2025 Must-Have for Newbies in Crypto Assets: What are Layer 0, Layer 1, and Layer 2?

Latest developments in 2025

In 2025, the blockchain layered architecture has significantly evolved through new advancements in Layer 0, Layer 1, and Layer 2 solutions:

• Layer 0 Integration: Major infrastructure protocols such as Polkadot and Cosmos have achieved seamless interoperability between heterogeneous blockchains, with over 200 parachains now operating across multiple ecosystems.

• Layer 1 Efficiency: Ethereum has successfully completed the Surge upgrade, increasing transaction throughput by 100 times while maintaining decentralization principles.

• Layer 2 Maturity: Rollup technology has been standardized, ZK-rollups handle 85% of Ethereum transactions, and costs have decreased by 98% compared to 2023 levels.

The market has responded positively to these developments:

Layer type	TVL Growth (vs 2023)	Active Users	Average Transaction Cost
Layer 0	+350%	15 million+	$0.005
Layer 1	+210%	110 million+	$0.05
Layer 2	+800%	250 million+	$0.001

Cross-layer solutions have become the industry standard, allowing applications to run seamlessly across multiple layers. Platform data shows that users are migrating to integrated solutions that leverage the security of Layer 1 and the performance advantages of Layer 2.

The impossible triangle challenge has surpassed theoretical discussions, with practical implementations showcasing an unprecedented balance between security, decentralization, and scalability through a hybrid approach that combines the advantages of various layers.

A must-read for newbies in the crypto assets world: What are Layer 0, Layer 1, and Layer 2

[TL; DR]

1. The blockchain has a six-layer architecture: data layer, network layer, consensus layer, incentive layer, contract layer, and application layer.
2. The data layer and network layer are the fundamental architecture of the blockchain, and they are also the lowest layer of the entire blockchain system.
3. On top of the basic architecture, the consensus layer, incentive layer, contract layer, and application layer together constitute the protocol part of the blockchain.
4. Layer 0, also known as the data transmission layer, corresponds to the bottom layer of the OSI model and primarily involves the integration issues between blockchain and traditional networks.
5. Layer 1 scaling solutions, also known as on-chain scaling, refer to scaling solutions implemented on the base protocol of the blockchain.
6. Layer 2 scaling solutions, also known as off-chain scaling, refer to increasing transaction processing speed through methods such as state channels and sidechains without changing the underlying blockchain protocol and foundational rules.

In the crypto assets news, scalability, Layer 0/1/2 are undoubtedly a series of terms that are frequently mentioned. So what are the Layer 0, Layer 1, and Layer 2 of blockchain, and what are the different characteristics and uses of these three layers?

Starting from the six-layer architecture of the blockchain

In January 2009, the mysterious geek Satoshi Nakamoto generated the Bitcoin block on a server located in Helsinki. Currently, Bitcoin has evolved into a massive system with tens of thousands of nodes globally and a total market value exceeding $1 trillion. Bitcoin perfectly solves the problem of value representation in the digital world and has brought blockchain technology to humanity. If we carefully analyze the structure of the Bitcoin system, it can be divided into five layers based on functionality: the data layer, the network layer, the consensus layer, the incentive layer, and the application layer. Subsequently, Ethereum, which rapidly rose to prominence through smart contracts, established a new paradigm for blockchain systems by adding a contract layer between the incentive layer and the application layer. Let us explain this in detail from the bottom up.

The data layer and the network layer are the fundamental architecture of the blockchain, and they are also the lowest layer of the entire blockchain system.

The Data Layer includes the data structures of each block, such as the Merkle tree, as well as how different blocks are connected end-to-end to form a chain. In addition, the Data Layer also comprises the hash encryption algorithms and asymmetric encryption algorithms used to ensure the immutability of the blockchain. The blockchain data layer can be viewed as a database with distributed characteristics and immutability. This distributed database needs to be maintained collectively by all nodes of the system, which leads to the network layer of the blockchain.

The network layer (Network Layer) describes a huge P2P network composed of all nodes in the blockchain. In this distributed, point-to-point network, once a node creates a new block, it transmits the information to several nearby nodes through a broadcast mechanism (Transmission Mechanism). Other nodes, after completing the verification of the block (Authentication Mechanism), will once again transmit the data to other nodes. Ultimately, after the majority of the nodes in the entire system complete the verification of the block, the block is officially connected to the blockchain.

On top of the basic architecture, the consensus layer, incentive layer, contract layer, and application layer together form the protocol part of the blockchain.

The Consensus Layer mainly includes the consensus mechanism algorithms of the blockchain. In a blockchain network, many nodes that were originally unrelated achieve unity through consensus algorithms, maintaining the consistency of the data layer. Currently, the more common consensus mechanisms include the Proof of Work (PoW) used by Bitcoin and the Proof of Stake (PoS) used by Ethereum 2.0. EOS The delegated proof of stake (DeleGated
Proof of Stake,
DPoS) employed, etc. The consensus mechanism is one of the core innovations of blockchain technology, significantly impacting the system’s security and operational efficiency. In addition, consensus algorithms are also the main means of community governance in blockchain.

The Actuator Layer mainly includes the Issuing Mechanism and Distribution Mechanism of the blockchain. Through the design of the incentive mechanism, nodes in the system will voluntarily maintain the security of the entire blockchain network. For example, in the Bitcoin PoW mechanism, newly issued bitcoins are distributed to miners of the packing nodes. The consensus is reached in a way that is close to “the more you work, the more you earn”; nodes with more computing power are more likely to successfully pack blocks and thus gain the right to account. In some incentive mechanisms, nodes that abuse their power may also be punished by the system.

Bitcoin creatively integrates economic incentive mechanisms into algorithms, enabling miners to compete for accounting rights through computing power. This not only maintains the transaction system but also issues new tokens, which are subsequently distributed as incentives to miners, thus forming a stable and secure closed loop. In this process, Bitcoin’s functionality as electronic cash is also realized. Let us continue to advance towards the top layer.

The Contract Layer mainly includes various _script_ codes, algorithms, and smart contracts, and it is the foundation for the implementation of many advanced functions in blockchain. In blockchain, it truly realizes the so-called “code is law”; once the contract algorithm is activated, it will inevitably run according to the original settings without any intervention or promotion from third parties. Furthermore, due to the Turing completeness of smart contracts, the contract layer also possesses programmability, which gives the entire blockchain network a nature similar to that of a virtual machine.

The Application Layer is the top layer of the entire blockchain system, encompassing various application scenarios of that blockchain. For the Bitcoin blockchain, the complete issuance, transfer, and accounting functions of the Bitcoin electronic cash system constitute its “Application Layer”; whereas for a programmable blockchain like Ethereum, many advanced features and numerous DApps together form its application layer.

Layer 0, Layer 1 and Layer 2

The six levels of the blockchain system are closely interconnected in structure, collectively realizing the functions of blockchain. Returning to the scalability issue mentioned at the beginning of this article, the industry generally refers to the Open Interconnection Reference Model (OSI) in the communications field, reclassifying the six levels of the blockchain system into three layers, namely Layer 0, Layer 1, and Layer 2, from bottom to top.

Among them, Layer 0, also known as the data transmission layer, corresponds to the bottom layer of the OSI model and mainly involves the integration issues between blockchain and traditional networks. The corresponding Layer 0 expansion solutions refer to performance enhancement solutions that do not alter the blockchain structure and retain its original ecological rules. Since it does not impact the blockchain itself, Layer 0 expansion solutions have strong versatility. At the same time, Layer 0 expansion solutions are also compatible with Layer 1/2 expansion solutions, working together to exponentially improve the performance of blockchain networks. In the underlying network protocols, there are still many performance-related issues that are worth optimizing. Currently, existing Layer 0 expansion technology directions include BDN (Distributed Network), QUIC UDP protocol, etc.

In addition, Polkadot is often referred to as a Layer 0 blockchain. This is because the Polkadot mainnet, as a relay chain, only serves to provide security and interoperability between various parachains. On top of Polkadot, it is possible to link Layer 1 blockchains similar to Ethereum through slots, such as the Moonbeam chain, which also supports the Solidity language.

Layer 1 corresponds to the data layer, network layer, consensus layer, and incentive layer in the six-layer model. For most Crypto Assets, Layer 1 is the only public chain, and all transaction settlements occur on it. Layer 1 scaling solutions, also known as on-chain scaling, refer to scaling solutions implemented on the blockchain base layer protocol. Generally, it requires modifying inherent properties such as block capacity, block generation time, and consensus mechanism to enhance transaction capability. Specifically, Bitcoin’s block size upgrade increases the capacity of each Bitcoin block, allowing for more transactions to be accommodated; Bitcoin SegWit reduces the space occupied by the average single transaction, enabling each block to hold a greater number of transactions; upgrading to DPoS can also achieve better performance at the cost of a certain degree of decentralization and security. However, due to physical and economic constraints, the efficiency of Layer 1 scaling has its limits.

For the principles and limitations of Layer 1 scalability, please refer to our previous blog post:

What did V God say in his article opposing Musk? Can scaling make Dogecoin the “people’s currency”?

Layer 2 corresponds to the contract layer and application layer of the blockchain. Layer 2 scaling solutions, also known as off-chain scaling, refer to improving transaction processing speed without changing the underlying protocols and basic rules of the blockchain, through solutions like state channels and sidechains. Layer 2 expands externally to the main chain and has a complementary relationship with Layer 1; that is, Layer 2 is the infrastructure built on top of the underlying blockchain, providing better scalability, usability, and privacy for the blockchain. Compared to Layer 1, which pursues security and decentralization, Layer 2 aims for ultimate efficiency and performance. Currently, common Layer 2 solutions include Side Chain, Plasma, state channels, and Rollup.

For common Layer 2 solutions on Ethereum, please refer to our previous blog post: How to play with Ethereum Layer 2? Understand Ethereum’s scaling upgrade in one article.

Conclusion

Since the rapid development of Bitcoin and Ethereum, the issue of insufficient performance has always been a dark cloud hovering over established public chains. How to break the “impossible triangle” and achieve the optimal solution among scalability, decentralization, and security is also regarded as the “Holy Grail” in the blockchain field.

In the following articles, we will specifically introduce various blockchain expansion solutions, while tracking the industry’s forefront and reporting the latest advancements in scaling technology. Stay tuned.