Is it really true that crypto is decentralized?

It would be if blockchain were the very first “layer.” But that’s not the case. For blockchain to work, we need computers, an Internet connection, and all kinds of infrastructure. Layer-0 for short.

Is that decentralized?

If it’s not, then blockchains cannot preserve their decentralized status. They can be controlled, shut down, or attacked.

Layer 0 and 1 are a bit like private browser windows. You get privacy advantages limited to a local level. But on a network level, providers still see most of it. To get real control, you need a special network. VPNs, Tor, mixnets…

Thankfully, today’s layer-0s can expand and protect the essence of blockchain.

Quick Takes:

The layer zero of blockchain refers to all the infrastructure that allows the seamless connection and creation of blockchains. By default, blockchains cannot interact with others, at least securely.
Besides web services, layer zero provides blockchains with data from the real world (e.g., S&P500 price) or other blockchains (e.g., WBTC/USDT). Layer 0 and 1 are independent, but their combination allows for endless use cases.
The blockchain world can be truly decentralized only when Layer 0 also is.

What Is a Layer 0 Blockchain?

Theoretically, a layer-0 blockchain is a network that supports tools for creating or connecting layer-1 blockchains.

And layer-1 blockchains are standalone networks like Bitcoin and Ethereum. Layer-1s have their own immutable code, consensus mechanisms, and purpose, whether it’s to enable peer-to-peer (P2P) payments or decentralized applications (dApps). Layer-1s can also host smaller but faster blockchains— in general, called Layer 2.

Usually the layer-0 blockchain has no utility other than to transfer data among layer 1 networks. It implies that the token behind it powers a blockchain complex. That means, there are multiple blockchains (Layer-1s) that coordinate under another (Layer-0), and they’re all generalized as “the network.”

That’s the case of Cosmos, Polkadot, and Avalanche. More on them later.

A more common definition is the Layer 0 protocol. This refers to all the infrastructure that makes blockchains possible, including:

Internet connections
Hardware
Web hosting
Domain names
Programming language compilers
Live data feeds
Cloud storage

The problem is, some of these are essential for accessing the blockchain, but they’re typically provided by companies— they’re centralized.

In crypto, the ideal layer 0 protocol is decentralized, extendable, and interoperable. That means:

It’s managed by many independent computers (or nodes)
It can support any type of digital asset and data format
It can work for any blockchain, allowing them to communicate with each other

How?

How A Layer 0 Blockchain Works

For users, layer 0 may sound abstract. You can “see” the application layer on websites and also the layer 1-2 when making crypto payments, but the zero layer doesn’t interact with users directly. When sign a transaction from the dApp, the smart contracts behind it could be calling other platforms without you knowing it.

As the dApp developer, the setup looks something like this:

Install and import the official software
Open the dApp’s smart contract in a developer tool like Remix

(Smart contracts are autonomous programs powered by the blockchain that look like this:)

Add a function to the existing contract that calls the layer-zero protocol for some information. Hybrid contracts are another way to call programs that request off-chain data.
Click the Deploy button and sign the transaction to upload it to the blockchain. On Ethereum, you could double-check this by going to Etherscan, searching your contract address, and viewing the Contract tab.

You can call this contract or link it to your website front-end (using WordPress, React, Angular…).
You could then add a button to Connect Wallet and another to execute the contract and publish.
Now, any connected user that clicks the button should see the contract displayed on, say, the Metamask extension. If they confirm and pay the gas fees, the contract executes automatically with the layer-0 function included.

In the process, the nodes from the layer-0 protocol earn tokens whenever smart contracts request their data.

Layer-0 protocols could also execute these contracts rather than users pressing a button. For example, the Liquity dApp lends a USD stablecoin backed by ETH tokens (LUSD):

Liquity reads the live price of ETH/USD from a layer-0 data provider, Chainlink
If the ETH/USD price reaches a certain threshold, Liquity can execute a contract that liquidates LUSD loans.
Chainlink node operators receive LINK rewards for accurate data. Incorrect data would mean losing your LINK stake, which is required to participate. Operators gather data through different means, which is then compared with the others.

And that’s what layer-0 protocols look like. Layer-0 blockchains are similar but more automated and used for cross-chain data rather than real-world data.

Layer Zero Blockchain Differences

There are clear differences between layer 0 and layer 1. L1s are blockchains whereas L0s aren’t necessarily. This means:

Layer 0 is more flexible than Layer 1

Let’s start with flexibility. Layer-0s don’t depend on specific blockchains, so they can integrate with almost any, including layer-2 and application layers. Layer-0s can connect to multiple Layer-1s, but Layer-1s can also integrate multiple Layer-0s.

This flexibility is also why Layer-0s don’t have a clear ecosystem like Layer-1s.

If you try connecting several Layer-1s without using Layer-0s, you’re increasing the complexity and risk of vulnerabilities.

Layer 0 has more decentralization potential

Decentralization isn’t black or white. There are different levels, namely layers. For example, a dApp can be governance free and have no admin keys but still be limited to a centralized blockchain.

Similarly, blockchains can be decentralized but still use centralized Internet providers. Thankfully, that’s no longer the only way. Layer-0 is synonymous with Web3 infrastructure, meaning that they can offer similar services without relying on one company or node.

Now, blockchains and dApps have access to decentralized web hosting, data feeds, domain name systems (DNS), and other Layer-0 tools.

Layer-0 is potentially more decentralized than Layer-1s. It will depend on whatever blockchain integrates it.

Layer 0 works better for off-chain data (and Layer 1, on-chain)

Off-chain data includes everything outside the blockchain’s data base, whether it’s other blockchains or real-world information.

Without this data, the dApp ecosystem would be very limited. Layer-0s allow blockchain programs (AKA smart contracts) to react to whatever happens outside the database.

Now, Layer-1s can simply run a function that calls Layer-0s with what they need: external information, token transfers, or other off-chain actions.

For example, Layer-1s can make transactions faster and cheaper by verifying them off-chain— in fact, the examples shown later are some of the most efficient blockchains today.

As for why Layer 0 works well off-chain, it all goes back to flexibility.

Yet, despite these differences, layer-0 and layer-1 networks are not essential to each other (blockchains can still fall back to traditional web providers). Both have utility independently, although limited. Layer-1s give better incentives to Layer-0s, and layer-0s bring more use cases to layer-1s.

Examples Of Layer 0 Blockchains

Layer 0 blockchains are somewhat rare in the crypto world compared to protocols. They can be redundant because blockchains can integrate layer-0s anyway. Instead, their role is to facilitate the creation of smaller networks via software development kits (SDKs).

That means layer-0 blockchains don’t connect miscellaneous networks from the outside. They were created within it, similar to how developers use the Ethereum environment to launch dApps.

The top layer-0 blockchains are Polkadot, Avalanche, and Cosmos.

Polkadot (DOT)

DOT is the native token of Polkadot Network, which connects smaller networks like Statemint, Acala, Bitgreen, Clover Finance, or Efinity. They’re called “parachains” and interact with each other using the relay chain, which acts as a translator and bridge. This central network is what we call layer-0.

Polkadot launched in May 2020 and ran “parachain auctions” for two years where users voted which networks to include. Parachains aren’t permanent and instead follow a lease-based model. In 2023, Polkadot has 20 out of the 100 maximum.

All networks and their dApps form the Polkadot ecosystem.

What happens if this central chain goes down? Parachains will still function but no longer interact with each other. To prevent this, the relay chain has 300 validators (1,000 maximum) and a unique proof-of-stake-based model.

Avalanche (AVAX)

Avalanche is a triple blockchain that launched in September 2020. It also supports smaller networks (subnets) without a hard-coded limit. P Chain would be the Layer-0 component that creates all subnets (now over 50).

The X Chain is generally for creating/managing tokens, and C Chain is the most used one to access dApps.

Subnets are designed so that they can overlap/validate each other while maintaining their own rules and token economics. The result is a highly efficient and decentralized network.

Another reason for this is that unlike Polkadot, Avalanche is Ethereum-compatible. Still, there are similar risks. The primary subnet (Chain X, P, and C) needs enough validators to avoid disrupting all others.

Cosmos (ATOM)

Unlike Avalanche and Polkadot, the Cosmos blockchain doesn’t have a central network. Technically there’s Cosmos Hub, but the other blockchains can transfer assets with each other without going through it. It launched in March 2019 and has since then added 59 other hubs or “zones.”

The Cosmos Hub and SDK platform are the layer-0 component. They provide the other blockchains with simple governance tools and protocols to transfer directly (IBC, inter blockchain communication). The blockchains receiving the most connections (closest to the center in the picture) are called Hubs while the others are called Zones.

To avoid confusion, each icon represents an application-specific blockchain. For example, Cronos is the name of the token and platform, the only dApp within the Cronos blockchain.

However, the Cosmos network isn’t Ethereum compatible. Either you need a Cosmos wallet or an Ethereum port of the dApp. A third option is bridges and/or layer-0 protocols.

Types of Layer 0 Protocols

We defined a layer-0 blockchain as one that connects application-specific blockchains, typically built within it. Layer-0 protocols aren’t that way. They can be native to other blockchains (like Ethereum) and connect to other established ones.

E.g., The Chainlink protocol and token were created on Ethereum Mainnet but also works on Polkadot, Avalanche, Solana, BnB Chain, and others.

Hence why protocols are more common than layer-0 blockchains. It’s like comparing standalone networks to cross-chain platforms. The common types are:

Oracles

The first step to transferring tokens across blockchains is being able to transfer information. That’s essentially what oracles do, except they’re not limited to databases — they also share real-world data (e.g., weather). A few oracle examples are Chainlink, Tellor, and Fetch.

Decentralized oracles are an independent group of data reporters that provide and update prices and other information. All the data is public from the platform, and users have different incentives and penalties to ensure its integrity.

Without this layer-0 component, DeFi platforms wouldn’t have reliable metrics from other chains. If you track prices from Uniswap pools (e.g., ETH/USDT) and there’s a sharp drop in liquidity, the contracts may execute at the wrong prices.

Storage

Bitcoin is the best-known example of decentralized data storage. You can “delete” the blockchain, but it will always exist as long as someone else stores it. To keep it organized and updated, users need specific software to run a node and follow the consensus model.

The second part is the problem. While the tech behind it is decentralized, the one we interact with (front-end) is not:

To use a dApp like Tornado Cash, you need its website/domain. If that’s the only means and they’re taken down, you can’t use it anymore.
If you buy an NFT from the game Axie Infinity and it shuts down, the NFT will point to a not-found image link. The “proof-of-ownership” you paid for is gone.

The solution? Front-end decentralized storage. Examples of this are IPFS (Inter Planetary File System), Storj (STORJ), and Filecoin (FIL). IPFS, for example, allows you to upload files, assets, and websites to load them directly from the search bar.

The uploading is technical, but the access is as easy as visiting websites.

Now, if the blockchain shuts down, dApps and NFTs still exist on IPFS. They’re not stored on-chain only but also on this layer-0 protocol.

Cloud Web Services

Storage is just one of the many cloud services that blockchain can leverage.

As there are now storage coins, we may soon see more projects specialized for different types of web infrastructure:

Virtual machine computing: Nodes share their processing power to help other users speed up certain actions and earn token rewards.

E.g. Bitcoin miners verify transactions for block rewards.

E.g. If you have a large zip file that takes hours to extract, you could use a powerful remote computer (virtual machine) to do it in no time for a fee.

Domain name systems: Developers can buy domain NTFs (e.g. via Ethereum Name Service, ENS), upload the website to IPFS, and load websites even without a traditional host or domain registrar.

E.g. ipns://filecoin.io

Content delivery networks (CDNs): CDNs store copies of web content in several locations worldwide, so anyone anywhere can use the closest source and load your platform much faster.

E.g. IPFS uses a similar method where the more users access some information, the more copies and the faster it is to load.

Censorship-resistant RPC providers: This prevents governments and providers from prohibiting certain smart contracts.

E.g. Since the Tornado Cash blacklisting, the centralized RPC provider behind Metamask, Infura, censored the contract. If you switch from settings to a custom RPC like Ankr, you can still access it.

There’s already one big project that’s decentralizing the entire stack of Internet services: Internet Computer (ICP).

Token Bridges

Bridges allow us to send tokens and data across blockchains, and depending on the type, you could consider them as Layer 0 or 1.

Bridges are usually two nearly-identical dApps built on different blockchains. If the verification process is external or native, it’s considered a layer-0 protocol. If it’s local, it’s a layer-0 blockchain.

For context:

Local = Validators from its own app-specific blockchain
External = Off-chain “validator” methods such as oracles or multi-signatures.
Native = Validators from respective blockchains (e.g. a BnB-Eth bridge has different validators in the BnB chain and Ethereum Mainnet)

In practice, bridges are far from layer-0. There’s no seamless connection between unrelated blockchains. There are complex problems with compatibility and security, and they get worse the more networks you add.

Some bridges never had issues. Others turned into the most expensive DeFi hacks of all time. Developers are still experimenting to find the perfect bridge architecture.

The Role Of Layer-0 In Crypto Markets

The crypto markets are still largely led by Bitcoin and Ethereum. What do the market leaders stand for? Decentralization, immutability, trustlesness. These are the features that have been and will remain valuable long-term. Layer 0 magnifies these properties.

One of the biggest obstacles to crypto mass adoption is the Internet infrastructure layer. Either it’s not available everywhere or it’s too easy to restrict.

If layer-0 protocols can improve this infrastructure, more people will gain confidence in blockchain, especially once traditional platforms start failing them.

Whether there is a trustless layer 0 or not, layer-1s will maintain their value and upgrade regardless. But if there is— if we see more projects like ICP and IPFS— that can speed up both crypto adoption and tech development. Or at least, free the blockchain from centralized cloud service giants.