Layer one and two protocols will have come up if you’ve thought about cryptocurrencies or blockchain technology. So, are you interested in learning more about these classes and their purpose? Let’s get into it and talk about blockchain layer architecture.
Blockchain technology is a unique synthesis of modern technologies like cryptography, game theory, etc. This technology thus has a wide range of applications, including the most recent fintech fad, cryptocurrencies. For those unfamiliar with the terms cryptography and game theory, cryptography refers to the encrypting and decrypting of data. In contrast, game theory studies the mathematical models of strategic interaction among rational decision-makers.
Distributed ledger technology (DLT) stores cryptographically verified data across several willing users via a predetermined network protocol without the need for oversight from a central authority. Combining these technologies will enable trust between individuals or groups of people without them needing to rely on one another’s trustworthiness. In addition, they enable secure value and data exchange between users on blockchain networks.
Blockchains must be extremely safe because there is no central authority. To accommodate increasing users, transactions, and other data, they also need to be incredibly scalable. Classes are the result of the need for scalability alongside first-rate security.
UNDERSTANDING BLOCKCHAIN LAYERS
The blockchain network is built on the blockchain protocol, within which the data structure, transactional format, and security mechanisms are all defined. The protocol establishes the guidelines for the network’s data format and security protocol.
The blockchain protocol establishes the game’s rules and ensures everyone plays by them.
For instance, the proof-of-work consensus mechanism is used by the bitcoin. This algorithm is intended to stop fraud and other types of double-spending. Bitcoin is the best-known protocol using this consensus algorithm but there are other proponents too, and Ethereum used this type of consensus up until its merge to proof-of-stake in September 2022.
A shared ledger that keeps track of transactions is called a blockchain. It uses a network of nodes to distribute data storage.
The network is a distributed database used to store and verify blockchain transactions. It comprises nodes that keep track of transactions in a shared ledger. Because the nodes are scattered around the network, the ledger is not stored in a single location.
It is a blockchain network-based decentralized application (DApp). Bitcoin and Ethereum are two examples of blockchain applications.
A blockchain application can be a product or a service. It could be a platform or an application designed to use blockchain technology. For example, a user interface might be provided via a website or a mobile application.
A blockchain application is a decentralized application that stores data and/or conducts transactions over a blockchain network. It’s a decentralized version of a website or mobile app.
What exactly is blockchain scalability?
Scalability refers to a blockchain network’s ability to process more transactions and transactions per second (TPS). In this sector, scalability is a major concern. It is critical in determining whether or not the general population can adopt a blockchain network.
Scalability is classified into two types:
Scalability of blockchain capacity (or latency): The ability to process more transactions and transactions per second.
Scalability of blockchain throughput: The ability to execute more transactions and transactions per second.
The blockchain trilemma
When we analyze the trade-offs between security, decentralization, and scalability, we encounter the blockchain trilemma.
Decentralization and scalability
We must maintain security while ensuring network decentralization if we have a vast network. When we try to strike a balance between these two, the blockchain trilemma rears its head.
Centralization and security
There is no single point of failure in a decentralized network, which makes security breaches less likely. In a centralized network, however, there may be a single point of failure. Conversely, this makes ensuring security problematic.
There is no method to enhance network capacity in a centralized network. However, the power of a decentralized network can be improved by increasing the number of nodes in the network.
The relationship between scalability, security, and decentralization
The blockchain trilemma is a quandary that arises when the trade-offs between security, decentralization, and scalability are considered.
To solve this challenge, three distinct approaches must be considered, in order to achieve a balance between these three aspects. The first method is to improve network decentralization. The second strategy is to improve network security. Finally, the third strategy is to boost the network’s scalability.
Each of these three approaches has its benefits and drawbacks. However, when all parts of the trilemma are considered, using all three ways concurrently is the best solution for achieving a balance between security, decentralization, and scalability. So, now that we’ve grasped the trilemma, let’s have a look at the levels of blockchain.
Blockchain architecture has a layered structure.
In the case of a blockchain-based distributed network, each network participant maintains, authorizes, and updates new entries. The structure of this technology is represented by a sequence of blocks with transactions in a specific order. These lists can be saved as a basic database or a flat file (in txt format). Blockchain architecture can take three forms: public, private, or federated.
The layered architecture of blockchain is divided into several tiers.
Layer of hardware infrastructure
Blockchain data is stored on a server at a data center somewhere on this beautiful planet. The client-server architecture is called into action when the client requests content or data from the application server while browsing the web or utilizing any application.
Customers can now connect and share data with peer-to-peer clients. A peer-to-peer (P2P) network is a huge array of computers that share information. Blockchain is a peer-to-peer network of computers that calculate, validate and record transactions in a shared ledger in an orderly fashion. As a result, a distributed database with all pertinent data, transactions, and other data is established. A node is a computer in a peer-to-peer network.
The data layer
The data structure is represented as a linked list of blocks in which transactions are arranged. The data structure is made up of two essential components: pointers and linked lists. A linked list is a chained list of data-filled blocks with a pointer to the previous block, and pointers are variables that refer to the position of another variable.
A Merkle tree is a hash function binary tree. Each block contains the Merkle tree’s root hash as well as information such as the preceding block’s hash, timestamp, nonce, block version number, and current difficulty goal.
The Merkle tree provides confidentiality, integrity, and non-repudiation for blockchain systems. The Merkle tree, cryptography, and consensus algorithm underpin the blockchain system. The genesis block, or first block, contains no pointers because it is the first block in the chain, so there is no preceding block to point to.
Transactions are digitally signed to ensure the security and integrity of the data contained on the blockchain. The private key is used to sign transactions, and anyone who has access to the public key can validate the signer. Electronic signatures detect information manipulation. Digital signatures maintain consistency because encrypted data is also signed. As a result, any tampering renders the signature invalid.
Because the data is encrypted, it cannot be read. Even if it is intercepted, it cannot be tampered with. An electronic signature also protects the sender’s or owner’s identity. As a result, a signature is legally identified with its owner and cannot be ignored.
The network layer
The network layer, often known as the peer-to-peer layer, is in charge of communication between nodes. In addition, the network layer handles discovery, transactions, and block propagation. This class is also known as the propagation class.
This peer-to-peer layer ensures that nodes can discover one another and interact, disseminate, and synchronize in order to maintain the blockchain network operational. A peer-to-peer (P2P) network is a computer network in which nodes are distributed and share the network’s workload in order to achieve a shared goal. Nodes execute blockchain transactions.
Blockchain platforms cannot survive without the consensus layer. Therefore, the consensus layer is the most critical and necessary layer in any blockchain, whether Ethereum, Hyperledger, or any other. The consensus layer is in charge of validating blocks, arranging them, and ensuring that everyone is on the same page.
Application and presentation layers
The application layer consists of smart contracts, chaincode, and decentralized apps (DApps). Protocols at the application layer are further separated into the application and implementation layers. The application layer is made up of apps that allow end users to interface with the blockchain network. This includes scripts, application programming interfaces (APIs), user interfaces, and frameworks.
The Blockchain network acts as the back-end technology for these applications, with which they interface via APIs. The execution layer includes smart contracts, underlying rules, and chaincode.
A transaction is confirmed and executed at the semantic layer, despite the fact that it travels from the application layer to the execution layer. Applications send instructions to the execution layer, which executes transactions and ensures the blockchain’s determinism.
Understanding the Blockchain layers 0,1, 2 and 3
So there you have it: the five blockchain layers that sustain the system. However, if you’ve been researching blockchains, you’ve most likely come across terms like layer-0, layer-1, and layer-2. So, let’s take a closer look at these layers.
Layer-0 serves as the network architecture underpinning the blockchain, consisting of hardware, protocols, connections, and other components that form the foundation of a blockchain ecosystem. This layer can be viewed as a “network of blockchains.”
Layer 0 also enables inter-chain operability, allowing blockchains to communicate with one another. It serves as a vital foundation for tackling future layer scalability issues. Layer 0 frequently makes use of a native token to facilitate participation and development.
Layer 0 includes tokens such as Polkadot, Avalanche, Cardano, and Cosmos.
Layer-1 is in charge of the majority of duties that keep a blockchain network’s essential operations running smoothly, such as dispute resolution, consensus mechanisms, programming languages, protocols, and limits. Layer-1 represents the actual blockchain itself.
The enormous number of jobs for which this tier is responsible frequently causes scalability issues. The amount of computational power required to solve and add blocks to a blockchain grows as more people interact with the network, resulting in increased fees and longer processing times.
Improved consensus mechanisms such as proof-of-stake and the introduction of sharding help to alleviate the scalability challenge (the division of computing operations into smaller parts). History has proved, however, that they are insufficient.
Layer 1 examples include Ethereum, Binance Smart Chain, Bitcoin, and Solana.
Extra processing power is necessary to boost blockchain productivity. This, however, needs the inclusion of additional nodes, which clogs the network. Although adding nodes is necessary to maintain a blockchain’s decentralized nature, tinkering with scalability, decentralization, or throughput will have an impact on the others on layer 1.
As a result, layer 1 cannot be extended without transferring all processing to layer 2, which is constructed on top of the first. This is possible because third-party solutions can be integrated with layer 1.
Layer-2 is a new network that replaces Layer-1 and manages all transactional validations. Layer-2 in the blockchain ecosystem sits on top of Layer-1 and regularly exchanges information with it. Layer-1, on the other hand, is exclusively in charge of managing the addition and creation of new blocks to the blockchain.
Consider the Lightning Network as an example of a layer 2 blockchain that has been implemented on the Bitcoin blockchain.
The final layer of the blockchain ecosystem is that which is visible to the naked eye. Participants will eventually engage with the user interfaces on Layer-3 (UI). When working with L1 and L2, this layer strives for simplicity and ease of use.
L3 offers utility in the form of intra- and inter-chain operability, such as decentralized exchanges, liquidity provisioning, and staking applications, in addition to UI. Decentralized apps (DApps) are a form of layer 3 interface that allows blockchain technology to be used in real-world applications.
Other examples are:
- Decentralized crypto exchanges like Pancake Swap and Uniswap.
- Wallet providers like Binance and Coinbase.
- Liquidity management protocols like Compound and Aave.
- Payments mechanisms like Tornado Cash.
Scalability is one of the reasons why mainstream crypto adoption is presently out of reach in the blockchain sector. The drive to build blockchain technology will grow in tandem with the demand for cryptocurrencies. Because each level of the blockchain has its own set of constraints, the only option to solve the scalability trilemma is to create a truly scalable system.
The first layer is critical for the blockchain ecosystem since it serves as the foundation for all decentralized systems. The underlying blockchain’s scalability issues are addressed via layer two protocols. Unfortunately, the majority of layer three protocols (DApps) currently only run on layer one, ignoring layer two, so it’s understandable if these systems fail to meet our expectations.
The development of real-world blockchain use cases is mainly reliant on layer three apps. As a result, unlike traditional networks, they will not capture nearly as much value as the underlying blockchain.
Blockchains are now incredibly advanced, and yet they are still in their infancy. As a result, it’s development will take years to finish. However, breaking down the various underlying components that comprise a blockchain into technical layers may aid comprehension.
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