Blockchain Layers: The Layered Structure of Blockchain

tl;drBlockchain is a complex structure with several components and is a secret key to so many doors. Simply put, it’s like an onion with many layers! Breaking down the different parts of blockchain into technology layers aids us in making it simpler and having a better perception of the complex blockchain layers structure. Keep scrolling to learn all about the layered architecture of blockchain, its inseparable layers and each one’s features, and some must-know FAQs.
Blockchain Layers: The Layered Structure of Blockchain
Blockchain Layers: The Layered Structure of Blockchain
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An Introduction to Blockchain Layers

Blockchains bring immutability, transparency, efficiency, auditability, and security, resulting in lower costs across a wide range of industries, companies and applications. Recently, academics have identified six blockchain layers, including data transfer, network, consensus, incentive, contract and application. Don’t panic! We have simplified all of them in the following sections.

Blockchain Layers 1: Data Transfer Layer

The data transfer layer is the bottom layer among blockchain layers and components. Data layer components include the Internet, hardware, and connections that enable layer one to run smoothly. The data layer operates as the blockchain data structure and comprises two primary elements: pointers and a linked list. The linked list is a chain of blocks with their data and pointers to the previous blocks. Also, the data layer consists of the following components: a Merkle Tree and Hashing Function.

Merkle Tree in Data Layer

The transactions in a blockchain are stored as part of a tree called a Merkel tree. A Merkle tree provides security, integrity and irrefutability for blockchain technology.

Hashing Function in Data Layer

The users employ the hash function to convert a large amount of input into a smaller size. Follow me to learn all about Hash Function!

Blockchain Layers
Blockchain Layers

Blockchain Layers 2: Network Layer

The next blockchain layer above the data layer is the network layer, which could be described as the hardware aspect of the blockchain. This layer is also called a propagation layer or peer-to-peer layer. A peer-to-peer layer involves all the blockchain nodes and doesn't have someone in charge as a centralised administration coordinating transactions. All the nodes are interconnected and share data, create blocks and broadcast transactions to each connected party in the network. Each block and its information should be authenticated, and the block is officially connected to the blockchain once most of the nodes in the network have authenticated the block.

Blockchain Layers 3: Consensus Layer

In the blockchain, the third layer is called the consensus layer, which mainly includes consensus algorithm mechanisms like Proof-of-Work (PoW) and Proof-of-Stake (PoS). The consensus layer provides a certain set of agreements between nodes across the distributed peer-to-peer network to reach a consensus about the broadcasted transactions. It also deals with the production and verification of blocks.

How To Achieve Consensus in The Blockchain Leyers No. 3?

To achieve consensus, more than half of the participants (nodes) need to validate the transactions before it is permanently recorded in the blockchain ledger. Once a transaction is permanent, no one, not even the system administrator, can delete the transactions from the ledger. The type of the consensus algorithm and the number of nodes determine how much cost and time are required to reach a consensus.

Blockchain Layers 4: The Incentive Layer

Incentives are everywhere, from elementary school to sports competitions and even on the blockchain, to encourage nodes and participants to cooperate and develop the platform. An incentive layer determines the variant types of incentives available on the network and how these incentives are delivered to the network nodes. Additionally, the incentive layer defines the minimum amount of transaction fees needed to perform actions on the blockchain. The capabilities of the incentive layer include the distribution of rewards and transaction fees. What do they mean? Let’s see!

Reward Distribution

To run a successful blockchain platform and develop the transactions, we need programs to incentivise individuals to get more nodes involved in the blockchain for validating transactions. Depending on the type of consensus mechanism, each node receives a particular reward. For instance, In PoW, the node receives an amount of cryptocurrency for solving the puzzle.

Transactions Fees

In the blockchain, miners not only receive rewards but also get transaction fees. To verify a transaction successfully, you need to calculate the amount of the fee you need to pay. The more fee you pay, the quicker your transaction will be included by a miner in one of the next blocks.

Blockchain Layers 1 and 2 Solutions
Blockchain Layers 1 and 2 Solutions

Blockchain Layers 5: Contract layer

The contract layer provides various components and services like smart contracts, digital wallets, state channels, data feeds, and DAOs to create a bridge between blockchain platforms and other technologies.

Blockchain Layers 6: Application Layer

The application layer is the final and uppermost layer in the architecture of blockchain layers presented to the users and provides applications on top of the blockchain. The capabilities of the Application Layer include programmable smart contracts, APLs and dApps. For instance, in a programmable blockchain like Ethereum, various advanced features and dApps work together to make up the Application Layer.

What Is an API in The Application Layer

API stands for Application Programming Interface. With API, blockchain nodes or client services will easily interact and communicate with an application or website. Additionally, API as an interface provides tools for two or more applications to interact with each other.

Common FAQs About Blockchain Layers

In the following sections, we’ll answer some frequently asked questions about blockchain technology, blockchain layers, and related issues. None of your questions regarding blockchain will remain unanswered!

What Are The 4 Types of Blockchains?

  • Public Blockchain
  • Private Blockchain
  • Hybrid Blockchain
  • Consortium Blockchain

Is There A Layer 3 In Blockchain?

Yes, and many layer-33 projects have emerged in recent months to create interoperability protocols to streamline connections between layer-2 services and blockchain networks and layer-22 services.

What Is The Difference Between Layer 1 And Layer 2 Blockchain?

The first layer is the primary level of blockchain and handles on-chain transactions, while the second layer has been designed as a connected network to handle off-chain transactions.

What Is Layer 2 and Layer 3 Blockchain?

To improve the functionality of the blockchain, innovators of blockchain technology created layer-2 blockchain protocols. The third layer includes blockchain-based applications like Decentralised Finance (DeFi), distributed storage apps, games, etc.

What Are The Main Components of Blockchain?

At its core, blockchain includes

  • a node application,
  • a shared ledger,
  • a consensus algorithm, and
  • a virtual machine.
Some of The Projects on Different Blockchain Layers
Some of The Projects on Different Blockchain Layers

Is Solana a Layer 1 or 2?

Solana is a Layer 1 blockchain aiming to streamline using smart contracts and help develop DApps (Decentralised Applications). I have learned most of my knowledge about Solana from this source.

Is Ethereum a Layer 0?

Yes and no. Yes, because Ethereum is on the initial blockchain layer. Also, Bitcoin and Polkadot are on the initial blockchain layer. No, because in this article, I don’t call it layer 0, but layer 1. Some do not consider all the layers and categorise blockchain layers with different names, i.e., 0, 1, 2, and 3.

Is Fantom a Layer 1?

Yes, it is layer 1, which is also called the mainnet or mainchain. Some other platforms on the initial layer of blockchain are Binance Chain and Cardano. Being a layer-1 platform means the project has created its specific infrastructure to process transactions and won’t rely on other security protocols.

What Is a Layer 2 Ethereum?

Ethereum 2 or layer-2 Ethereum is a separate blockchain designed to extend Ethereum. To learn all about Ethereum 2, check this short and easy read.

Is Matic A Layer 2?

Yes, Matic, which is now known as Polygon, is a layer-2 scaling solution. This platform was created in 2019 to come up with solutions for some of the problems on the Ethereum blockchain. The issues Matic aimed to solve included gas fees, transaction speed, and throughput. I have found a great source for you to learn the most important facts about Matic (Polygon).

Final Remarks

As you read, we investigated the six blockchain layers, and now we are one step closer to decoding the intriguing world of the blockchain. The educational articles on Cryptologi.st are helpful guides for improving every aspect of your knowledge. We focus on educating you since we wish to help you make confident crypto decisions! To this aim, we have also provided a free screening tool and a watchlist for you to monitor the changes in the market on your favourite coins. Follow Cryptologi.st on social media to get the hottest news of the crypto market.

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