A Prologue to Blockchain Layers

Introduction

The structure of a blockchain is not as simple as it might seem. As you may know, blockchains are decentralized ledgers that rely on cryptography and P2P networks to function. They store data in blocks and use consensus algorithms to check for validity, with each transaction being added to a chain of blocks (hence the name). But this isn’t all there is to it: blockchains are actually composed of several different layers that work together in order for them to function properly. In this post we’ll explain what these layers are and how they fit together into one cohesive whole!

Blockchain Layers

Blockchain layers are the fundamental building blocks of any blockchain. It should be noted that this isn’t a perfect analogy, because there is far more than one layer in most blockchains—but it’s useful to think of them as having distinct responsibilities and being able to interact with each other. The number of layers and the exact functions they’re responsible for can vary depending on the blockchain or which type of blockchain you’re considering.

In Bitcoin-land, there’s just one layer: transactions are stored in blocks by miners who earn bitcoins by doing so. But Ethereum has two layers: transactions are stored in blocks by “miners,” but smart contracts run on top of those transactions and can initiate new ones based on the conditions set up by their creators (the “contractors”).

Blockchains are organized into layers, with each layer being responsible for a different set of functions and being able to interact with other layers. The number of layers and the exact functions they’re responsible for can vary depending on the blockchain or which type of blockchain you’re considering.

In Bitcoin and most other cryptocurrencies, there are 3 main layers:

1) the data layer (where transactions are stored),

2) an application layer (which contains the code for how new transactions will be processed), and

3) a consensus mechanism that determines which transactions get accepted as valid by everyone else on the network.

Take Bitcoin as an example, which has three layers.

• Layer 1 (L1) – The L1 layer is Bitcoin Core. This layer is responsible for the peer-to-peer network, where transactions are sent and received between users. It also handles proof-of-work and consensus algorithms to verify block transactions on the blockchain.
• Layer 2 (L2) – The L2 layer is SegWit, which was introduced after a hard fork in 2017 to speed up Bitcoin transactions by reducing block sizes from 1MB down to 250KB. With this update, it also introduced other benefits such as instant confirmations and less congestion on the network .
• Layer 3 (L3) – The L3 layer is Lightning Network. This layer allows for off-chain transactions between users and businesses, which reduces congestion on the blockchain. By routing transactions through this network, it also makes them instant and cheaper than sending a transaction through a traditional payment gateway like PayPal or Stripe.

Layer 1 (L1)

Layer 1 (L1) is where the actual data is stored and transactions are made. This layer serves as a database for all of the transactions that have taken place on the blockchain. Here, miners work to create blocks, which are then added to L2 when they are verified by other nodes in the network.

The following components make up Layer 1:

• Blockchain – Data storage unit responsible for recording transactions
• Mining – Consensus mechanism through which new blocks are created

Layer 2 (L2)

The second layer (L2) is responsible for the validation of transactions and also provides an incentive for miners to participate in the process.

The L2 layer allows for smart contracts to be developed, as it uses an off-chain system that can be used by anyone with a smartphone or computer to interact with blockchain technology.

Layer 3 (L3)

Layer 3 (L3) is the network layer, which consists of the nodes in the network, and the peer-to-peer protocols that they use to communicate with each other. L3 is responsible for transmitting information across the network.

In blockchains like Bitcoin and Ethereum, each node functions as a full copy of all transactions happening on the blockchain at any given time. This means that if you want to send money from one account to another (or even just look up your own balance), your computer has to query all nodes in order to find out whether or not this transfer has occurred yet.

This process can be very slow if there are many more nodes than computers trying to query them; it also makes it difficult for users who don’t have fast internet connections since they may need multiple hours before their queries are answered successfully.

Blockchains have a layered structure

The structure of a blockchain is made up of 3 layers:

• Layer 1 is the base layer, which is sometimes referred to as a “consensus layer.” This layer contains all transactions that have ever been recorded on the ledger. It ensures that all participants in a distributed network agree on which transactions belong there and when they were added.
• Layer 2 is the second layer and handles functions such as messaging (similar to email), payments processing and smart contract execution. This layer can be built on top of Layer 1, or another blockchain platform like Ethereum or Hyperledger Fabric’s Fabric codebase—it’s essentially an application interface for connecting with existing networks without changing their underlying structure much beyond simple permissioning rules (who gets access).
• Layer 3 refers to additional services built on top of these first two layers, including identity management systems such as uPort; data exchange platforms like Harbor; compliance solutions like Chainalysis; security/privacy frameworks such as OpenLaw; supply chain management tools like Skuchain.

The first layer is the most fundamental, and it’s the one that needs to be built first. Layer 1 is what actually allows for distributed ledgers to exist in the first place: It’s the base infrastructure on which other applications can be built. This layer often takes the form of a blockchain or DAG (Directed Acyclic Graph), depending on where you’re viewing it from.

The second layer is the application interface, or API (application programming interface) for interacting with existing networks. These types of APIs are crucial for blockchain adoption because they allow companies to integrate decentralized technologies into their existing processes.

The last layer is the development environment. This is where developers can build their own applications using blockchain technology. This includes tools like Solidity for writing smart contracts and Truffle for managing them. It also includes frameworks such as Hyperledger Fabric, Ethereum, and R3’s Corda that allow developers to create DApps (decentralized applications).

Conclusion

As you can see, blockchain layers are an integral part of the technology. They allow different functions to be carried out at different levels, which makes it easier for developers to create applications on top of them. In addition to this, they also help keep things secure by ensuring that no single layer can access data from another layer without going through another process first (which takes time). With so many benefits available from using layers in your own projects or research on this topic, we recommend taking some time today to learn more about how each layer works together with others within its category (e.g., Layer 1 vs Layer 2) before deciding which type best suits your needs!

Watch out for our next blog post in this series, which will focus on the different types of layers and their benefits.