The advancements in blockchain technology have brought a plethora of benefits, such as increased transparency, efficient cross-border transactions, and top-notch security. As developers continue to discover new use cases and user adoption rises, layers are being built upon existing blockchains to expand their capabilities and open up new possibilities.
For instance, when discussing blockchain platforms like Polygon, it’s common to hear it referred to as a Layer 2 blockchain that builds upon Ethereum, while also reducing the cost of gas fees.
This article will delve into the various layers of blockchain technology and explain how these layers work together to create a functional blockchain system.
Blockchain technology operates on a decentralized ledger that is secure, transparent, and managed by a network of computers, also known as nodes. These nodes process, validate, and confirm transactions on the blockchain.
Blockchain layers are divided into several categories:
Layer 0 Blockchain
This is the foundation of the blockchain ecosystem and comprises of protocols, hardware, and various components that serve as the underlying network architecture. Layer 0 enables different blockchains to interact and often has native tokens that incentivize users to secure the network. Examples of popular Layer 0 blockchains include Avalanche, Cosmos, and Polkadot.
Layer 1 Blockchain
These maintain the operational structure of the blockchain network, such as consensus mechanisms, smart contracts, and other components. These are the blockchains that are most commonly known, including Ethereum, Binance Smart Chain, Bitcoin, and Solana. However, there are scalability concerns as the number of transactions increases and the high computational power required causes slow processing and high fees.
Layer 2 Blockchain
These are built on top of Layer 1 blockchains to increase their capacity and allow them to accommodate more users. Layer 2 networks enhance Layer 1 blockchains by constantly interacting with them, validating transactions, and more. The Lightning Network is a well-known example of a Layer 2 blockchain deployed on Bitcoin, while Polygon is another example built on Ethereum.
Layer 3 Blockchain
This layer of the blockchain ecosystem is considered the client-side. It allows all users to interact with an interface, enables inter-chain operability, such as decentralized exchanges and liquidity, and provides simple overall functionalities. This is where participants will eventually interact with the user interface. Decentralized apps (dApps) are Layer 3 protocols that create real-world blockchain solutions; an example of this is Uniswap.
Blockchain Architecture Layers
The data layer: This is the layer that stores the transaction data on the blockchain. It includes the blocks, which are groups of transactions, and the chain, which is the sequence of blocks. This layer is responsible for maintaining the integrity of the blockchain and ensuring that all transactions are recorded in a tamper-proof and chronological order.
The network layer: This is the layer that maintains the peer-to-peer network that supports the blockchain. It includes the nodes that validate and propagate transactions, and the protocols that govern how the nodes communicate with each other. This layer is responsible for ensuring that all participants have a copy of the blockchain and that new transactions are added to the chain in a timely manner.
The consensus layer: This is the layer that ensures that all participants in the network agree on the state of the blockchain. It includes the consensus algorithms, such as proof-of-work or proof-of-stake, that are used to validate transactions and add them to the blockchain. This layer is responsible for ensuring that the blockchain is secure and that all transactions are valid.
The contract layer: This is the layer that enables the creation and execution of smart contracts on the blockchain. Smart contracts are self-executing contracts that are written in code, and they allow for the automation of transactions and the creation of decentralized applications (dApps).
The application layer: This is the layer that enables the creation of user-facing applications that interact with the blockchain. This layer includes the wallets, exchanges, and other applications that allow users to interact with the blockchain and make use of its features.
These layers are not always distinct and they can overlap and interact, but understanding these layers can help in understanding how blockchain technology is functioning and how it can be used to create different types of applications.
It’s important to note that not all blockchain platforms have all these layers and some may have additional layers as well. For example, some blockchain platforms have added additional layer for privacy, governance, interoperability and more.