains enable you to co-locate your application and data layer for maximum performance.

App chains are highly significant in enterprise settings, such as an enterprise supply chain app. In such a case, you require a closed environment where only supply chain members can participate. Your group members need to share private data, such as cost of goods or contract data, and your transactions must be scalable to include multiple parties, ports, trade goods, provenance documents, bills of lading, and more.

However, you may want to integrate with the main net, possibly the Polygon infrastructure, for bridging coins, assets, and NFTs, proving the chain’s state with checkpoints, or preserving its history with a roll-up.

Comparing app chains with other chains

When compared to other chains, app chains offer unique features:

• Unlike permissioned chains, app chains can connect to other chains.
• Only invited node operators can participate in the app chain ecosystem.
• App chains are cost-effective and scalable, similar to layer 2 chains.
• App chains are built for a specific use case, similar to side chains.

Endnote

Blockchain architectures such as layer 2 chains, side chains, and app chains are all built on top of existing blockchain networks like Bitcoin or Ethereum. These extensions of existing blockchains provide increased scalability and faster transaction speeds. Side chains are separate blockchains linked to the main blockchain that allow assets to be transferred between them, while app chains are customized blockchains built for a specific purpose with a closed-off infrastructure offering limited access. Layer 2 chains, side chains, and app chains are all methods of improving or creating specialized applications on top of existing blockchain platforms. They not only solve the scalability and speed limitations of traditional blockchains but also contribute to the continuous development of the blockchain industry.