Blockchain layers: Identifying how the network functions

Blockchain is becoming more widely used across all industries, giving it a much-needed boost in popularity to expand its base of users. This brings attention to literacy in its architecture, a necessary skill to explore its potential as an infrastructure. The most important element is its different layers and what they do for the blockchain. 

Key Takeaways

• The internet and its interconnected servers make layer 0. 
• Layer 1 blockchains are built on top of layer 0 and layer 2 is built on layer 1.
• Layer 3 is a user-facing application that allows users to interact with layers 1 and 2. 
• A blockchain is dissected into five layers. Each layer serves a distinct role in how a blockchain functions. 

Gamdom puts together this comprehensive blockchain layers guide. It shows everything a beginner needs to know about the world’s most popular distributed ledger technology (DLT). 

What are blockchain layers?

Just to clarify the answer to ‘What are blockchain layers?’. It is not a division of the blockchain as a network. Instead, these are stages where the networks are created. 

The best way to understand Blockchain layers is to think of it as a division of fundamental functions. Each one is built on top of the other but they all have an important role in making the system usable and appealing to every user. 

There are only four layers in a blockchain starting from 0 and ending in 3 with each subsequent one being more user-friendly. Here’s a quick rundown of the structure:

Layer 0: Foundational elements

You can consider layer 0 as the foundation of the whole system. It’s the bedrock of everything that works in a blockchain which will not exist without it. This layer consists of the internet and the servers that contain the internet as well as the nodes that miners maintain. 

The main goal of this layer is to optimise how data is distributed to every user. Most of the time, it requires hardware replacement or upgrades but protocols can also be created here. Among the most popular examples of which are Cosmos (ATOM) and Polkadot (DOT). 

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Layer 1: Consensus mechanisms

Layer 1 is where blockchain as most newcomers to the crypto space knows it. This is where you’ll see examples like Bitcoin (BTC) and Ethereum (ETH). If layer 0 is the foundation, you can think of layer 1 as the city built on top of it. This blockchain even comes with a set of rules dictating how it handles data, protects its users, and rewards validators. 

Most crypto traders are already familiar with layer 1 blockchains but there’s a common misconception about it. These are still foundational to how digital assets are being used today. The assets you trade and apps you use are your main gateway to using its blockchain but those are products of the other two layers. 

Layer 2: Integration with third-party solutions

Layer 2 is where the blockchain structure is starting to loosen up. It’s where applications run to either improve the services of layer 1 blockchains or compensate for what they lack. For example, Polygon (MATIC/$Pol) is a layer 2 network created to help scale the Ethereum blockchain. 

Consider it a support layer where a new protocol is introduced to improve the functions of the layer 1 blockchain. Polygon only works on Ethereum so if you need a similar feature for Bitcoin, then you should look into BTC’s layer 2 landscape. Popular examples include Rootstock (RSK) and Dovi (DOVI) for Bitcoin investors. 

Layer 3: Host for dApps and user-facing applications

Layer 3 is the last of these sets and it’s the landscape that users interact with. This is where decentralised apps (DApps) are introduced, user-friendly interfaces that allow the user to interact with layers 1 and 2 when moving digital assets. It is simply called the ‘application layer’ because that is mainly what’s found here. 

User-facing applications simplify how the rest of the network works. Thus, you can issue commands or create smart contracts that do not require coding using script languages. Everything that a developer could do in all layers in blockchain becomes button prompts for users. Examples of layer 3 blockchains include Uniswap (UNI) and Decentraland (MANA).

Overview of blockchain architecture 

The previous section talks about layer 0, 1, 2, and 3 blockchain but this part now explores the dissection of a network. It can be confusing because these sections are also called ‘layers’. An important distinction is that this method of dissemination refers to the blockchain architecture. 

The following sections talk about the structure answering the question ‘How do blockchain layers work?’. In understanding it, you can better understand the role and potential of a new blockchain project in the crypto industry. Just like previously, this overview can be understood in the context of architecture starting from the foundation up to the user-facing application.

Hardware layer

The hardware layer refers to the network of computers, servers, and mining rigs hosting the blockchain’s blocks. This is also what gives the network its processing power called hashrates. The people who maintain these servers are the validators and they are in charge of validating and verifying transactions in the network.

These hardware contain nodes that hold a fraction or a copy of the blockchain. It is the validators’ job to make sure that their rig remains connected to the internet at all times. Once disconnected, the processing power goes down but the blockchain still runs for as long as there are other nodes active on the network. 

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Data layer

The data layer stores transaction history, making it immutable, meaning that no action on the blockchain is reversible. These are pieces of information held in the fundamental units of a blockchain called ‘blocks’. Information like the current owner of a crypto asset, the private key of the person who sent it, and the wallet address of its recipient are written here. 

Network layer

The network layer is what dictates how each block communicates with each other, keeping them all updated with every action happening in the space. If a user makes a decision, then it’s the network layer’s job to update all blocks of the new data. It is also responsible for clarifying which transaction is currently being validated. 

Consensus layer

The consensus layer defines the blockchain’s identity. It is where protocols are implemented that the network needs to follow to determine how it handles all the blocks. This is what dictates which validator becomes assigned a task and gets all the rewards for its completion. The consensus system determines what the blockchain needs for hardware.

Bitcoin, for example, uses proof-of-work (PoW) so its nodes are hosted in mining rigs with powerful processors. Meanwhile, Ethereum stepped away from it and moved into Proof-of-Stake (PoS) since the Merge and now uses less power. Either way, these are validators and they are providing the blockchain’s hashrate in exchange for transaction fees and minted crypto.

Application layer

The application layer is where the user-facing application is created. It is the main interactive platform the user has to interact with the blockchain or at least its assets. This covers crypto wallets, social media apps, Dapps, and platforms for selling non-fungible tokens. All it gives you is ways to interact with the assets but not edit the code established in other layers. 

All different layers serve to make the blockchain work

Understanding these layers is essential for grasping blockchain architecture and infrastructure. Gamdom covers the basics to help develop a frame of reference in better understanding the technology behind your favourite networks. 

By learning more about specific blockchains and crypto, you can better monitor their growth in the economy. It’s an exciting way to see your profit growth from Gamdom casino winnings as a gambler. Always look forward to the bright future ahead but remember to take your fundamental understanding of blockchain as you invest in crypto. 

Frequently Asked Questions

Here are some of the most frequently asked questions about blockchain layers:

Do all blockchains have the same layer structure?

No. Every blockchain has unique structures designed to fulfil its intended purpose. For example, Bitcasino is created with a focus only on the robust features of layer 1 blockchain for security and decentralised peer-to-peer transactions. Meanwhile, Polkadot and Cosmos showcase a more complex layer 0 protocol. Ethereum, meanwhile, has tools to make layer 3 have varieties. 

Can blockchains on different layers interact with each other?

Yes. This is the primary way that blockchains are improved. Layer 1 blockchains, for example, consists mainly of its fundamental structure as a network. However, another blockchain created on layer 2 can be built on top of a layer 1 network as a foundation. This allows the layer 2 blockchain to provide its protocol to the other network, further improving its features. 

Is it important to identify which layer does which job?

Yes. Understanding the roles and responsibilities of each layer is crucial to designing the blockchain system effectively. Getting confused by which landscape does what job can lead to a problem in designing a new system. Likewise, traders also benefit from understanding the fundamentals for every layer because it helps understand the intent behind the technology. 

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