What are the layers of blockchain? How blockchain and its various layers work.
Blockchain is a cutting-edge innovation of the 21st century that will revolutionize how information is stored and transmitted. It is being implemented in a growing number of industries and applications. However, understanding how it works is complicated. Blockchain, from the technical side, is a challenging and complex technology. Let's examine how blockchain and its various layers work.
What is blockchain, and does it work?
Blockchain is an information technology that, among others, has revolutionized the recording and storage of data. This innovation was first used in 2009 to create Bitcoin.
What distinguishes blockchain? It is a digital ledger that anyone can look into, but no one can change the data once stored in it. The data in a blockchain is stored chronologically in blocks. The blocks are linked together to form an unbreakable chain through cryptography. It is a distributed system maintained by nodes - each blockchain consists of multiple copies that are automatically updated. Blockchain is an example of an Internet network with a peer-to-peer architecture that does not require central computers or servers.
5 Layers of blockchain
The various layers of blockchain are designed to play different roles and address diverse issues. Primarily they aim to secure the transmission and authentication of transactions. Since blockchain has no central authority to control the data flow, it is necessary to ensure this from the technical side, employing the cutting-edge solutions of blockchain technology.
Let's introduce the different layers of blockchain technology and their functions.
Blockchain consists of 5 layers: hardware infrastructure layer, data layer, network layer, consensus layer, and application layer. Each of these layers has its unique function in the blockchain architecture. Combining them all makes it a complete solution. It can be used for various purposes, from managing data on the back end to enabling user-facing applications on the front end.
Hardware infrastructure laye
Blockchain is based on peer-to-peer information exchange. Therefore, unlike the traditional client-server architecture model, data is stored and exchanged between peers. The hardware layer is formed by a network of computers, which guarantees the blockchain's computing power. One computer or network of computers is the so-called node that decrypts transactions. It creates a distributed ledger. The blockchain is the sum of all the nodes that make it up.
Hardware layer: virtual machine, containers, services, messaging.
Data layer
The data layer stores the transaction details in a block - the basic unit of the blockchain. It contains the recipient's public key and the sender's private key are stored. Only the sender has access to the private key. The phenomenon is that each block in which data is saved is connected to the previous block and the next block generated, and the data cannot be modified in any way. This process is repeated each time a block is created. In this way, a blockchain is created. The exception is the genesis block, the network's first block exclusively connected to the next block. The previous one, in this case, does not exist. This layer ensures maximum security, anonymity, and unchangeability in the network.
Data layer: digital signature, hash, Merkel tree, transaction.
Network layer
Another important layer of blockchain deals with communication between nodes. Blockchain is an open and distributed system. Each node must have access to information about transactions that other nodes approve. The network layer is essential for this communication.
Network layer: peer-to-peer network.
Consensus layer
It is the most critical layer of the blockchain responsible for validating the block. With validation, the blockchain will succeed. The layer runs the protocol requiring a certain number of nodes to verify one transaction. What it looks like in practice is easiest to understand from an example. There are two main consensus mechanisms Proof of Work and Proof of Stake.
The following example can best describe the Proof of Work.
Let's say Peter and Mat are two validators on the blockchain who receive transactions to be decrypted and added to the block. Peter receives transactions: A and B and Mat: B and C.
In a situation where Peter and Mat would validate all transactions and add them to the blockchain, transaction B would be written twice, and so-called double spending would occur. The two, among others, compete by solving a crypto math puzzle to avoid this problem. The one who solves it first will be the one who adds the block to the blockchain.
The other equally popular consensus is Proof of Stake ( POS). In this case, the system selects the validator as random.
Consensus layer: Pow, PoS, DPoS, PoT, PoET, PBFT, etc.
Application layer
As the name suggests, various types of applications are built and run on this layer. These include social media applications, cryptocurrency wallets, Defi, NFT platforms, DEXs, browsers, etc. Although, in appearance, they are no different from regular applications, what sets them apart is their decentralized nature of storing data on the backend of these applications. Smart contracts make decisions based on specific triggers. DApps execute actions that follow these decisions.
Application layer: smart contracts, chain code, dApps, UI.
Layers overview
Layer 0 (L0)
Blockchain in itself is called layer zero. It provides the underlying infrastructure for blockchain. This layer consists of components required to run the network: the hardware: the consensus mechanism, and the internet. Layer zero blockchain is the initial stage of blockchain that allows various networks to function and communicate. Layer 0 provides blockchain with cross-chain interoperability communication from top to different layers.
Examples: Bitcoin, BNB Chain, or Ethereum.
Layer 1 (L1)
This layer includes the consensus mechanisms, coding language, and rules embedded in the code. It is sometimes called the implementation layer. It provides functionality and security across the blockchain. Its main limitation is scaling. All changes and problems that arise in Layer 0 also affect Layer 1. A protocol is Layer 1 when it processes and finalizes transactions on its blockchain.
Examples: Bitcoin, Ethereum, Cardano, etc.
Layer 2 (L2)
Layer 2 blockchain is the scaling solution. For blockchain to run smoothly and quickly, additional nodes are needed. Adding nodes is crucial to maintain the decentralized nature of the blockchain. However, layer 2 works with third-party integration removing the limitations of layer 1. This solution is most recognized for solving scaling issues attached to POW networks. Implementing layer two technologies in various industries is becoming more and more widespread. Lightning Network is an example of a Layer 2 protocol, which allows users to make transactions before registering with the main chain.
Layer 3 (L3)
This layer is called the application layer. It provides the user interface and usability, realized by smart contracts and dApps, which perform the most diverse functions. This layer is visible to users and gives access to interact with the blockchain. It is worth noting that Layer 3 solutions can only support a chain using smart contracts. For this reason, L3 support does not work for the Bitcoin network.
The Layer 3 blockchain protocol is divided into two sub-layers: application and execution. It is designed to be interoperable and implement cross-chain solutions.
Examples: DEXs: PancakeSwap, wallets: Trust Wallet, blockchain games: Decentraland, financial protocols (Aave).
Summary
We hope that thanks to this article, comprehending complex blockchain technology becomes easier. The article explains the five layers of blockchain and their functions, as well as layers 0 to 3. The combination of them all makes blockchain a complete solution. It is used in a variety of industries, from finance to entertainment. Blockchain has changed the way data is managed and stored. Understanding it is crucial to appreciating its utility and applications.
