Blockchain architecture pertains to the components, subcomponents, or layers that comprise a comprehensive blockchain system. Each layer has a specific purpose, ranging from data storage to network communication and system-wide consensus.
Understanding these layers of blockchain is critical for engineers and start-up founders looking to use this technology properly.
In this blog, we will explain the complexities of blockchain architecture by breaking it down into layers and their related functionality. Our objective is to assist you in understanding the complexity of blockchain design, optimizing performance, and identifying any security risks.
Overview of Blockchain Architecture
- Blockchain is a distributed ledger for storing transaction data.
- It is transparent and decentralized.
- Multiple validators control the blockchain, not a single entity.
- Blockchain architecture has five layers:
- Hardware infrastructure: nodes that contribute to computational power
- Data: stores transaction details in blocks
- Network: facilitates communication among nodes
- Consensus: responsible for block validation
- Each layer provides a comprehensive blockchain solution
- John receives transactions A and B, while Mark receives transactions B and C. If both John and Mark confirm and upload the transactions to the blockchain, transaction B will appear twice, leading to double expenditure. Proof of Work (PoW) is used to prevent this by having John and Mark compete to solve a complex mathematical challenge, with the winner adding the block to the blockchain. In Proof of Stake (PoS), the system selects the validator.
- Blockchain’s Application Layer supports decentralized data storage apps with familiar interfaces.
What are Blockchain Layers?
The value of a cryptocurrency is not solely determined by its market capitalization but also by other factors such as the problem it solves, the underlying technology, and the layer of the blockchain ecosystem in which it exists. The text also explains that blockchain layers are the different tiers of infrastructure that work together to enable the functioning of a blockchain-based system, with each layer building on the foundation of the previous one.
To facilitate comprehension, the blockchain ecosystem can be divided into four layers:
Layer 0 — Software Infrastructure
Layer 0 refers to all digital technologies that enable blockchains. Layer 0 aims to make blockchain networks viable, accessible, and interoperable. This enables developers to identify more innovative options, resulting in increased token usefulness for consumers. Layer 0 enables functioning blockchains through physical infrastructures including hardware, energy, and Internet services. Decentralization is a key distinction between traditional telecom corporations and Layer 0 initiatives. Layer 0 protocols improve blockchain communication, allowing them to synergize and use each other’s dApp ecosystems.
Cross-chain interoperability protocols (CCIP) are what Layer 0 is all about. Blockchains that are functional with one another can transfer tokens and data with ease. Examples of CCIP initiatives that give blockchains and apps off-chain data are Chain Link, Cosmos, and Polkadot.
Layer 1 — Blockchains/Networks
Blockchains are initiatives at Layer 1. Public blockchains are electronic ledgers that make it simple to read and contribute financial data while preventing tampering with already-existing data. Every blockchain has a unique consensus methodology to decide what information should be added, and smart contracts are used to carry out transactions without the need for outside intervention. Smart contracts are independent programs that don’t communicate with users directly, in contrast to apps. While some smart contracts, like those in Bitcoin, simply permit simple payments, others, like those in Ethereum, let programmers design sophisticated applications.
Solana, Ripple, Binance Chain, Monero, and Litecoin are among the more Layer 1 blockchain. Developers select a blockchain according to its design; decentralization, security, and scalability are the top priorities for any network.
Layer 2 — Sub-Blockchains
Layer 2 blockchains are created by blockchain developers using existing blockchains as a foundation for their own. They utilize Layer 1 blockchain technology, which makes them more scalable and effective. For instance, the L2 blockchains Polygon, Arbitrum, and Optimism on Ethereum are less expensive and speedier. Nonetheless, their reduced size makes them more concentrated. L2s are likewise dependent on L1s, thus when L1s are unavailable, they cannot function. Conversely, there’s no assurance that L2 blockchains will be as safe as L1 blockchains because many of them are experimental networks.
L1 blockchains, like Ethereum 2.0 and Bitcoin Taproot, are updated on a regular basis by the community. With time, flexible blockchains grow more decentralized and safe. Such modifications are prevented by smart contracts on immutable blockchains like Ethereum. Instead, developer communities generate hard forks such as PulseChain. A fork blockchain is a variation of the original blockchain with additional features and code changes, resulting in differing scalability, security, and decentralization. The teams who build Layer 2 and fork chains are frequently unaffiliated with Layer 1 creators.
Layer 3 — Decentralized Applications (DApps)
The action takes place in Layer 3. The primary draw of Layer 3 is its decentralized applications (DApps), which are constructed on top of blockchains. DApps are software programs that offer a decentralized user experience and operate on a blockchain network. Simple financial apps like Bitcoin wallets and intricate ones like decentralized exchanges, lending protocols, and prediction markets are among them.
DApps are constructed on top of many blockchains, each of which has unique smart contract features and consensus mechanisms. The most widely used blockchain is Ethereum.
It is noteworthy that every layer has a distinct function and is necessary for the blockchain ecosystem to function. The top layers could not work correctly without a solid basis in the bottom layers.
Differences Between Layers 0,1,2,3
Layer 0:
- Fundamental components such as protocols and hardware
Layer 1:
- Manages the blockchain’s code, consensus process, and dispute resolution
Layer 2:
- Offers greater scaling potential and can integrate external solutions
Layer 3:
- Hosts dApps and user-facing applications
What is Scalability in Blockchain Technology?
Because of the increasing prevalence of cryptocurrencies in everyday life, blockchain layers are now all but essential since they improve network security and recordkeeping, among other things.
Consider Bitcoin as an example:
The Visa network’s electronic payment network is capable of handling over 20,000 transactions per second, but Bitcoin’s primary chain can only handle seven. The disparity is astounding. For this reason, many layer 2 blockchain systems are now in use. These systems employ smart contracts to automate transactions.
What Makes Blockchain Scalability Essential?
Since a blockchain can’t simultaneously optimize for all desirable attributes, trade-offs must be made. The increased demand has led to a rise in transaction prices to the point where some users are unable to continue using the blockchain.
The current ability of blockchains, such as Ethereum and Bitcoin, to grow is restricted. In order to overcome the blockchain trilemma, a global community of IT firms, startups, and researchers is working feverishly to build layer one and layer two solutions. Blockchain networks are designed to be scalable, secure, and fast. Additionally, they encourage novel goods and technology that can improve the scalability of current blockchain networks. Bitcoin seeks to address the problem by supplementing the existing blockchain layer with a new layer.
As Bitcoin gains traction in the business sector, blockchain developers are working to broaden the scope of blockchain efficiency. We can reduce processing times and increase TPS (transactions per second) by developing blockchain layers and improving scalability using what is now known as “layer two” technologies.
Conclusion
In wrapping up, grasping the layers of blockchain technology is key to understanding its intricacies and possibilities. Each layer — network, consensus, incentive, and application — plays a vital role in ensuring secure and efficient transactions within decentralized systems. As blockchain evolves, a deep understanding of these layers becomes increasingly crucial for developers, businesses, and enthusiasts alike.
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