Understanding The Layers of Blockchain
There are six layers in the blockchain:
- Data layer
- Network layer
- Consensus layer
- Activating layer
- Contract layer
- Application layer
The communications sector uses OSI, which separates the six levels into three layers from bottom to top: Layer 0, Layer 1, Layer 2, and Layer 3.
Layer 0
Layer 0 blockchains are like the internet backbone. Layer 0 blockchains are fundamental building blocks that allow layer 1 blockchains to communicate with each other, a process called cross-chain operability.
The Layer 0 (data transmission layer) of the OSI model is responsible for integrating blockchain technology with existing networks. It’s a foundation layer that makes transactions come to life.
Examples:
Cosmos and Polkadot — Cosmos is the foundation for Binance Chain
The core structure of the blockchain is not changed by Layer 0 scaling methods. This allows developers to maintain the ecosystem’s core concepts while also improving performance.
Layer 1
Layer 1 refers to the data layer, network layer, consensus layer, and activating layer.
Layer 1 blockchains are also called as “public chains”.
Layer 1 is a blockchain that combines the base level technology of the Layer 0 blockchain with its own consensus technology. It uses its own consensus technology to process and finalize transactions on its own blockchain.
Some famous Layer 1 chains:
Bitcoin, Ethereum, Solana, Cardano, and Avalanche
What’s special about Layer 1 blockchains?
Independent blockchains that can work WITHOUT other chains.
Have their own structure and mechanisms:
- its own consensus mechanism
- its own ledger
- its own nodes
- its own token
What is the biggest problem with Layer 1 blockchains?
Scaling.
One of the biggest challenges facing the world of cryptocurrency is scalability. Blockchains are facing growing pains as more and more users compete for the resources needed to record transactions on their ledgers.
The most popular blockchain, Bitcoin, relies on a consensus method called Proof of Work. PoW requires a huge amount of computing power and energy.
One of the biggest problems with PoW-based blockchains, especially those that use Ethereum’s consensus mechanism, is that they become slower the more transactions are processed. This slows down transaction confirmation times and makes it more expensive.
Layer 2
Layer 2 refers to the blockchain’s contract and application layers. Layer 2 blockchains are built on top of Layer 1 chains. Layer 2 is a network built on top of the blockchain to provide better scalability, availability, and privacy for people using blockchain technology.
Layer 2 blockchains are designed to address the scalability issue of Layer 1 blockchains, such as Ethereum.
Example:
Polygon is a Layer 2 scaling solution for Ethereum.
Other examples: Plasma, State Channels, Optimistic rollups, and more.
Different from Layer 1
Layer 2 is different from Layer 1 because of the way it handles nodes. In a Layer 1 chain, nodes must perform specific tasks and be distributed in order for its consensus algorithm to work.
However, in layer two, the node can be owned and run by an individual, a group of individuals, a business or a few organizations. Besides being a node, it also functions as an operator or sequencer in different scenarios.
Layer 3
Layer 3 is represented by blockchain-based apps, such as DeFi platforms and distributed storage apps. Many of these apps have cross-chain functionality, allowing users to access various blockchain platforms through a single app.
Layer-three solutions enhance the capacity of several blockchains by allowing them to interact without the use of a third party or intermediary.
Consider L3 protocols as a means to simplify all the layers without adding unnecessary complexity. They act as a bridge between L1 and L2 systems, ignoring the majority of their operational differences.
Note: While Ethereum and Solana (SOL) have a robust layer 3 app ecosystem, Bitcoin is not designed to support such applications.
Examples:
Uniswap, Foundation, and Decentraland
Layer 1 — base blockchain
Layer 2 — several protocols that are built on top of layer 1 to improve functionality
Layer 3 — blockchain-based applications
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Further reading & resources:
