As a crypto fan, you have definitely come across these terms: Layer 1, Layer 2, Layer 3, and Layer 0.
And, if I’m thinking correctly, you’re now curious as to what they mean.
Well, these are the different layers of the blockchain.
In today’s post, I will explain what these different blockchain layers mean in the simplest way possible.
So, make sure that you read to the end.
This is what I will cover:
Please feel free to use the jump links. It will immediately lead you to the details.
Let’s get started!
1. Blockchain Layered Architecture
Let’s start with the blockchain layered architecture.
It’s simply a set of protocols that describe how the blockchain operates.
There are five layers of blockchain architecture:
- Hardware/ Infrastructure Layer
- Data Layer
- Network Layer
- Consensus Layer
- Application and Presentation Layer
It starts from the bottom to the top (as shown in the image).
Let’s go over them briefly.
a. Hardware/ Infrastructure Layer
This layer handles the way messaging goes on in the blockchain.
As you know already, the blockchain is a peer-to-peer network that allows anyone to access data from multiple nodes that are linked together.
(More about nodes later)
b. Data Layer
This has to do with how blockchain data is organized.
Blockchain transactions are arranged in blocks that are linked together and distributed across all nodes.
Firstly, each transaction is digitally signed with the sender’s private key and sent to the network.
Secondly, when the nodes validate the transaction, it is inserted into a block with a cryptographical hash function that secures it.
Thirdly, the block is then added to the blockchain, linked with previous blocks of data.
This method of arranging data makes the blockchain very secure and immutable.
c. Network Layer
This layer ensures that nodes communicate with each other effectively to maintain the current state of the blockchain.
Nodes are simply computers that contain the records of blockchain transactions.
They are interconnected with other nodes in a decentralized peer-to-peer manner.
Nodes are responsible for validating and storing transactions on the network.
The more nodes there are, the more decentralised a blockchain is.
d. Consensus Layer
This layer is very important because it ensures that no single node controls the network.
It is the consensus algorithm of a blockchain.
The consensus algorithm establishes how a transaction on a blockchain is verified.
Only verified transactions are recorded on the blockchain.
Each blockchain uses a unique consensus algorithm, which includes POW, POS, etc. You can learn more about it here.
e. Application and Presentation Layer
This is the topmost layer.
This is the layer on which different applications on the network run, including smart contracts, oracles, DApps, Wallets, etc.
- Smart Contract – written codes that automate transactions on the blockchain.
- Oracles – these are third-party providers of external data for smart contracts.
- DApps – Decentralized applications that allow users to interact with smart contracts, examples are Uniswap and PancakeSwap. Wallets are DApps too.
There you have it!
However, do note that the concept of “blockchain layered architecture” is only an attempt to incorporate the blockchain into the OSI model.
OSI (Open Systems Interconnection) is a reference model for how applications communicate over a network.https://www.techtarget.com/searchnetworking/definition/OSI
Now that you have fully grasped this architecture, you will understand the four blockchain layers.
2. The 4 Blockchain Layers
The blockchain layered architecture is further categorized into four blockchain layers:
- Layer 0, Layer 1, Layer 2, and Layer 3.
It starts from Layer 0, as shown on the image but to better explain these concepts, I will start from Layer 1.
The 4 blockchain layers also describe the various scalable solutions offered to a blockchain network.
Scalability is the blockchain’s capacity to process a large volume of transactions when compared to the number of users on the network.
A blockchain needs to be scalable for it to achieve mainstream adoption.
Simply put, Layer 1 is the blockchain itself.
The blockchain consists of three protocol stacks: the data layer, the network layer, and the consensus layer.
Bitcoin is the first Layer 1 blockchain.
After that, came Ethereum, then several other Layer 1 blockchains like EOS, NEO, Tezos, Cardano, Solana, etc.
Now, Bitcoin and Ethereum are the most secure and decentralized blockchains.
But they are not scalable. The reason is that they use the POW, a consensus mechanism that makes transaction verification very slow and expensive.
For instance, Bitcoin has 7 TPs and Ethereum has 15 TPs. On the other hand, Solana has over 50,000 Tps.
For this reason, a lot of Layer 1 solutions have sprung up.
Layer 1 solutions are changes implemented directly on the blockchains to improve scalability. They include:
– Proof of Stake Consensus Mechanism
Also known as POS, this allows nodes to confirm transactions by staking their coins on the network.
Solana uses POS, hence its ability to process high transaction throughput.
Ethereum aims to integrate POS when ETH 2.0 is released. This is anticipated to increase its TPS to 100,000.
Find out the difference between POW and POS in this post.
Segwit is a Layer 1 solution for bitcoin.
It aims at enlarging the block on the blockchain by removing signature data from Bitcoin transactions.
Other Layer 1 solutions include Sharding and Algorand Solution.
However, many people were unhappy about this because miners’ incentives were at stake, and there was also the issue of scalability trilemma.
Scalability Trilemma is a term that suggests that Layer 1 solutions threaten the true decentralization of a blockchain. You can read about it here.
This led to the development of Layer 2 blockchains.
Layer 2 refers to solutions that help a Layer 1 blockchain to scale without compromising its security or decentralization.
They mostly leverage the application layer of the blockchain architecture.
Layer 2 solutions are built on top of a selected Layer 1 blockchain.
And their role is to take part of Layer 1’s transactions and process them off-chain, thus reducing their workload.
The difference between Layer 1 and Layer 2 is that:
- A Layer 1 can validate transactions on its own
- On the other hand, Layer 2 depends on Layer 1 to validate transactions.
Layer 2 mostly leverages the application layer of the blockchain architecture.
Some of the Layer 2 solutions include:
– State Channels
Imagine this to be a payment channel between 2 payment partners that they opened on the blockchain.
They can use it to perform many transactions off-chain.
However, only 2 transactions are verified on the blockchain. They are:
- The transaction that happened when the channel was opened
- And the transaction that happened when the channel was closed
Bitcoins’s lightning network is an example of a state channel. Learn more about it here.
As the name implies, they process transactions off Layer 1.
However, unlike State Channels. Sidechain records all transactions on the network.
This is because they have their own nodes and consensus mechanism.
Polygon is an example of a side chain. It handles transactions for over 10,000 Ethereum-based DApps. Read more about it here.
Now, over to Layer 0.
Although, Layer 2 offered good solutions to blockchain scaling.
Many critics were against it on the ground that it does not make an ideal blockchain since some transactions are processed off-chain.
This led to the development of Layer 0.
Layer 0 protocols are built on the bottom of the blockchain layered architecture.
They are referred to as multi-chain networks, and they provide scalability solutions without modifying the existing protocols of a blockchain.
As earlier stated, Layer 1 allowed developers to build DApps with the invention of the Ethereum blockchain.
However, the Layer 1 blockchains together with their DApps exist in silos.
When Layer 0 protocols came in, they allow developers to build both DApps and blockchains. Quite interesting!
Furthermore, they enable cross-chain interoperability, which allows different DApps and blockchains to communicate with each other.
Not only that, but Layer 0 protocols also allow cross-chain transactions to be made across Layer 1 blockchains.
Cosmos is a Layer 0 protocol. The BSC network, for instance, a Layer 1 blockchain, is built on it.
Another Layer 0 protocol is Polkadot. You can read more about it here.
Finally, we have Layer 3. Scroll down!
Layer 3 is the DApps themselves. They are built on the uppermost layer of the Blockchain architecture.
Layer 3 acts as mere UI and conceals the technicalities of the communication channel.
Users interact with the front end, which is the DApp, while the smart contract runs at the back end to automate transactions on the blockchain.
Layer 3 solutions are mainly cross-chain integrations, which help users access various Dapps on different blockchains from one Dapp.
There you have it! Scroll down, let’s discuss.
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Here we call it a wrap. I hope this post has clarified the concept of blockchain layers for you.
To sum it up: Layer 1 is the blockchain itself. Layer 2 is off-chain protocols that help to scale layer 1.
On the other hand, Layer 0 is multichain or cross-chain protocols while Layer 3 is DApps.
Now is over to you. Tell me:
Which blockchain layer interests you the most?
Is there something about the blockchain layers that I didn’t explain?
Put down your responses in the comments section below.
Also, share this post with your friends, thank you!