In recent years, blockchain technology and cryptocurrencies have seen rapid growth. This rapid growth brought out many problems that should be fixed before the world can move to the Blockchain.
Scalability is an important concern for blockchain technology. There are two types of solutions for the scaling issue with blockchains: Layer 1 and Layer 2. Blockchain layers can be used to solve this problem. Scalability solutions can be divided into Layer 1 or Layer 2 at the moment.
In this article, we’ll look into what blockchain layers are and how they work.
Let’s get started!
Blockchain Scalability: What is it?
The phrase “scaling” in blockchain technology refers to an increase in the system throughput rate, measured by the number of transactions processed per second. It is becoming increasingly important to develop a Blockchain Layer for better network security, record keeping, and other purposes.
Blockchain is the foundation of the decentralized ecosystem. Layer 2 is third-party integration which can be used in conjunction with Layer 1 for increased system throughput and nodes. Many Layer 2 Blockchain technologies are in use at the moment. To automate transactions, smart contracts are employed in these systems.
Blockchain Scalability: Why is it Important?
Different experts define the term “scalability” differently. However, at its core, blockchain scalability refers to the system’s ability to deliver a rich experience to every user, regardless of the total number of users at any given time.
Throughput describes the speed at which transactions are processed per second. While Visa’s VisaNet electronic payment network can process more than 20,000 transactions per second, Bitcoin’s main chain can only process 3 to 7 transactions per second.
It is not easy to understand why there is a difference in capability. Bitcoin is decentralized, VisaNet is regulated. To preserve its customers’ privacy, the former demands more processing power and time. Every data transaction has to go through several steps including validation, node network acceptance and mining.
Blockchain developers want to expand the capabilities of blockchain administration, as cryptocurrencies are poised to take over the business sector. The developers are aiming to increase processing speeds and TPS by creating layer 2 blockchain layers.
What is Blockchain Layers?
Blockchain technology is an unique combination of many technologies. It works in conjunction to ensure that the system runs smoothly. To support the operation of blockchain, mathematical computations, cryptography and game theory all play a role.
Blockchains don’t have any central governing authorities, so transactions can be protected and stored securely on a distributed ledger. The distributed ledger technology (DLT) operates on a predefined protocol, with several computers (or nodes) throughout the network reaching a ‘consensus’ to validate transactional data. Every node can add, examine, or alter entries.
This unique way of transaction authentication is supported by blockchains using a layer design. Each level has its own function. There are five levels. Let’s get started and learn about the architecture and what each layer does.
Layered structure in the Blockchain Architecture
1. The Layer of Hardware Infrastructure
The data servers that store blockchain data are secure. Our computers ask the server for access when we use the blockchain app or browse the internet. This data exchange is possible thanks to the client-server architecture.
Blockchains are peer-to-peer (P2P) networks that connect clients with “peer-clients” to accelerate and simplify data sharing. Blockchains are nothing but a large network of devices exchanging and communicating data. That is how distributed ledgers are created. Each device connected to the network is a node. Every node inspects transactional data at random.
2. The Data Layer
Blockchains are just a lengthy chain of ‘blocks’ that store transaction data. When a certain number of transactions are authenticated by nodes, the data is bundled into a ‘block,’ uploaded to the blockchain, and linked to the previous block of data. The ‘Genesis Block’ does not need to be linked to any previous blocks because it is the first block in the chain. The Genesis block links to the next block. This process continues for every subsequent block. This is how a Blockchain emerges and grows over time.
Every transaction is ‘digitally signed’ with the private key from the sender’s wallet. Only the sender can access this private key, which protects the data from being accessed by others. In blockchain terminology, this is called ‘finality’. The digital signature also protects the owner’s identity, which is encrypted for maximum security.
3. The Network Layer
The P2P architecture enables multiple nodes to transmit transaction data in order to achieve an agreement on a transaction’s legality. To communicate rapidly, all nodes must be capable of discovering other nodes within the network. The network layer facilitates this ‘inter-node communication.’ Because it controls node identification, block production, and block adding, this layer is also known as the ‘Propagation Layer.’
4. The Consensus Layer
This is the primary layer of blockchain operations. This layer handles transaction validation. The entire system can fail if this fails. This layer manages the protocol. Each transaction must be validated by a set number of other nodes. As a result, each transaction is processed by a large number of nodes, all of which must arrive at the same conclusion and agree on the transaction’s authenticity. This approach retains the blockchain’s decentralized nature since no node has sole control over any transactional data, and the role is distributed. This is the consensus mechanism.
Many transactions are processed by many nodes, so multiple blocks could be generated simultaneously, creating a Blockchain branch. The consensus layer makes sure that there is only one chain block added at any given time.
5. The Application Layer
This layer houses smart contracts as well as decentralized apps (dApps). Contract expiration dates, spot price achievement, and other factors influence smart contracts’ decisions. dApps are responsible for the activities that result from such decisions. All this happens at the application layer.
dApps facilitate communication between consumer devices and the blockchain. The application is the front-end for the users, and the blockchain serves as the backend.
The Blockchain Layers explained
Layer 0
The components of blockchain layer zero are those that bring the technology to life. This is what allows Bitcoin and Ethereum to work. Layer 0 components are the internet, hardware, connections, and other devices that enable Layer 1 to function effectively.
Layer one
Its immutability is the basis of security for the foundation layer. Ethereum is the Ethereum network (also known as Layer One). This layer is responsible for consensus methods, programming languages, block time, dispute resolution, and the rules and parameters that assure a blockchain network’s core functionality.
Probleme with Layer One
These scaling methods can be used in conjunction to increase network throughput. However, Layer 1 seems to be failing as more people use blockchain. On layer one, the inefficient and obsolete proof-of work consensus process continues to be used.
While this method is slow, it is much more secure. Miners need to use computing power in order to solve cryptographic algorithm problems. Therefore, miners will need to use more power and take longer periods of time. Additionally, layer one’s workload increases with increasing users. The result is that processing speeds and capacity has dropped.
Possible Solutions
Ethereum 2.0 will be using proof-of-stake as an alternate consensus mechanism. This consensus mechanism verifies new transaction data blocks based on network participants’ staking collateral, resulting in a more efficient operation.
Sharding allows you to solve the layer one burden problem. Simply put, sharding is a method of dividing the task of authenticating and validating transactions into smaller chunks that are easier to manage. As a result, the burden may be distributed over the network in order to make use of more nodes’ computing capability. The network can process many transactions simultaneously and sequentially, as it processes them in parallel.
Layer 2
L2 is an overlap network that extends above the base layer. Protocols use layer two to encourage scalable by seperating some interactions from base layer. Smart contracts running on the main blockchain protocol handle withdrawals and deposits, but also ensure that transactions off-chain follow rules. One such example of a layer two blockchain is Bitcoin’s Lightning Network.
What is the real difference between layers 1 and 2 of blockchain? Blockchain is the first layer in the decentralized ecosystem. Layer two works alongside layer one and increases the system’s throughput. Many layer-two blockchain solutions are being used at the moment.
Layer Two Scaling Solutions
Since the late 1990s, layer 2 protocols have gained popularity and have proved to be the best way to solve scaling problems in PoW networks. We will be discussing several Layer 2 scaling strategies in the following sections.
Nested Blockchain
The layer two blockchains are stacked one on top of the other. The basic idea is that layer one determines the parameters while layer 2 executes the operations. There may be many layers to a single blockchain mainchain. It can be considered a business structure.
Instead of assigning a single person to all tasks (e.g. the manager), the manager gave duties to subordinates. They then reported back the results to management. As a result, the manager’s burden decreases, and scalability increases. For example, the OMG Plasma Project acts as a level two blockchain for Ethereum’s level one protocol, enabling cheaper and quicker transactions.
State Channels
State channels increase transaction speed and capacity by permitting two-way communication via different methods between the blockchain and other transactional channels. A state channel allows the miner to validate transactions without being directly involved.
Instead it’s a network-adjacent source that’s protected with a smart contract or multi-signature method. When a batch or transaction on a state channel has been completed, the eventual channel state and any transitions that occur are transmitted to the underlying Blockchain.
The Bitcoin Lightning and Ethereum’s Raiden Network are two examples of state channels. The trilemma compromise offers state channels some decentralization in return for higher scalability.
Sidechains
Sidechains are transactional chains that run alongside blockchains and can be used to perform large-scale bulk transactions. Sidechains can have their own consensus algorithm, which can be adjusted for speed and scaleability. A utility token is often used as part of data transfer between main and side chains. The main function is to resolve dispute resolution and provide security.
In many ways, sidechains are distinct from state channels. Sidechain transactions do not allow for private communication between parties; instead, all sidechain transactions are recorded and recorded in the ledger. Security breaches in the sidechain do not affect the mainchain and other sidechains. Sidechain building from scratch takes considerable time and effort.
Rollups
Rollups can be described as layer 2 blockchain scaling methods. They execute transactions beyond the layer 1 network, then upload the results to the layer 2 blockchains. Rollups can be kept safe by layer one because they are stored on the foundation layer.
Rollups are a benefit to users because they allow for more transactions, increase participation and lower gas costs.
Layer three
Layer three, or sometimes L3, is the name of the application layer. L3 projects are used as an interface and hide the technical details of the communication channel. As mentioned in the blockchain architecture’s layered structure, L3 apps are what give blockchains their real-world applicability.
Let’s get to the bottom
Crypto mainstream acceptance in blockchain is still not possible due to scaling. With cryptocurrency becoming more popular, there will be more demand to build blockchain protocols. Because each blockchain level has its own set of constraints, the final solution will be to develop a system capable of overcoming the scalability trilemma.
It is essential because layer one serves as the base for all decentralized systems. The underlying blockchain’s scalability issues are addressed via layer two protocols. Most layer three protocol (DApps), however, still operate only on layer one and do not consider layer two. It’s hardly surprising that these systems aren’t working as well as they should.
The importance of layer three apps is that they allow for the creation of practical use cases for Blockchains. These apps will not be as valuable as the core blockchains, but they are more efficient than traditional networks.
Our CoinStats blog provides information about crypto exchanges, wallets, portfolio trackers and tokens. We also offer in-depth buying guide on how to buy various cryptocurrencies such as How To Buy Radix, DeFi, How To Buy Cryptocurrency, Why Your Crypto Should Be In Non-Custodial Wallets.
Investment advice Disclaimer
Information on this site is for your informational purpose only. CoinStats does not endorse any recommendation to sell, buy or hold securities or financial products. This information does NOT constitute financial advice or trading advice. Information on this website is not based on any financial institution. It may be different from information you get from service providers.