Blockchain technology, the foundation of cryptocurrencies like Bitcoin and Ethereum, is a complex and multi-layered system. Understanding the different layers of blockchain can provide valuable insights into how this technology works and its potential applications in the Web3 and crypto space. When developing blockchain-based solutions, selecting the appropriate layer to build on is crucial for the success and efficiency of your project. Each blockchain layer has unique characteristics and plays a distinct role in the overall architecture. Understanding these blockchain layers is essential because they are interdependent, and improvements or issues in one layer can significantly impact others. This article breaks down the blockchain into four key layers: Layer 0, Layer 1, Layer 2, and Layer 3, explaining their roles and interactions within the Web3 ecosystem.

Layer 0: Physical Layer

Layer 0, also known as the physical layer, is the foundational layer of the blockchain. It encompasses the physical infrastructure that supports the blockchain network, including hardware devices, internet connectivity providers, data centres, and power grid infrastructure. This layer is responsible for ensuring reliable and secure physical means of storing and transmitting blockchain data. Key considerations at this layer include the quality and security of hardware devices (servers, nodes), stable and fast internet connections, and robust data centres to prevent downtime and data loss. A strong Layer 0 setup is essential for the overall health and performance of the blockchain network.

Layer 1: Protocol Layer

Layer 1 is the protocol layer, which includes the core architecture and consensus mechanisms that define the blockchain. This layer is responsible for validating and recording transactions, maintaining the blockchain ledger, and ensuring the security and decentralisation of the network. Key protocols and consensus mechanisms in this layer include Proof of Work (PoW) and Proof of Stake (PoS). Widely known examples of Layer 1 blockchains are Bitcoin and Ethereum, respectively, which operate on their own native protocols and provide the foundation for various decentralised applications (dApps) and services.

aelf is also a Layer 1 AI blockchain that utilises a consensus mechanism called AEDPoS, which is aelf’s variation of a Delegated Proof-of-Stake (DPoS) mechanism, to reach an agreement among all network participants and maintain the normal functioning of the network. At its core, AEDPoS stipulates how the aelf network runs and assigns the governance authority to three vital roles that jointly safeguard the aelf ecosystem: block producers (BPs), candidate nodes, and voters.

The aelf blockchain features modular systems, parallel processing, cloud-native architecture, and multi-sidechain technology for unlimited scalability. As an aspiring leader in the AI blockchain realm, is committed to spearheading the development of efficient AI algorithms.

Layer 2: Scaling Solutions

Layer 2 solutions are built on top of Layer 1 to address scalability issues and enhance the performance of blockchain networks. These solutions aim to increase transaction throughput and reduce latency without altering the core protocols of Layer 1. These technologies enable faster and cheaper transactions by processing them off-chain and settling them on the main blockchain, alleviating congestion and improving efficiency.

One prominent example of a Layer 2 solution is the Lightning Network for Bitcoin. The Lightning Network operates as a separate network layered on top of the Bitcoin blockchain. It can be envisioned as a series of fast lanes dedicated to handling specific transactions quickly and efficiently. The Lightning Network allows for instant, low-cost transactions by establishing bi-directional payment channels between users. These transactions are aggregated, and only the final balances are settled on the main Bitcoin blockchain, significantly reducing the load and congestion on the primary network. This approach speeds up transaction times and lowers fees, making microtransactions more feasible on the Bitcoin network.

Layer 3: Application Layer

Layer 3, often referred to as the application layer, involves protocols and services that enable the development and interaction of applications built on top of the underlying blockchain infrastructure. It encompasses the interfaces and tools that developers use to create and manage dApps, providing an easier and more efficient way to utilise the blockchain’s capabilities by abstracting the complexity of the underlying layers. By offering these tools and services, Layer 3 simplifies the process for developers to build on the blockchain, ultimately enhancing the ecosystem’s functionality and usability.

An example of a Layer 3 is Cosmos Network which is a network of interconnected blockchains built with scalability and interoperability in mind. Its Inter-Blockchain Communication (IBC) protocol allows communication and data exchange between different blockchains within the Cosmos ecosystem, essentially enabling them to function as application layer chains for specific use cases.

How Blockchain Layers Interact with Each Other

Each blockchain layer has distinct characteristics and plays a unique role in the overall architecture. Layer 0 provides the physical infrastructure, while Layer 1 establishes the core protocols and security mechanisms. Layer 2 enhances scalability and performance, and Layer 3 focuses on practical applications and user interactions. Understanding the interdependencies between these layers is critical for effective blockchain development. Improvements or issues in one layer can significantly influence the performance and capabilities of other layers. For instance, advancements in Layer 2 solutions, such as more efficient off-chain processing, can alleviate bottlenecks in Layer 1 by reducing the load and increasing the throughput. This, in turn, enables Layer 3 applications to function more efficiently in the Web3 space, providing better user experiences and facilitating broader adoption.

Building a Web3 Future on Blockchain Layers

Understanding the different layers of blockchain technology – from the physical infrastructure of Layer 0 to the application interfaces of Layer 3 – is crucial for navigating this complex and evolving field. Each layer comes with its own challenges and opportunities, collectively creating a strong and adaptable system that has the potential to revolutionise many industries. As blockchain technology progresses, it is vital to stay updated on advancements in each layer, such as improved Layer 1 interoperability, enhanced Layer 2 scaling solutions, and cutting-edge Layer 3 applications. This knowledge empowers developers, investors, and enthusiasts to fully harness the potential of blockchain technology and maintain a competitive edge in this rapidly evolving landscape. The future of Web3 is being built on these foundational layers, and understanding them is key to driving innovation and achieving widespread adoption.

‍

*Disclaimer: The information provided on this blog does not constitute investment advice, financial advice, trading advice, or any other form of professional advice. Aelf makes no guarantees or warranties about the accuracy, completeness, or timeliness of the information on this blog. You should not make any investment decisions based solely on the information provided on this blog. You should always consult with a qualified financial or legal advisor before making any investment decisions.

‍

About aelf

aelf, the pioneer Layer 1 blockchain, features modular systems, parallel processing, cloud-native architecture, and multi-sidechain technology for unlimited scalability. Founded in 2017 with its global hub based in Singapore, aelf is the first in the industry to lead Asia in evolving blockchain with state-of-the-art AI integration, transforming blockchain into a smarter and self-evolving ecosystem.

aelf facilitates the building, integrating, and deploying of smart contracts and decentralised apps (dApps) on its Layer 1 blockchain with its native C# software development kit (SDK) and SDKs in other languages, including Java, JS, Python, and Go. aelf’s ecosystem also houses a range of dApps to support a flourishing blockchain network. aelf is committed to fostering innovation within its ecosystem and remains dedicated to driving the development of Web3, blockchain and the adoption of AI technology.

Find out more about aelf and stay connected with our community:

Website | X | Telegram | Discord

‍

Back to Blog

Tool/Platform	What's it about
ChainGPT	An AI-powered assistant for the blockchain and crypto industry, specializing in content creation, language translation, smart contract coding, and more.
aelf	A high-performance, customisable multi-chain blockchain framework with AI-powered smart contracts and a developer-friendly environment.
Quick Intel	An AI-powered crypto security platform that helps investors avoid scams, rug pulls, and honeypots by analysing smart contracts, social sentiment, and on-chain data.
Cogwise AI News Aggregator	An AI-powered news aggregator that analyses real-time news and global trends to predict market movements in the crypto market.
OpenAI Codex	An AI system that transforms natural language into code, automating code creation for smart contracts, blockchain applications, and other development tasks.
QnA3	An AI-powered Web3 knowledge hub that provides real-time information and insights on cryptocurrencies, blockchain projects, and the broader Web3 ecosystem, with unique Solana Actions integrations.
Fetch.ai	A platform that combines AI and blockchain to create autonomous economic agents (AEAs) for various applications, including supply chain optimisation and smart city management.
Octavia	A decentralised digital identity (DID) platform for creating and managing self-sovereign digital identities, empowering users to control their data and online presence.
TensorFlow	A versatile open-source machine learning framework used for building AI models that can analyse blockchain data, enhance security, and predict market trends.
Alethea	A platform that creates 'Intelligent NFTs' (iNFTs) with unique personalities and the ability to engage in conversations, powered by AI and blockchain technology.

Chain	URL	Explorer
AELF	https://aelf-test-node.aelf.io/	https://explorer-test.aelf.io/
tDVW	https://tdvw-test-node.aelf.io/	https://explorer-test-side02.aelf.io/

Feature	Description
Inheritance	ERC-404 inherits from the interfaces IERC-404, IERC721 Receiver, and IERC165, implementing functions specified in these interfaces, behaving as both ERC20 and ERC721.
Data Structures	Mappings track balances, allowances, approvals, and ownership of tokens. Double-ended queue stores ERC721 token IDs. Data for managing ownership and indices of ERC721 tokens.
Constructor	Initialises token name, symbol, decimals, and other necessary variables for ERC20 and ERC721 tokens.
Token Minting and Burning	_mintERC20 function for minting ERC20 tokens. _retrieveOrMintERC721 function for minting ERC721 tokens and retrieving from a bank. _withdrawAndStoreERC721 function for depositing ERC721 tokens into the bank.
Transfers	Functions for transferring ERC20 and ERC271 tokens between addresses. Distinguishes between token types based on ID. _transferERC20WithERC721 function handles transfers involving both types.
ERC20 and ERC721 Interactions	Approve function handles approvals for both token types. Functions like transferFrom, safeTransferFrom, and permit handle transfers and approvals.
EIP-2612 Support	Supports EIP-2612 permit functionality for ERC20 tokens.
Interface Compatibility	Implements necessary functions for ERC-404 and ERC165 interfaces, indicating compatibility with ERC20 and ERC721 standards.

Role	Max Number
BP	2N+1, N starts from 8 in 2022
Candidate node	5*(2N+1)
Voter	No limit

Benefits	Description
Makes smart contracts 'smarter'	AI-driven smart contracts can autonomously modify terms based on predefined conditions and real-time data input, ensuring that the contracts are not just automated but also intelligent and self-improving over time.
Levelled up data analysis	Data is the new oil, and AI is the machinery that refines it. It is possible for AI to reduce large-volume blockchain data analysis time by up to 90%.
Boosts security	Through machine learning models, AI can prevent frauds and detect security threats in real time. It can identify potential breaches, predict future threats, and adapt to evolving security measures.
Lowers carbon footprint	AI algorithms help optimise energy consumption in blockchain operations, given the flak drawn by activities like Bitcoin mining.

Blockchain Layers Explained: Layer 0, Layer 1, Layer 2, Layer 3