hello guys, big truth here. In this oversimplified video, we will explain the meanings and differences between layer 0, 1, 2, and 3, so that it can help you distinguish between different altcoins and their blockchain, so that you can align your conviction when investing in them. So let's begin, but I create cryptocurrency videos, so if you want to subscribe, subscribe for more. Layer zero is a network framework that works under a blockchain. It is made up of protocols, connections, hardware, miners, and everything else that forms the foundation of the blockchain ecosystem, and it is considered the first layer to host an alternative to smart contracts. This layer is common across all blockchains and allows them to function, also allowing cross-chain interoperability with all layer 1 protocols like Bitcoin, Cardano, Ethereum, and more. Layer 0 protocol gives users the ability to build blockchain-based businesses and apps, validate data sources, mint new cryptocurrencies, and gives an easier solution to scalability without affecting other protocols in a single ecosystem. Now, a layer one is the blockchain itself. It's a set of

solutions that improve the base protocol, aka layer 0. In this system, you have to think about layers; they're all on top of each other. One complements the other; they're not really dependent on each other, but basically, for example, layer 1 does not depend on layer 2, but layer 2 depends on layer one in certain aspects, so to make the system a lot more scalable. But how is scalability tackled through this? The answer is through consensus protocol and sharding. So, a layer on blockchain can run on either a proof of work or proof of stake consensus protocols. I won't dive deeper into sharding, though, because that thing deserves a video on its own, if I'm completely honest. So, let me know if you want me to dive deeper into more technical topics. So, Bitcoin and Ethereum are considered layer 1 blockchains. However, the problem is that a layer 1 blockchain has to sacrifice one of the three founding principles of a blockchain, which is security, scalability, or decentralization. For example, Bitcoin is both secure and decentralized, but not

scalable. And don't forget to add to that that these blockchains are limited by speed and due to the number of users; hence why scalability is important. So, most layer one blockchains are trying to resort to sharding to solve their scalability issues, like Ethereum with Ethereum 2.0. However, how will that work, and how will it solve scalability? Also, it has its own limitations. Layer 2 protocols, or what they are referred to as L2 solutions, are built on top of the base layer, which is L1, that is the blockchain. Think of smart contracts, ERC20 tokens, as they are all running on layer 2 protocols, where it acts as a third-party integration that works together with the original blockchain but removes certain aspects from the base layer, so offering off-chain solutions but not affecting the structural integrity of the original. Like when ERC20 tokens are built, they do not affect the Ethereum network or other sites to it. Again, layer two protocols try to solve scalability issues, like a major upcoming example, which is the Bitcoin Lightning Network. Now

There is more to how layer two protocols work with state channels, roll-ups, side chains, but again, too technical. I want to keep this video oversimplified so that we can understand the key terms rather than dive deeper into technical terms that some people might not really understand and confuse them, which is not essential. Player three refers to the protocols that enable dApps on the blockchain, like decentralized finance. Think of DeFi games or distributed storage apps. Many of these applications also have cross-chain functionality, which means that helping users access various blockchain platforms via a single application. While some other blockchains have a large collection of layer three applications, the Bitcoin blockchain has none of them. Some projects attempt to bring layer three functionality to the Bitcoin ecosystem by using apps designed on forks of Bitcoin. However, these apps are still based on their own blockchains, not on the core Bitcoin blockchain, so keep that in mind. The long goal of layer three is to try to accomplish the idea of interoperability of blockchains, where blockchains can interact with each other.

and achieve IoT, or the Internet of Things. As we saw on this channel in the last few months, where we reviewed different cryptocurrency projects, each cryptocurrency project that is trying to achieve IoT and the idea of offering a platform for building smart contracts and decentralized applications, each one of them has a different approach. For example, Polkadot has the approach of being a layer zero blockchain, building interoperability of blockchains, and the idea of building everything on substrate. However, when you look at Ethereum, it is a layer one blockchain; it does not run on substrate. So, you notice these are key differences at how each project is trying to achieve the Internet of Things, be a platform to build DeFi applications and apps, and much more. And you notice this is a common theme across the cryptocurrency projects who are now vying to be the Ethereum killers. But again, a bit sidetracking here. So now that we have explained all the layers, it's now time to discuss the number one thing that all cryptocurrencies and their respective

blockchains with the current technology are suffering from its lack of scalability. This issue plagues almost all cryptocurrency projects, as there is no one solution that can solve this problem, especially when we are talking about mainstream adoption and how these networks are going to handle vast amounts of transactions and not affect their efficiency. So, the only solution is innovation to find new protocols that work hand in hand with blockchains to enhance their scalability, as most layer 3 protocols are still running on layer 1 protocols. And if you notice that there's this thing called blockchain trilemma, which is the three founding principles that we talked about, which is decentralization, scalability, security, not any one project in the cryptocurrency space can still achieve all three together. And I believe that there's a lot of innovation that can be done because we still, the technology is new, it's innovative, it's revolutionary. However, it has its own limitations and its own challenges, as with any technology that comes out. In conclusion, there is more of how all this works.

together and other key terms to learn. However, to keep this video in an oversimplified format, I try to explain the layers properly as they are foundational to understanding anything else in the cryptocurrency space. It is essential for all cryptocurrency investors, in my view, to continue learning about such key terms and building a compromise between understanding how blockchains work and their performance in the market. As I have witnessed firsthand, time and time again, people getting sold cheap tricks and lies through ICOs or other means, thinking that some cryptocurrency projects are revolutionary when, in fact, they are just another ERC20 token or an individual blockchain without much value that does not really solve the problems they claim they want to solve. On a high note, thanks for watching, and if you like weekly cryptocurrency videos brought to you on YouTube in an honest and unbiased way, then join us by subscribing. There's a lot of deception out there, so I hope you the best of luck in your investing. Happy New Year and goodbye.

What are Blockchain Layers 0,1,2, and 3? Crypto Explained

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