Understanding the Types of Blockchains: Layer 2 Chains Vs. Side Chains Vs. App Chains

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 there are various challenges that 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 chain
• What is a layer 2 blockchain?
• How do layer 2 chains support the main net?
• Why use a layer 2 blockchain?
• Examples of layer 2 chains
• What is a side chain?
• How does a side chain work?
• Reasons to use a side chain
• What is an app chain?
• Comparing app chains with other chains
• Comparison of blockchains

Public vs private chains

A blockchain network can be categorized into two types: public and private. Public blockchains are the most popular in the crypto space. Public chains like Ethereum, Solana and Tezos are decentralized blockchains that enable developers to build decentralized applications and solutions on them. They are permissionless as they permit anyone to join, write, read and participate in the network. Once validated on the blockchain, the data on the public network cannot be modified or deleted and, thus, offers maximum data security.

A public chain is also known as a layer 1 (L1) blockchain, which is a general-purpose ecosystem. On a public chain, anyone can look up transactions that happened on it.

On the other hand, a private chain is permissioned and handled by a network administrator. Participants need the administrator’s consent to join the network or engage in on-chain activities. They are mostly used in enterprise settings where businesses only want people within their business environment and not any external party to be able to access the network. Some of the prominent private chains include Hyperledger Fabric, Quorum and Corda.

Private chains are mostly built for enterprises or businesses that need a closed environment for data protection and privacy. They are, thus, built for a dedicated purpose or use case.

Differences between public and private chains

What is a layer 2 blockchain?

A layer 2 blockchain (L2) needs a layer 1 (L1) blockchain to exist. A layer 2 blockchain is a separate chain that links to a layer 1 chain and leverages the security of the main net. Layer 2 chains are built on top of L1 networks to provide a specific function like scalability for the L1 chain.

A layer 2 blockchain acts as a second layer on top of its base main net, thus the name. It is, hence, dependent on a layer 1 blockchain to operate. On the other hand, a layer one chain does not require an L2 blockchain to function.

Overall, an L2 chain is built to boost the functionality of its supporting blockchain and functions without affecting the operations of its underlying protocol.

How do layer 2 chains support the main net?

The main net or the basic blockchain network like Ethereum is essentially a layer 1 blockchain network that carries out transactions and handles the shared ledger of all transactions. But, the layer 1 blockchain network can become congested and slow if a high volume of transactions is processed.

Layer 2 chains are designed to diminish this congestion by facilitating transactions to be processed off-chain or outside the main network. These transactions are bundled up and eventually settled on the main net. As most of the transactions are processed on the layer 2 chain, the workload of the underlying blockchain is significantly reduced, resulting in faster transaction processing and improved network scalability and performance.

Why use a layer 2 blockchain?

A layer 2 blockchain is built to support and offload the heavy workload of a public blockchain. Its benefits are promising enough for developers to create an L2 chain, and its advantages include the following:

• Improved scalability – An L2 chain unloads some of the heavy tasks of the main chain to facilitate higher transaction throughput and improve the scalability of the main chain.
• Lower transaction fees – Higher the transaction throughput, the lower the demand on the main chain. This can reduce transaction fees and make the chain cost-effective.
• Faster transaction times – An L2 chain can remarkably bring down the duration for a transaction to be verified and recorded on the main chain by processing transactions off-chain.
• Compatibility with existing systems – As an L2 solution is built on top of an existing L1 protocol, it can be incorporated with existing systems and infrastructure without the need to change the underlying protocol.
• Additional functionality – Layer 2 blockchains can be used to add additional functionality to a blockchain, like the capability of atomic swaps or facilitating privacy features.

Examples of layer 2 chains

Some of the prominent examples of L2 solutions include:

• ZK-Rollups – Zero-knowledge Rollups (ZK-Rollups) scale the Ethereum network by executing transactions off-chain and bundling them together to settle them on the Ethereum main net. It prevents network congestion.
• Lightning network – This layer 2 protocol enables users to carry out off-chain transactions on the Bitcoin blockchain.
• X-Dai – X-Dai chain is a layer 2 solution to facilitate faster and cheaper transactions on the Ethereum network.
• Immutable – It is a platform allowing users to mint, buy and sell NFTs on Ethereum. It offers zero gas fees, instant trade confirmation, and scalability without compromising custody.

What is a side chain?

Suppose you run a decentralized exchange and want to back it up with the main blockchain network, but you find it a hassle to pay for each small transaction, create new orders, and perform smart contract functions. Besides, you want to create an infrastructure that is tailored to a specific use case. In that case, you can build your project on a side chain.

A side chain is a separate blockchain linked to the main parent blockchain enabling the transfer of digital assets and data between the two chains. Isn’t that the same as a layer 2 blockchain? No, they are different at their core. Let us see how.

A side chain serves as a mini main net. To be precise, it is a main net created with lesser functionalities. However, the key difference between a layer 2 solution and a side chain lies in their dependencies on the main network. While a layer two chain needs an underlying protocol, a side chain runs alone and can work independently. Since the sidechain is separate from the main chain, it has its own protocols and sets of rules, enabling it to be customized for particular use cases.

A side chain can have a coin backing up nodes, a public block explorer, and a way for new users to launch nodes to communicate with the main chain. Similar to a layer 1 blockchain, it is open to the public and aims to be transparent.

How does a side chain work?

A side chain works similarly to the main network, with its own consensus protocol, rules & regulations and network nodes. The consensus mechanism used by the side chain may not necessarily be identical to the parent chain. The network nodes of the side chain are often run by individuals or organizations willing to participate in the side chain and assist in securing it.

A side chain is built and connected to the parent blockchain via a two-way peg, leveraging which users can transfer assets back and forth between the parent and side chain, as per need. While transferring assets from the parent to the side chain, assets get locked on the parent chain, and an equivalent amount of assets are issued on the side chain. This process is reversed when assets are shifted back to the parent chain.

Reasons to use a side chain

Side chains offer the following benefits to users:

• Customization – Built separate from the main network, a side chain has the advantage of having its own set of rules and protocols, enabling them to be tailored for specific use cases.
• Security – Side chains can offer add-on security to a blockchain network by permitting sensitive or high-value transactions to be executed off-chain. It can help mitigate the risk of compromised transactions on the main network.
• Experimentation – As activities on the sidechain do not affect the main chain, the former can be effectively utilized to test new features or technologies. This enables developers to experiment continuously with new ideas without disrupting the stability of the main net.

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

What is an app chain?

Imagine you require a private chain tailored for a particular use case that is only accessible to a select group of users and closed off to the rest of the world. But you also want to connect it to a larger, more secure network. In short, you need a permissioned chain that can be connected to other chains.

In this scenario, you can create an app chain. An app chain is a type of private blockchain designed precisely for a certain use case and can be tied to other chains, such as the main net, to enhance security. Let us explore more about app chains.

App chains are an emerging solution in the web3 ecosystem. They are similar to private chains except that they can connect to other chains, whereas private chains cannot. An app chain acts like a permissioned or private chain that is singular, closed off and gives limited user access but possesses means to bridge to other chains if required. These other chains can include a public main net or a layer 2 chain. One of the greatest advantages of app chains is that they seize all the finest enterprise-grade features from the chains connected to them and merge them to offer superior features.

An app chain permits you to develop your own blockchain with the following features:

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

Rather than building an app that relies on far-flung, geographically distant nodes, app chains can enable you to co-locate your application and data layer for maximum performance.

App chains are of the utmost significance in enterprise settings, say an enterprise supply chain app. In this case, you need 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.
Your transactions must be scalable to include multiple parties, ports, trade goods, provenance documents, bills of lading, etc.

However, you would like 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

• In contrast to a permissioned chain, app chain infrastructure allows it to link with other chains.
• Anyone interested cannot run a node. Node operators are to be invited to the ecosystem.
• App chains are scalable and less expensive to function, like layer 2 chains.
• It is designed for a single use case or purpose, as is the case for side chains.

Comparison of blockchains

Below is a comparison of blockchains explained earlier, namely, layer 2 chains, side chains, and application chains for a better understanding.

Endnote

Blockchain architectures such as layer 2 chains, side chains, and app chains are all built on top of existing blockchain networks such as Bitcoin or Ethereum. As an extension of the existing blockchain, layer 2 chains provide increased scalability and faster transaction speeds. A side chain is a separate blockchain linked to the main blockchain, which allows assets to be transferred between them. An app chain is a customized blockchain built for a specific purpose, with a closed-off infrastructure offering limited access.
Layer 2 chains, side chains, and app chains are all ways of enhancing or creating specialized applications on top of existing blockchain platforms. In addition to solving the scalability and speed limitations of traditional blockchains, they contribute to the ongoing development of the blockchain industry.

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