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 and crypto ecosystem.

What Is a Blockchain Layer?

Think of a well-orchestrated symphony. Each instrument plays a distinct role, yet they harmonise to create a beautiful melody. Similarly, a blockchain is composed of different layers, each performing a specific function to ensure the smooth operation of the entire system. These layers work together to enable the secure and transparent recording of crypto transactions.

Here's a breakdown of the different functional layers in a blockchain:

  • Hardware layer: This layer comprises the physical infrastructure that supports the blockchain network, including hardware devices, internet connectivity providers, data centres, and power grid infrastructure
  • Data layer: This layer encompasses the blocks and the blockchain, which are crucial components for storing and transmitting blockchain data
  • Network layer: This layer facilitates communication between different nodes in the blockchain network, ensuring that transactions are propagated and validated across the network
  • Consensus layer: This layer ensures that all nodes in the network agree on the current state of the blockchain, preventing conflicts and ensuring the integrity of the network
  • Application layer: This layer allows Web3 developers to build decentralised applications (dApps) on top of the blockchain, extending the functionality and usability of the blockchain ecosystem

Blockchain's 'Holy Trinity'

The ideal blockchain aims to achieve a delicate balance between scalability, security, and decentralisation, often referred to as the 'blockchain trilemma'.

Scalability refers to the network's ability to handle a high volume of transactions efficiently. Security ensures the blockchain's resilience against attacks and fraudulent activities. Decentralisation guarantees that no single entity controls the blockchain, fostering transparency and trust.

However, achieving all three aspects simultaneously is a significant challenge. For instance, increasing decentralisation by adding more nodes might slow down transaction processing, affecting scalability. Similarly, enhancing security with complex cryptography might require more computational power, potentially hindering scalability.

This trilemma forces blockchain developers to make trade-offs, prioritising certain aspects over others based on the specific use case. For example, Bitcoin prioritises security and decentralisation, while Ethereum, with its smart contract capabilities, leans towards a balance of all three, albeit with ongoing challenges in scalability.

Overcoming the blockchain trilemma is a key focus for Web3 developers, who are constantly exploring innovative solutions like layer 2 scaling and sharding to optimise all three elements without significant compromise.

Layer 0: Physical Layer

Layer 0, the bedrock of blockchain technology, provides the essential physical infrastructure for facilitating secure and efficient cross-chain interoperability. Think of it as the foundation upon which the entire blockchain ecosystem rests.  

This layer ensures 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.

This foundational layer encompasses critical components such as:

  • Interoperability protocols: These protocols act as bridges, enabling seamless communication and interaction between different blockchain networks.
  • Network consensus mechanisms: These mechanisms ensure that all participating nodes agree on the validity of transactions, maintaining the integrity and security of the network.
  • Foundational internet and hardware: This includes the physical infrastructure that supports the blockchain network, such as servers, routers, and internet service providers, ensuring reliable connectivity and data transmission.

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's AI layer 1 blockchain infrastructure
aelf's AI layer 1 blockchain infrastructure

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 a MainChain and dAppChain set-up, cloud-native architecture, and AI functionalities for greater 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 crypto 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 and crypto space, providing better user experiences and facilitating broader adoption.

Building a Web3 Future With Different Types of Blockchain

Delving deeper into the world of blockchain technology, it's essential to understand the diverse landscape of blockchain networks. These networks can be broadly classified into four main types: public, private, hybrid, and consortium. Each type has its unique characteristics, catering to different needs and use cases.

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This table provides a quick overview of the four main types of blockchain networks. To learn more about each type, including their pros and cons, check out our in-depth article that compares the pros and cons of each blockchain type. This comprehensive guide will equip you with the knowledge to make informed decisions about which blockchain platform best suits your specific needs.

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*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, an AI-enhanced Layer 1 blockchain network, leverages the robust C# programming language for efficiency and scalability across its sophisticated multi-layered architecture. Founded in 2017 with its global hub in Singapore, aelf is a pioneer in the industry, leading Asia in evolving blockchain with state-of-the-art AI integration to ensure an efficient, low-cost, and highly secure platform that is both developer and end-user friendly. Aligned with its progressive vision, aelf is committed to fostering innovation within its ecosystem and advancing Web3 and AI technology adoption.

For more information about aelf, please refer to our Whitepaper V2.0.

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