Blockchain has revolutionised how information is stored and transferred. It is known to be a breakthrough innovation of the 21st century and will soon be part of everyday internet applications which we use. But the workings of Blockchain are alien to most because of its complexity. In this article, let’s decode how a blockchain works and the different layers in blockchain in the simplest possible way.
Put simply, blockchain is a distributed ledger that stores transaction records. For example, Bitcoin is powered by the Bitcoin blockchain and every transaction where there is sending and receiving of Bitcoins is recorded on the blockchain. It is an efficient alternative to conventional record-keeping and verification because of its transparency. Meaning, every transaction on a public blockchain can be viewed by anyone.
Moreover, a blockchain is not owned by a single entity, but it is owned by everyone participating in validating the transactions. This eliminates a single point of failure, meaning it’s almost impossible to hack a blockchain because there is no point of origin for the blockchain. It ensures transparency, eliminates middlemen and minimizes operational costs.
Now that we have defined the fundamentals of blockchain, let us now dive deep into the layers of blockchain technology and the function of each.
Primarily, blockchain consists of 5 layers: hardware infrastructure layer, data layer, network layer, consensus layer, and application layer. Each layer has unique functionality. These layers together make the blockchain a complete solution ranging from data management at the back end to enabling user-facing applications at the front end.
The Hardware Layer
Blockchains are based on peer-to-peer information sharing. The network of computers which contribute to the computing power of the blockchain form the hardware layer. Most importantly, blockchains are a summation of all the nodes which make them. A node is a computer or a network of computers which decrypt transactions.
The Data Layer
The next layer after the hardware layer is the data layer where details of transactions are stored. The transaction stored on a block ( the fundamental unit of a blockchain) has details of the crypto sent, the public key of the receiver and the private key of the sender. Each block which has data is connected to the previous block and the next block which is generated. Only the genesis block, the first block of the network, is connected forwards and not backward.
The Network layer
This layer deals with the communication between nodes on a blockchain. Since blockchain is an open system, each node has to know about the transactions which other nodes are validating. The network layer enables this communication.
The Consensus Layer
This layer is the one responsible for the validation of a block. Let us understand the consensus layer using an example. Let’s say John and Mark are two validators on the blockchain. They receive transactions which have to be decrypted and added to a block.
Transactions which John receives are: A and B
Transactions which Mark receives are: B and C
If both John and Mark validate the transactions and add them to the blockchain, then transaction B will be written twice on the blockchain. This means double spending will occur. To avoid this John and Mark compete and solve a cryptic mathematic puzzle and the one who solves first will be the one to add the block to the blockchain. This form of consensus mechanism is known as Proof of Work.
In the case of Proof of Stake ( POS) the validator is randomly picked by the system.
The Application Layer
The Application layer in blockchain is the one on which apps are built. These applications can be anything. Wallets, Social Media Apps, Browsers, Defi Apps, and NFT platforms to name a few. While the UI/UX of the app is just like any other normal application, the difference is the decentralised nature of data storage at the backend of these apps.
Blockchain Layers Explained
Blockchain in itself is called layer zero. The components required to make blockchain real are the internet, hardware, and many other connections. Layer zero blockchain is the initial stage of blockchain that allows various networks to function, such as Bitcoin, Ethereum, and many more. Layer 0 also provides blockchain with a facility of cross-chain interoperability communication from top to different layers. Layer 0 provides the underlying infrastructure for blockchain.
Layer 1 blockchain is an advancement in layer 0. Under this layer, the blockchain network is maintained functionally. However, scaling is a limitation in the layer one blockchain. Any changes and issues arising in the new protocol in layer 0 will also affect layer 1. It is also called an implementation layer. Examples of layer one blockchains are Bitcoin, Ethereum, Cardano, Ripple, etc.
Layer 0 has many interactions that have been removed by layer 2. For specific blockchains, layer 2 blockchain is the scaling solution. It works with third-party integration and removes the limitations of layer 1. It is the most popular approach for solving scaling issues attached to POW networks. At present, various industries have begun implementing layer two technologies.
Layer 3 blockchain is also referred to as the “application layer”. The main task of this layer is to host the DAapps and many other protocols that enable other apps. Here, the blockchain protocol is split into two significant sub-layers, that being, application and execution. It is the most potent solution made to separate blockchains with cross-chain capabilities for achieving the target of real interoperability.
Read About: Different Types Of Blockchain
Differences Between Layers 0,1,2,3
|Layer 0||This layer has the hardware, protocols and other foundational elements|
|Layer 1||Maintains the dispute resolution, consensus mechanism and programming of the blockchain. Examples: Bitcoin blockchain, Ethereum blockchain|
|Layer 2||Has better scaling capabilities than Layer 0 and 1. It has the capability to be integrated with third-party solutions|
|Layer 3||This layer is used to host dApps and other user-facing applications|
What is Blockchain Scalability?
Blockchain scalability is the ability of the network to support the increased load of transactions and nodes in a particular network. In the blockchain, transactions per second are recorded. Day by day, we are witnessing new advancements in blockchain technology; With these advancements, transactions are also increasing per second. That’s why it is called blockchain scalability.
Security is the main feature of a blockchain network besides the distribution of power. Blockchain protocols are made to secure data from network attacks. Scalability in blockchain supports future growth and high transactional throughput. It made many technological advancements to the blockchain to compete with centralised platforms, legacy, and so on. Scalability is a solution to many of the problems that blockchain faces.
Further, “Scalability trilemma” is another term for handling three properties such as security, scalability, and decentralisation. As we know, each blockchain technology only works on two properties at the moment, at the most, it works on three. It is the fastest and most secure scalable network.
What is Blockchain Security?
In the blockchain system, computers are linked in a peer-to-peer network. As the nodal distribution is done on the open network, there is a 51% risk of attack by hackers. Plus, there is an equal probability of data being manipulated. Blockchain security can be maintained only if the blockchain is guarded against outside risk.
Blockchain technology is complex to understand but with a little effort, one can realise its usefulness and applications. Rapid developments are taking place in this domain of technology. Several governments and organisations are paying attention to blockchain and are implementing the same in various areas. At this point, it becomes necessary for everyone to understand blockchain as it can very well define the future of technology and data management.
FAQs on Blockchain Layers
What is blockchain, and how does it work?
Blockchain is a distributed ledger that stores transaction records. For instance, Bitcoin transactions are recorded on the Bitcoin blockchain. It’s transparent and owned by all participants, eliminating a single point of failure. It ensures transparency, reduces middlemen, and minimizes operational costs.
What are the primary layers of blockchain technology?
Blockchain consists of five layers: hardware infrastructure, data, network, consensus, and application layers. These layers handle functions from data storage to user-facing applications.
How does the consensus layer work in blockchain?
The consensus layer validates blocks in blockchain. It often uses Proof of Work (PoW), where nodes compete to solve cryptographic puzzles. In PoS (Proof of Stake), validators are randomly chosen.
What are the key differences between blockchain layers 0, 1, 2, and 3?
1. Layer 0 includes foundational elements like hardware and protocols.
2. Layer 1 maintains dispute resolution, consensus mechanisms, and blockchain programming (e.g., Bitcoin, Ethereum).
3. Layer 2 offers better scaling capabilities and third-party integration.
4. Layer 3 hosts decentralized applications (dApps) and user-facing applications.
What is blockchain scalability, and why is it important?
Blockchain scalability refers to a network’s ability to handle increased transaction and node loads. It’s vital for accommodating growing transaction volumes. Scalability ensures blockchain’s competitiveness and addresses many of its inherent challenges, striving for the “Scalability trilemma” of security, scalability, and decentralization.
Are blockchain layers present in all blockchain networks?
No, blockchain layers are not present in all blockchain networks. Some blockchains have a single layer, while others employ multiple layers for enhanced functionality and scalability, like Ethereum’s Layer 2 solutions.
Can a new layer be added to an existing blockchain network?
Yes, a new layer can be added to an existing blockchain network through a process known as “layering” or “sharding.” This allows for increased scalability and functionality without altering the underlying blockchain’s core protocol, enhancing its capabilities while maintaining compatibility with existing layers.
Do blockchain layers impact the transaction speed of a blockchain network?
Yes, blockchain layers can impact transaction speed. Layer 2 solutions, like Lightning Network for Bitcoin or Rollups for Ethereum, aim to improve transaction throughput and reduce latency. They achieve this by processing transactions off-chain or in a more efficient manner, enhancing the overall speed of the blockchain network.
Are all blockchain layers decentralised?
Not necessarily. While decentralization is a core principle of many blockchain networks, the degree of decentralization can vary among layers. Some layers may prioritize decentralization, while others, like certain sidechains or off-chain solutions, might sacrifice some degree of decentralization for scalability or efficiency gains.
Can blockchain layers be customized for specific use cases?
Yes, blockchain layers can be customized for specific use cases. Developers can design and implement layers tailored to particular requirements, such as privacy, scalability, or smart contract functionality. This flexibility allows blockchain technology to adapt to a wide range of applications and industries.