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. The proposed solution to blockchain’s scaling problem is Blockchain Layers. In order to scaleability, there are two kinds of solutions: Layer 1 or Layer 2.
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, recordkeeping and other purposes.
The first layer in the decentralized ecosystem is blockchain. Layer 2 is an integration that Layer 1 uses to improve the number and throughput of nodes. Many Layer-2 blockchain technologies are in use. These systems use smart contracts to automate transactions.
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. There are many steps involved in data transactions, such as node network acceptance, mining and dissemination.
As cryptocurrencies continue to dominate the economy, developers of blockchain are working to broaden the reach of blockchain administration. They intend to decrease processing time and improve Layer 2 scalability by creating layers of blockchain and layer 2.
What are 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. Five levels are involved with their own functions. Let’s get started and learn about the architecture and what each layer does.
Blockchain architecture’s layered structure
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 exchange of data is enabled by the client-server structure.
Blockchains are peer-to-peer (P2P) networks that connect clients with “peer-clients” to accelerate and simplify data sharing. This is nothing other than an enormous network of devices sharing data and communicating with each other. It is this way that a distributed ledger was born. Each device connected to the network is a node. Each node randomly examines transactional information.
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, so that data cannot be 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. In order to be able communicate quickly, each node must have the ability to find other nodes in 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
Blockchain operations’ primary layer. 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. However, the consensus layer makes it possible to add a single block to the chain at any time.
5. The Application Layer
This layer contains smart contracts (dApps) and decentralized applications (sC). Contract expiration dates, spot price achievement, and other factors influence smart contracts’ decisions. dApps are responsible for the activities that result from such decisions. This all takes place at an 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
Layer zero of Blockchain is composed components that enable blockchain to come to life. This technology allows Bitcoin, Ethereum and other blockchain networks function. Layer 0 components are the internet, hardware, connections, and other devices that enable Layer 1 to function effectively.
Layer one
Foundation layer security is built on immutability. The Ethereum network is also called layer one when people talk about Ethereum. 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.
Problems with Layer One
Combining these scaling techniques together can increase the network’s throughput. However, Layer 1 seems to be failing as more people use blockchain. Layer one still uses the outdated and inefficient proof of work consensus process.
Although it’s slower than other approaches, this approach is safer. Miners need to use computing power in order to solve cryptographic algorithm problems. In the long-term, this means that more computing power is required and more 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 adopt proof-of stake as an alternative 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. Sharding, which is simply a way to break down the validation and authentication of transactions into manageable pieces, allows for more efficient scaling. As a result, the burden may be distributed over the network in order to make use of more nodes’ computing capability. Because the network processes multiple shards simultaneously, many transactions can be performed sequentially and simultaneously.
Layer 2
L2 solutions are a network with overlapping connections above the base layers. To promote scaling, protocols use Layer 2 to separate some interactions from their base layer. The smart contracts that run on the main blockchain protocol manage deposits and withdrawals while making sure off-chain transactions follow certain rules. One such example of a layer two blockchain is Bitcoin’s Lightning Network.
How can you tell the difference between layer one and two of blockchain’s layers? The blockchain is the foundation of 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
Layer two protocols, which have been growing in popularity in recent years, have proven to be one of the best ways to address scaling issues in PoW networks. We will be discussing several Layer 2 scaling strategies in the following sections.
Nested Blockchain
Layer two of a blockchain can be stacked onto another. 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. This is a common business structure.
Managers no longer had to do all the work. Instead, they delegated tasks to subordinates who reported to the manager when completed. 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.
The State Channels
The state channel improves transaction speeds and transaction capacity. It allows two-way communication through various channels between off-chain and blockchain transactions. The miner doesn’t need to engage in order for a transaction to be validated via state channels.
Instead it’s a network-adjacent source that is secured by either 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. State channels offer some decentralization for greater scalability in the trilemma deal.
Sidechains
Sidechains can run in tandem with the blockchain. They are used for bulk large 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. Mainchain’s main purpose is to ensure general security and resolve disputes.
Different sidechains are different from state channels in many ways. First, sidechain transactions between participants aren’t private; they are all recorded in the ledger. Security breaches in the sidechain do not affect the mainchain and other sidechains. It takes a lot of effort and time to build a sidechain.
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. Because the data is stored on the foundation layer, rollups can be kept safe by Layer 1.
Rollups can be a boon for users as they improve transaction throughput and open participation while lowering gas prices.
Layer three
Layer three, or sometimes L3, is the name of the application layer. L3 projects act as an user interface, while hiding the technical details. 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. As cryptocurrency demand rises, the desire to create blockchain protocols will grow. 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. Unfortunately, most layer three protocols (DApps), still only work on layer 1, and skip layer 2. 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. They will capture less value than their core blockchain, which is contrary to the traditional network.
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