Blockchain networks are often viewed as a single, unified technology. In practice, distributed ledgers are far more complex. Decentralized infrastructure relies on a multi-layer architecture that allows Web3 projects to serve millions of users without compromising the core principles that underpin blockchain networks.
In this article, we take a close look at what different layers of blockchain infrastructure actually are, how they work, how they differ from one another, and why this layered architecture has become a defining feature of the broader blockchain ecosystem.
What “Layer” Means in Blockchain Architecture
The key challenges blockchain projects face include security, decentralization, scalability, and usability. To address these trade-offs, blockchain infrastructure is split into multiple layers, each optimized for a specific set of tasks. In this context, a layer refers to a distinct infrastructure tier that can operate as an independent network and perform a defined range of functions within the broader blockchain ecosystem.
This multi-layer blockchain architecture closely mirrors how the internet and traditional IT systems are designed. There is a base layer responsible for reliability and core rules, above it sit optimization and scaling layers, and at the top are application-level solutions that users interact with directly.
It’s important to understand that blockchain networks at different layers don’t operate in isolation. They are tightly interconnected and form a single ecosystem:
- Base layers are responsible for security and data integrity.
- Overlay layers deliver speed, flexibility, and user experience.
This layered approach emerged as a response to the fundamental limitations of early blockchain networks. As user adoption expanded and new use cases began to take shape, it became clear that sustainable growth required a multi-layer architecture. Such a model allows individual blockchain processes to be optimized without altering the network’s underlying principles.
Bitcoin offers a clear example. Its architecture doesn’t support general-purpose smart contracts, which are essential for building decentralized finance ecosystems. Demand for these products, however, continues to grow. That gap is addressed by the Arkade Layer 2 network, which enables full-scale DeFi applications on top of Bitcoin while leaving the base layer of the original cryptocurrency untouched.
Layer 1 Blockchains: The Base Layer of the Ecosystem
Layer 1 blockchains, or L1 networks, form the core decentralized infrastructure on which the rest of a project’s architecture is built. This is the layer where the protocol’s software core takes shape and defines how the network functions.
Typical functions of Layer 1 blockchains include:
- Processing, validating, and storing transactions
- Maintaining consensus among network participants
- Issuing and circulating the native token
- Supporting smart contracts in general-purpose networks
Layer 1 is responsible for the foundational properties of a distributed ledger, including decentralization, resistance to attacks, and data immutability. All transactions are ultimately settled at this level, and any additional layers or auxiliary solutions rely on its security and reliability.
At a fundamental level, any independent distributed ledger that underpins a blockchain project can be considered a Layer 1 network.
That said, Layer 1 blockchains come with inherent limitations. Ethereum is a well-known example. As adoption and transaction volumes grew, the network faced longer confirmation times and rising fees. The need to scale without altering the underlying protocol became one of the key drivers behind the rapid development of Layer 2 solutions, which are designed to offload the base network while preserving its technological foundation.
Layer 2 Blockchains: Scaling Performance and Reducing Costs
Layer 2 blockchains, or L2 networks, function as extensions built on top of Layer 1, primarily to address scalability constraints. They can also expand the functional capabilities of the base network. L2 solutions are deployed on top of Layer 1 and rely on it as their security anchor, while shifting a substantial share of transaction activity off the main chain.
The core idea behind Layer 2 is to process transactions outside the primary blockchain and record only aggregated or verified results on-chain. This approach enables the significant optimization of the base network’s performance without modifying its protocol-level logic.
The primary objectives of Layer 2 blockchains include:
- Scaling network throughput
- Reducing load on the base layer
- Lowering transaction costs
- Accelerating transaction processing
From a technical standpoint, Layer 2 solutions can take several forms. The most common are rollups, which bundle large numbers of transactions and periodically settle their outcomes on Layer 1, as well as payment channels and sidechains. Despite architectural differences, all of these approaches share a common feature: dependence on Layer 1 as the underlying security layer.
It’s worth noting that without a robust base network, Layer 2 solutions lose their rationale. Layer 1 is what guarantees data immutability and protection against attacks. Together, L1 and L2 allow blockchain projects to scale while preserving decentralization and a high level of security.
Well-known examples of Layer 2 solutions include the Lightning Network for Bitcoin, along with Arbitrum, Optimism, and zkSync for Ethereum. Their emergence marked a natural stage in the evolution of blockchain infrastructure and laid the groundwork for a new wave of applications and user-facing services.
For example, in late 2025, CryptoProcessing by CoinsPaid added support for the Arbitrum and Base Layer 2 networks, enabling secure, near-instant, and cost-efficient processing of transactions involving ETH and USDC.
Layer 3 Blockchains: Application-Focused Infrastructure
Layer 3 blockchains, or L3 networks, represent the application layer of the blockchain ecosystem. They are primarily focused on specific user and business use cases. Unlike base and infrastructure layers, L3 solutions aren’t concerned with how the network itself operates. Instead, they focus on the practical application of distributed ledger technology.
Layer 3 is typically built on top of Layer 2 solutions and indirectly relies on the security guarantees of Layer 1. This layer brings together application logic, user interfaces, and specialized protocols, turning underlying blockchain infrastructure into services that are ready for real-world use.
The core functions of Layer 3 blockchains include:
- Enabling decentralized applications (dApps)
- Supporting specific use cases
- Delivering an accessible and intuitive user experience
- Facilitating interoperability between different protocols and networks
A significant share of end-user value is created at the Layer 3 level. This is where Web3 products emerge and where users interact with blockchain-based services directly, often without needing to understand the underlying technical complexity.
It’s important to note that the effectiveness of Layer 3 depends directly on the reliability and scalability of Layer 1 and Layer 2. Together, these layers make it possible to design blockchain solutions tailored to different use cases and audiences.
A clear example of an application-focused Layer 3 protocol is Xai, a network optimized for gaming use cases. Xai’s infrastructure is built on the Arbitrum Layer 2 network within the Ethereum ecosystem. It leverages the security of the base layer while benefiting from the high throughput and low fees provided by the second layer. Xai is designed for large-scale gaming scenarios and delivers a streamlined user experience that abstracts away the complexity of blockchain interactions. During its test phase, the network demonstrated the ability to process millions of transactions per day.
In this way, Layer 3 networks complete the multi-layer blockchain architecture by bridging the gap between the underlying technology and real-world adoption, enabling the practical and large-scale use of decentralized solutions.
Why L1, L2, and L3 Have Become the Standard Blockchain Architecture
Segmenting blockchain infrastructure into multiple layers isn’t an artificial complication of the technology. On the contrary, a layered architecture emerged as a natural response to the growing scale and diversity of blockchain use cases. As distributed ledgers moved beyond simple transactions and began supporting increasingly complex applications, it became clear that base networks alone couldn’t handle every task with consistently high efficiency.
Layer 1, Layer 2, and Layer 3 together form an architecture in which each layer focuses on a distinct area of responsibility:
- The base layer ensures reliability and decentralization
- Infrastructure layers deliver scalability and efficiency
- The application layer enables practical use cases and a seamless end-user experience
This separation makes it possible to develop and optimize individual components of the blockchain ecosystem without revisiting its foundational principles.
It’s precisely this model that has allowed blockchain projects to evolve from experimental technologies into full-fledged digital infrastructure capable of serving millions of users across a wide range of industries. In that sense, a multi-layer architecture isn’t a temporary workaround. It’s a core foundation for the continued evolution of decentralized systems and the broader adoption of Web3 products.
