If you have been involved in research related to cryptocurrency or blockchain, you will surely come across terms like Layer 1 and Layer 2 protocols. However, it is possible that you do not know what these levels are and why they exist. In this article, we will look at the architecture of the blockchain layer and how it enables trust and consensus on the chain. We’ll also explore how it might evolve in the future.
Blockchain is a unique combination of various existing technologies – distributed ledger technology, cryptography, game theory, networking, etc. – with many potential applications, including cryptocurrency. Encryption refers to the mathematical and computer system that encodes and decodes data.
Moreover, without the control of a central authority, Distributed Ledger Technology (DLT) ensures that information is adequately verified by encryption between a group of users through a defined network protocol. The combination of these techniques creates trust between individuals or parties who would have no reason to do so. It allows users to securely trade cash and data over blockchain networks.
The different layers of the blockchain are aggregated to ensure security and scalability. In fact, the blockchain should be very secure since there is no central authority. Also, it must be scalable to ensure that it can accommodate the growing numbers of users across the global system. Layers arose out of the need for scalability while maintaining first-class security.
Layered Structure of Blockchain Architecture
In the distributed network of blockchain architecture, each participant monitors, approves, and updates new entries. Blockchain technology consists of a series of blocks containing transactions in a predetermined order. These lists can be maintained in a database or as a flat file (in text format). The blockchain architecture may be public, private, or federation-based.
Blockchain design is divided into five layers.
Hardware Infrastructure Layer
This hardware layer stores blockchain data securely on the server. We access this date via the client-server architecture. When we use blockchain applications, the client device sends a request to the data server to access it. Since blockchains are peer-to-peer (P2P) networks, they connect clients with “peer clients” to share data. Therefore, this layer is nothing more than a vast network of devices that communicate and exchange data with each other. In fact, this is how a distributed ledger is generated.
The Blockchain data structure consists of a linked list of blocks in which transactions are arranged. When a certain number of transactions are authenticated by the nodes, the data is aggregated into a “block”, uploaded to the blockchain, and linked to the previous dataset. This is how a chain of blocks emerges and eventually expands. The Merkle tree root hash is included in each block, along with the previous block hash, history, etc. This ensures the security, integrity and refutation of blockchain systems.
Each transaction on the block is digitally signed using the private key from the sender’s wallet. Since this key is only available to the sender, no one can tamper with the data. This step is called “final”. The digital signature also protects the owner’s encrypted identity for security reasons.
The network layer, also known as the propagation layer or the P2P layer, directs the communication between nodes. The network layer also serves for node discovery, node identification, transactions, cluster production, and cluster propagation. The peer-to-peer blockchain architecture enables a contract to reach an agreement on the legality of a transaction. The transaction itself is performed on the blockchain by the nodes.
This layer ensures that nodes are able to discover each other, disseminate information, and synchronize with each other to achieve credibility in the blockchain.
The heart of all classes is the layer of consensus. This is the layer that enables the basic function of the blockchain: the consensus mechanism between nodes. In addition, it provides consensus in a decentralized manner and thus eliminates the need for a central authority. This is the basic approach to decentralization offered by the blockchain. For this reason, each transaction is processed by a large number of nodes, all of which must be in agreement with each other and validate the transaction. No single node controls any transaction data. If this layer fails, the entire blockchain system fails.
This layer manages the protocol, which requires a minimum number of nodes to validate each transaction or the amount of cryptocurrency a network participant has.
The main challenges at the consensus layer relate to making sure that there is one true copy of the computer state at any given time and that no one is flipping the truth.
The layers shown so far make up a complete blockchain computer. On top of this stack, developers can publish programs and make the computer run those programs.
The application layer ensures the deterministic nature of the blockchain. The application layer contains the software that users use to communicate with the blockchain network. This facilitates the connection of the consumer device with the blockchain. The application acts as a front end facing the user, while the blockchain stack acts as a back end. Specifically, the main components of the application layer are scripts, application programming interfaces (APIs), user interfaces, frameworks, smart contracts, and decentralized applications (dApps).
Application layer protocols are divided into application and implementation layers. Smart contracts, base rules, and chain code are part of the implementation layer. Each layer plays its own role in the transaction journey. The transaction starts at the application layer and then moves to the execution layer where it is validated. After that, it is executed on the semantic layer.
Next, let’s draw the layers above into common terms used in the blockchain world: Layers 0, 1, 2, and 3.
The zero layer of the blockchain consists of the internet, the hardware and the connections that will enable the next layer to function. These make up the technical components that enable any blockchain to function. In the above terminology, layer zero consists of the hardware infrastructure layer and the data layer.
The zero layer includes the hardware layer but also includes miners and checkers. It also includes peer-to-peer networking protocols that also allow communication between each other to eventually arrive at an agreed state of what the network looks like.
Once all of these participants can come to an agreement on the current state of the blockchain computer, they should be able to compute in a way that is verifiable and guaranteed which is the theoretical game mechanics. This is where the computing layer comes in. The computation layer and the consensus layer are usually grouped together in almost every blockchain system. Together, these two layers are called Layer 1.
When we talk about Polygon or Ethereum, we are referring to the Polygon or Ethereum network layer. As explained above, this network layer manages the consensus mechanisms, programming languages, block time, conflict resolution, rules and parameters that keep the blockchain network running. Bitcoin is an example of a Layer 1 blockchain. This layer provides security for the entire blockchain by its absolute immutability.
The first tier has gone through scalability challenges and is thus evolving. As the number of blockchain users grows, the first layer is getting strained. This is when the consensus process may slow down the entire blockchain. While the blockchain is secure, speed can become a dampening factor. Miners have to solve cryptographic algorithms using computational power. As a result, the need to increase computational power and time increases. Proof of stake and hashing are two new mechanisms that address these velocity challenges for the first layer.
Layer 2 is a third-party integration that is used with Layer 1 to address scalability issues of core layers by optimizing the number of nodes. The second layer consists of overlapping networks that lie on top of the core layers. Protocols typically use Layer 2 to solve blockchain scalability challenges by removing some interactions from the underlying layers and, as a result, increasing system throughput. As a result, smart contracts ensure that off-chain transactions follow regulations.
The second layer approach is by far the most common approach to solving scaling problems. Nested layers, aggregates, and side chains are examples of Layer 2 architectures that have addressed blockchain challenges. Bitcoin’s Lightning Network is an example of a Layer 2 blockchain.
The application layer constitutes the third layer. This layer hosts applications and enabling protocols. The third layer acts as a user interface while hiding the technical aspects of the communication channel. This layer provides the benefit of the blockchain and true interoperability for developers.
In short, blockchain enables business value capture in a sustainable manner in a state of equilibrium. But scalability is a disincentive to the widespread adoption of blockchain. As decentralization as a concept gains strength across sectors, the demand for blockchain will grow. Therefore, it is crucial to solve the scalability and productivity limitations of the blockchain.
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