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Understanding the Blockchain Layers Hierarchy: Layer 1, Layer 2 and Layer 3  

Introduction

BBlockchain is a revolutionary technology that allows us to store and execute transactions and smart contracts in a distributed and transparent way. However, blockchain also faces some challenges, such as limited storage, high fees, and low throughput. To overcome these issues, various solutions have been proposed, such as Layer 2 and Layer 3 protocols. Certain blockchains, including Ethereum blockchain development or Solana blockchain development, support a robust ecosystem of Layer three applications.

Layer 2 protocols are built on top of the existing blockchain (Layer 1) and provide faster and cheaper transactions using cryptographic techniques, such as zero-knowledge proofs. Some examples of Layer 2 protocols are Lightning Network, Polygon, and Starknet. Layer 3 protocols are applications that use Layer 2 protocols to offer specific services, such as decentralized exchanges, gaming, and social media. Some examples of Layer 3 applications are Uniswap, Axie Infinity, and Twitter. I strongly suggest that you contact us as we provide our service in polygon blockchain development.

In this article, we will explain the differences and advantages of each layer, and how they work together to create a scalable and secure ecosystem for decentralized applications. We will also show you how to hire ethereum developer, or Polygon developers to help you build your own Layer 3 applications. Whether you are a beginner or a blockchain expert, this article will help you understand the blockchain layers hierarchy and its potential for the future.

What is a Blockchain?

Blockchain is a decentralized network, immutable ledger technology that streamlines the processes of a high transaction of existing protocols, confirming transaction records, and monitoring assets within a corporate network. A tangible asset (a home, a vehicle, cash, or land) or an intangible asset (intellectual property, patents, copyrights, branding). Almost everything of value can be recorded and exchanged on a blockchain platform, underlying blockchain architecture that mitigates risk and lowers costs for only the participants.

Business is information-driven. The sooner and more precise it is received, the faster the transaction fees are. Blockchain technology is excellent for distributing node information. It allows for faster transaction, instant, shared, and entirely transparent data storage on an immutable ledger that can be accessed only by network users with certain permissions for the visa process. A blockchain industry can track orders, VisaNet electronic payment network, accounts, and production, among other things. Additionally, because members share a single version of the truth, you can see the entirety of a contract from start to finish with increased confidence and additional efficiencies and possibilities.

Layered Structure of Blockchain

Blockchain architecture is designed with a layered structure, consisting of various layers that work together to enable the functioning of a blockchain network. Each layer serves a specific purpose and contributes to the overall security, transparency, and efficiency of the system. Here's an explanation of the different layers in blockchain architecture:

Hardware Layer:

  • The hardware layer represents the physical infrastructure that supports the blockchain network.
  • It includes servers, computers, storage devices, and other hardware components that are used to run nodes in the network.
  • The distributed nature of blockchain often involves a decentralized network of nodes, which can be operated by different entities or individuals.

Data Layer:

  • The data layer is where the information is stored securely in a decentralized manner.
  • Blockchain uses a distributed ledger to record transactions in a series of blocks, and each block contains a set of transactions.
  • The data layer ensures that the information is tamper-resistant and can be verified by all participants in the network.

Network Layer:

  • The network layer is responsible for facilitating communication and connectivity between nodes in the blockchain network.
  • Nodes communicate with each other to propagate transactions, share information about the state of the blockchain, and reach consensus on the validity of transactions.
  • P2P (peer-to-peer) networking protocols are often used to ensure efficient and secure communication between nodes.

Consensus Layer:

  • The consensus layer is crucial for maintaining the integrity and consistency of the blockchain.
  • Consensus algorithms enable nodes to agree on the state of the blockchain and validate transactions.
  • Common consensus mechanisms include Proof of Work (PoW), Proof of Stake (PoS), Delegated Proof of Stake (DPoS), and Practical Byzantine Fault Tolerance (PBFT).P2P (peer-to-peer) networking protocols are often used to ensure efficient and secure communication between nodes.

Application Layer:

  • The application layer is where decentralized applications (DApps) and smart contracts are built and executed.
  • Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They run on the blockchain, ensuring transparency and automation.
  • DApps are applications that interact with the blockchain, leveraging its decentralized and secure nature.

Blockchain's Key Components

Blockchain Development

THE TECHNOLOGY OF THE DISTRIBUTED LEDGER

Every member of the network has accessibility to the distributed nodes ledger and its unchangeable record of faster transactions. Transaction fee capacity is recorded just once using this shared ledger, avoiding the duplication of effort associated with traditional commercial blockchain platforms or solving cryptographic algorithms.

RECORDS THAT CANNOT BE MODIFIED

If a transaction capacity contains a mistake, a new entire transaction set must be added to rectify the problem, at which point both transaction capacities become accessible.

Contracts

A set of rules dubbed smart contracts is saved and performed automatically on the Bitcoin blockchain platforms to expedite faster transaction speeds and parties processing transactions. Smart contracts may be used to set the terms of corporate bonds, entire transactions, and the terms of payment of parties processing transactions speed for travel insurance.

THE OPERATION OF THE BLOCKCHAIN

  • Each record is captured in the form of a data "block."
  • These authenticating transaction speeds reflect the transfer of an asset, which may be tangible (a product) or intangible (a service) (intellectual). Each blockchain trilemma is linked to the blockchain trilemma immediately preceding and following it.
  • As an asset transfer between locations or ownership changes hands, these blocks create a data chain. The blocks verify the precise timing and sequence of transaction record
  • They are securely linked together to prevent any blockchain trilemma from being edited or added between two existing Bitcoin blocks.
  • A blockchain is a sequence of irreversible transaction records.
  • Each subsequent block reinforces the previous block's verification and the whole blockchain. It makes the Bitcoin blockchain impenetrable to tampering, hence giving the critical property of immutability. It eliminates the risk of manipulation by a bad party — and creates a trusted ledger of network transaction speed.

Now that you're familiar with some of the fundamental terms specialists use to define accessible protocols, you're ready to learn about existing protocols that are beginning to gain traction in today's business world. It is critical to note that while there are hundreds of processing computing power protocols available, examining the entire list would take an excessive amount of time. However, five essential protocols stand out, and an outline of the primary protocols frequently utilized in Bitcoin Blockchain development services is included below.

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Hyperledger 

Hyperledger is an accessible initiative to develop a suite of tools to assist organizations swiftly and successfully deploying Blockchain technology and maintaining security breaches. The protocol is frequently utilized in Blockchain technology solutions because it includes libraries that support development aid. The Linux Foundation is an outspoken proponent of Hyperledger and has contributed considerable expertise to expedite the protocol's development. Additionally, Hyperledger development is compatible with Linux, allowing it to operate efficiently on the same servers extensively utilized in today's commercial lighting network increasing and maintaining security.

Multi chains

Multichain was founded to assist for-profit businesses in establishing private Blockchains to promote more efficient cheaper and faster transactions and enable the development of new applications for the proof-of-work methods upon which Blockchain technologies are based. Multichain may provide an API that Blockchain development services can utilize to expedite integration and accelerate deployment as a private enterprise. What differentiates Multichain from its competitors is its ability to coexist with fiat currencies and tangible repositories of value. By contrast, most cryptocurrency initiatives are geared toward the eventual abolition of physical money in favor of digital mediums of exchange.

Ethereum for Enterprise

Ethereum provides a business-oriented version of its software. Ethereum Enterprise's mission is to expand the business applications of Blockchain software development. Businesses can swiftly construct large-scale value exchange apps with Ethereum Enterprise. The primary advantage of Ethereum Enterprise is that it enables enterprises to construct bespoke Ethereum variations while still utilizing the most recent Ethereum technology. Under normal conditions, Ethereum's license makes it impossible for corporations to create proprietary variations of the program; however, the corporate edition circumvents this restriction.

Corda

Corda is a rival to Multichain, offering an enterprise-focused protocol. Most Corda applications have been created in the financial and banking industry. However, Corda's technology may create a wide variety of unique Blockchain trilemma. Corda has been approved by the R3 banking consortium, making it an excellent alternative for developing Blockchain solutions for the finance industry.

Quorum

As is the case with many major protocols, Quorum aims to assist organizations in the finance sector. Quorum is noteworthy since it has the financial community's full support. For example, J.P. Morgan Chase is the protocol's principal financial sponsor, and it has garnered extra funding from other major institutions. However, Quorum has remained an open-source project that anybody may use. Quorum is also inextricably linked to Ethereum, as the project began by changing the Ethereum source code.

Blockchain Scalability

In blockchain technology, "scaling" refers to a rise in the system's throughput rate, expressed in transaction speed per second. With the increased acceptance of cryptocurrencies in daily life, blockchain layers have become necessary to improve lighting network increases security, recordkeeping, and other scaling solution services.

The rate at which a system processes transactions per second is called "throughput." 

The blockchain is the fundamental building component of a decentralized ecosystem. It consists of three layers: Layer 1, Layer 2, and Layer 3. Layer 2 is a third-party integration that works in concert with network Layer 1 to increase the number of distribution nodes and hence the decentralized system throughput. Numerous Layer 2 solutions are being adopted at the moment. These decentralized systems automate transaction speed through the use of smart contracts and scaling solutions.

As Bitcoin becomes a major force in the business sector, blockchain developers strive to widen the scope of blockchain administration.

Transaction Fee of a Blockchain Network

The blockchain fee is a cost associated with Bitcoin transaction costs levied on users. The charge is collected for the network to complete the authenticating transactions.

You must pay the blockchain charge to ensure that your Bitcoin transactions arrive on schedule. The blockchain fee is one of the primary strategies used to accelerate crypto-authenticating transactions, frequently delayed due to the blockchain network's high congestion level. The smaller the blockchain cost, the lower the priority of your transaction in the blockchain.

The transaction capacity has always been an integral feature of most blockchain-decentralized systems. You've certainly encountered them while transferring, depositing, or withdrawing cryptocurrencies.

Most cryptocurrencies use transaction capacity for two critical reasons. To begin, fees help mitigate the quantity of spam on the network. Additionally, it renders large-scale spam assaults prohibitively expensive to execute. Second, transaction capacity rewards users who assist in verifying and validating automated transactions. Consider it a prize for assisting the network.

While transaction costs are generally low for most blockchains, they can become highly expensive depending on network activity. As a user, the fee amount you specify impacts the order in which your transaction is included in the next block—the bigger the confirmation cost, the faster the procedure.

As the world's first network, Bitcoin established the pending transaction that is now employed by a large number of cryptocurrencies. Satoshi Nakamoto recognized those pending data transactions might help safeguard the network from large-scale spam assaults while incentivizing good conduct.

Layer 1 Blockchains Explained

Layer 0: The Underlying Infrastructure

At the bedrock of the blockchain ecosystem lies Layer 0, a critical yet often overlooked foundation. This layer encompasses the fundamental infrastructure that supports the entire blockchain network. Let’s delve into its components:

1. Networks of Blockchains: When we mention Layer 0, we’re referring to the intricate web of interconnected blockchains. These protocols facilitate cross-chain operability, enabling seamless communication between different blockchain networks.

Layer 1: The Backbone of Blockchain

Layer 1 serves as the bedrock upon which everything else is built. Its immutability ensures robust security. Here’s what you need to know about this foundational layer:

1. Ethereum and Beyond: When people talk about Ethereum, they’re essentially discussing the Ethereum network, which is a prime example of Layer 1. This layer handles critical functions:

  • Consensus Procedures: Deciding how transactions are validated.
  • Programming Languages: Enabling smart contract development.
  • Block Time: Determining how often new blocks are added.
  • Dispute Resolution: Handling conflicts.
  • Network Parameters: Governing the blockchain’s core operation.

2. Implementation Layer: Layer 1 is often referred to as the implementation layer. It’s where the magic happens—where the rules and protocols come alive. Bitcoin, with its single-layer architecture, exemplifies this simplicity.

Challenges at Layer One

As blockchain adoption surges, Layer 1 faces scalability challenges. The surge in users strains its capacity, leading to bottlenecks. But fear not; solutions are on the horizon.As blockchain adoption surges, Layer 1 faces scalability challenges. The surge in users strains its capacity, leading to bottlenecks. But fear not; solutions are on the horizon.

Potential Solutions

1. Proof-of-Stake (PoS): Ethereum 2.0 introduces PoS as its consensus mechanism. Instead of energy-intensive mining, PoS verifies new transaction blocks using staked collateral from network participants. This shift promises greater efficiency and scalability.

Layer 2 Blockchains Explained

layer 2

L2 solutions are overlapping networks that lie on top of the base layer. Protocols use Layer two to boost scalability by eliminating base-layer interactions. As a result, consensus mechanism smart contracts running on the principal blockchain protocol handle just deposits and withdrawals and verify that off-chain transactions adhere to regulatory requirements.

Thus, what is the distinction between Layer One and Layer two blockchain technology? The blockchain is the fundamental building component of a decentralized ecosystem. Layer 1 is a third-party integration mechanism in concert with Layer one to increase the number of nodes and hence the decentralized system throughput. Numerous Layer Two blockchain solutions are currently being implemented.

Scaling solutions on two levels

Layer two protocols have risen in popularity in recent years, and they are proving to be the most successful method for scaling PoW networks in particular.

The blockchain that is nested

A layer two blockchain is a base layer of a blockchain system built on top of another. Layer one defines the parameters, whereas Layer two executes the operations. On a single mainchain, many base-layer blockchain levels may exist. Consider the following example of a typical business structure of nested blockchain.

Rather than having a single person (for example, the manager) perform all of the work, the manager delegated assignments to subordinates, who subsequently reported back to management when completed the nested blockchain.

Channels of state

State channels increase the capacity and processing speed of total transactions by enabling two-way communication between blockchain systems and off-chain transactional channels via various techniques. The miner does not need to be active immediately to validate a party's processing power transactions through state channels.

Side-chains

A side chain is a transactional chain that operates concurrently with blockchain protocols and processes huge data. Side-chains have their consensus process, tuned for processing speed and scalability. A utility coin is typically used to facilitate data movement between the side and main chains and state channels.

Side chains differ significantly from state channels in various respects. First, side-chain transactions are not confidential between participants; rather, they are publicly recorded on the ledger. Additionally, side-chains do not affect security breach mainchains or other side-chains. Constructing a side-chain from scratch requires a great amount of time and effort.

Rollups

Rollups are Layer Two blockchain scaling solutions that enable transactions outside the Layer and upload to the Layer two blockchain protocols. Because the data is on the base layer, layer one can keep rollups safe.

TWO DIFFERENT ROLLUP SECURITY MODELS

Rollups benefit users by increasing transaction throughput, enabling open participation, and lowering gas costs.

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Layer 3 Blockchains Explained

The application layer is frequently referred to as layer 3. It is a layer that hosts decentralized network applications (DApps) and the protocols that allow them. While certain blockchains, including Ethereum or Solana (SOL), support a robust ecosystem of Layer Three applications, Bitcoin is not suited to host them.

As these, layer 2 solutions deviate the most from the Bitcoin core network at the moment. Certain projects are attempting to integrate DApp capabilities into the Bitcoin ecosystem through forks of the original Bitcoin network.

For instance, CakeDeFi is a Defi application that provides BTC coin holders with staking, lending, and liquidity mining services. CakeDeFi is built on the DeFiChain fork of Bitcoin. While DeFiChain retains an "anchor" to the primary Bitcoin network for certain activities, it is still technically a distinct blockchain.

According to some industry experts, the absence of DApp capability is one of the most significant drawbacks of BTC. Since the introduction of Ethereum in 2015, layer 3 platforms have seen rapid growth in popularity and value. At the moment, Ethereum has almost 3,000 blockchain layers of 3 applications.

Another significant blockchain, Solana, contains around 500 layer 3 DApps and the network's Defi applications have a combined worth of close to $15 billion.

By contrast, BTC lacks a functional application that might be easily classified as a layer 3 application. There is a continuous discussion about whether initiatives to " forcibly integrate" DApp features into BTC are worthwhile. According to some in the industry, BTC will always be a network optimized for crypto money transactions, not DApps.

These individuals point out that the Layer 1 BTC chain now has an industry-leading market cap ($1.3 trillion), dwarfing the aggregate TVL and market cap of all Layer 3 enterprises. Based on the financial numbers, Bitcoin may not be in desperate need of Layer 3 capabilities.

Differences Between Layer 1 Layer 2 and Layer 3 Blockchains

LayerDescriptionCostConsensus MethodSecurityEfficiency
Layer 1The base blockchain layer. Examples include Ethereum, and Bitcoin.High ($50-$125 USD)Proof of Work (PoW)HighLess efficient due to PoW.
Layer 2Built on top of Layer 1. Aims to improve scalability and reduce costs. Examples: Lightning Network, Polygon.Very low ($0.05 USD)Various (e.g., state channels, rollups)Varies (stronger than centralized solutions)Highly efficient, and cost-effective.
Layer 3Not universally defined. May refer to applications, services, or protocols built on Layer 2.VariesN/AN/AN/A

Similarities Between Layer 1 Layer 2 and Layer 3 Blockchains

LayerTCP/IP ModelOSI Model
Layer 1: Physical LayerEquivalent to OSI Layers 1 and 2Responsible for physical network connections, including hardware specifications and data link protocols.
Layer 2: Data Link LayerSimilar to the OSI Network LayerInvolved in transmitting data from one specific node to another. Includes sublayers like Medium Access Control (MAC) and Logical Link Control (LLC).
Layer 3: Network LayerSimilar to the OSI Transport LayerProvides logical addressing and routing. Ensures reliable message delivery across different subnets

What is Blockchain Security?

Blockchain security is a comprehensive framework designed to safeguard the decentralized and distributed nature of blockchain networks. One key element is cryptography, utilized through hash functions and digital signatures to ensure the integrity and authenticity of data. The decentralized architecture of blockchain mitigates the risk of a single point of failure, enhancing overall security. Consensus mechanisms, such as Proof of Work or Proof of Stake, facilitate agreement among network nodes, preventing malicious manipulation. The immutability of blockchain, achieved through cryptographic functions and consensus, makes it resistant to tampering once data is recorded.

Network security is vital in blockchain, employing secure communication protocols and peer-to-peer networking to protect data transmission between nodes. Smart contracts, integral to blockchain functionality, undergo rigorous security measures, including auditing and formal verification, to prevent vulnerabilities and exploits. Access permissions, a crucial aspect of blockchain security, vary between public and private blockchains, with private networks restricting access to trusted entities. Regular audits, code reviews, and continuous monitoring identify potential vulnerabilities, ensuring a proactive approach to security.

For cryptocurrency security within blockchains, the use of cold storage methods for wallets enhances protection. This involves keeping private keys offline to minimize the risk of online hacking attempts targeting hot wallets. Governance structures and incident response procedures play a crucial role, providing a coordinated approach to security incidents and addressing emergent threats. As blockchain technology evolves, ongoing research and development in security measures continue to bolster the overall safety and trustworthiness of blockchain networks.

What is Blockchain Scalability?

Blockchain scalability refers to the ability of a blockchain network to handle a growing volume of transactions or data without compromising its performance, speed, or efficiency. As blockchain technology gains wider adoption, the challenge of scalability becomes increasingly important to ensure that the network can scale to meet the demands of a larger user base. Scalability is a multifaceted concern encompassing various aspects of the blockchain architecture.

One critical factor in blockchain scalability is transaction throughput, which refers to the number of transactions a blockchain can process per unit of time. Traditional blockchains, like Bitcoin and Ethereum, face scalability issues due to limitations in their consensus mechanisms. For instance, Bitcoin's Proof of Work (PoW) consensus leads to slower transaction processing times and higher fees during peak demand. Ethereum, while transitioning to Ethereum 2.0 with a move to Proof of Stake (PoS), also aims to improve scalability by implementing technologies like sharding to parallelize transaction processing.

To address scalability challenges, various solutions and approaches have been proposed. Layer 2 scaling solutions, such as sidechains and off-chain transactions, aim to reduce the load on the main blockchain by conducting certain transactions off the main chain. These solutions improve transaction speed and reduce congestion. Additionally, advancements like blockchain interoperability, where different blockchains can communicate and share information, contribute to overall scalability by distributing the load across multiple networks.

In summary, blockchain scalability is a critical aspect of ensuring the widespread adoption and efficiency of blockchain networks. It involves addressing challenges related to transaction throughput, consensus mechanisms, and network congestion. Innovative solutions, including Layer 2 scaling and interoperability, play a key role in enhancing blockchain scalability and meeting the demands of a growing user base.

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We can help you build your project on any blockchain or Layer."

  • Ethereum development
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Conclusion

Blockchain is a ledger that stores data in groupings known as blocks. Blocks contain a limited amount of storage and, when filled, are closed and connected to the preceding block. All subsequent information is assembled into a newly created block and subsequently added to the chain. The operation of the blockchain is captured in the form of a data "block." A set of rules dubbed smart contracts are saved and performed automatically on the blockchain. Multichain may provide an API that businesses can use to expedite integration and accelerate deployment as a private enterprise. Corda is a rival to Multichain, offering an enterprise-focused protocol for the finance industry. Quorum aims to assist organizations in the finance sector. As Bitcoin becomes a major force in the business sector, developers strive to widen the scope of blockchain administration.

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