If you’ve spent time looking into crypto, blockchain, or Web3, you’ve probably heard people discussing over and over about blockchain’s different layers. However, it is likely that many of you out there are not really acquainted with that term (what it means and why it exists) so let us take a few minutes to explain to all of you what layer architecture is, their differences, and why they are crucial.
As you may already know, Blockchains can store information securely and prevent tampering with digital assets like currencies or tokens. This makes the technology ideal for use in areas where trust is paramount. For example, when buying things online from sites like Amazon or eBay, trading stocks through brokers, making payments between banks; managing identity cards; even voting could be transformed by blockchain technology.
Distributed ledger technology (DLT) allows all transactions to be permanently recorded and maintained without the need for one all-powerful controlling body, creating an immutable database (or “ledger”) where records are stored chronologically and publicly available. This provides additional safety as there’s no single central server or database that bad actors can hack into. The DLT follows a protocol where nodes (or computers) must reach a consensus to validate new transactions.
Blockchain layers are often categorized as follows:
This is the foundation of a blockchain ecosystem- the underlying components such as hardware, protocols, and various connections that allow networks to function. Usually, layer 0 protocols provide inter-chain operability, allowing blockchains to communicate with each other.
Layer 0 is critical to the future of blockchains as it solves scalability issues faced by layer 1 protocols since developers can build blockchains to serve an exact purpose. Usability issues are also addressed by Layer 0. Layer 1 protocols aren’t usually made for specific use cases, so developers on these protocols are forced to compromise on design.
The control that Layer 0 allows is vital for the future of blockchain adoption as it increases flexibility by enabling rapid error response. For example, an issue on a D’App built on layer 1 can be resolved until the protocol fixes it, whereas the same problem could be quickly addressed by a developer using Layer 0.
Layer 1 is responsible for carrying out the functions that sustain a blockchain network’s fundamental operations, like dispute resolution, consensus mechanism, programming languages, protocols, and restrictions.
These computational tasks can become more complex as more people use a blockchain, which results in scalability issues. Improved consensus techniques and sharding exist, but they still aren’t sufficient. Currently, Bitcoin and Ethereum are the most notable examples of layer 1.
Extra processing power is necessary to improve blockchain efficiency; this usually requires additional nodes, which burden the network as a whole. These new nodes are essential to keep a network decentralized, but all changes directly affect everyone else on the network.
Layer 2 solves some scalability issues by removing some actions from the interactions present in preceding layers. Third-party solutions can integrate with layer 1. As a result, a new network, layer 2, exists on top of the original layer, constantly exchanging information with each other. Layer 1 only has to manage the addition of new blocks. The Bitcoin Lightning Network is one of the most well-known examples of a layer 2 solution.
The layer that most interact with daily is layer 3. This layer is usually called the application layer, which hosts the user interface (UI). The layer’s primary function is to host D’Apps and other protocols that enable applications. D’Apps serve a vital part in blockchain ecosystems as they’re the interfaces that provide real-world applications.
These applications include wallets such as Binance or Coinbase, decentralized exchanges such as UniSwap and Pancake Swap, and liquidity management protocols Aave and Compound.
The blockchain sector has grown drastically in the past few years. However, the technology is still quite a way from totally infiltrating the mainstream and handling billions of users. Ultimately, the widespread adoption of blockchain technology will be highly dependent on scalability. Though it seems self-explanatory, a layered scalable system is currently the only way to address scalability issues.
Though they are powerful and have countless untapped potential, blockchain is still in its relatively early stages compared to other industries. It will be years before we see even a tiny percentage of what blockchain can offer. However, gaining an understanding of the components that make up the broader network can help prepare for the future.
We invite you to follow STORM partners on LinkedIn, Instagram, and Twitter to stay up-to-date on our latest developments and insights. Our LinkedIn page is a great resource for industry news and updates, while our Instagram and Twitter channels offer a more personal look at our team and the work we do. By following us on these platforms, you’ll be able to stay connected with us and stay informed about the latest happenings in the world of crypto and digital assets. We look forward to staying connected with you!