How Sidechains and Parachains Enhance Layer 1, 2, 3 Blockchains

As blockchain technology advances, understanding each layer’s unique functionalities is key to unlocking the potential of decentralised networks.

This article details the distinctions between Layer 1, 2, and 3 blockchains, introduces the concept of parachains and sidechains, and highlights aelf's groundbreaking approach with AI integration and a multi-layered sidechain architecture.

What Are the Layers That Make up a Blockchain, and What Functions Do They Serve?

Layer 1, blockchain's base layer: Often called the mainchain. It includes the fundamental protocol on which the entire network operates. Bitcoin and Ethereum are prime examples of Layer 1 blockchains which provide the essential infrastructure for handling of decentralised transactions and smart contracts.

Bitcoin's layer 1 blockchain serves its cryptocurrency and network, including consensus mechanisms, transaction validation, and security. Ethereum goes beyond cryptocurrency transactions to provide a platform for decentralised applications (dApps) and smart contracts. aelf, a fellow layer 1 blockchain that is now powered by AI, offers interoperability with Ethereum and other EVM-compatible blockchains through eBridge, which is part of aelf's Web3 ecosystem.

Layer 2, scaling and enhancement solutions: They are built on top of Layer 1 blockchains to address scalability and performance issues. They enable faster transaction processing and lower fees by offloading some of the computational work from the mainchain. Examples include the Lightning Network for Bitcoin, and Plasma for Ethereum.

Layer 3 blockchains, application-specific chains: They settle on Layer 2 networks, enhancing scalability, interoperability, and flexibility in blockchain applications.

Examples include Arbitrum Orbit’s 'Orbit chains', which can be tailored with custom gas tokens and governance, and Optimism’s OP Stack, which powers a 'Superchain' of interconnected Layer 3 chains like Coinbase’s Base.

Summary: Differences between Layer 1, Layer 2, and Layer 3

Introducing Sidechains: Enhancing Flexibility and Interoperability

Sidechains are branch-offs of the mainchain, with tokens and digital assets moving between them via a two-way peg. Sidechains have their own consensus mechanism and block parameters, making them more flexible and scalable than the mainchain.

They are considered a Layer 2 solution as they offload some transactional burden from the mainchain. Other than helping with the unclogging, sidechains are good for broadening the abilities of the mainchain to support new applications, which could stem from greater allowance for innovation in blockchain technology.

Examples include Liquid Network for Bitcoin, and Polygon PoS for Ethereum, with Polygon PoS having its own security and validator set rather than relying on Layer 1.

Introducing Parachains: Parallel Processing for Enhanced Interoperability

Another solution outside of the Ethereum Virtual Machine (EVM) ecosystem is Parachains. Parachains are application-specific, independent blockchains that run parallel to the central blockchain network. They connect to the main Relay Chain, leasing its security while maintaining their own governance, tokens, and functionalities.

Parachains are different from sidechains in various regards; instead of being a 'branch-off', imagine them as 'duplicate mainchains' that run simultaneously to process transactions and interact with each other seamlessly.

The exchange of data can be done using cross-chain communication protocols like XCMP. Collator nodes maintain the entire state of a parachain and provide proofs to the Relay Chain validators.

aelf’s Multi-layered Sidechain Architecture

aelf has welcomed its AI era and is accelerating the growth of a decentralised AI infrastructure that facilitates building of AI-powered dApps.

The AI infrastructure entails a unique multi-layered sidechain architecture to overcome the limitations of traditional blockchains; the approach optimises blockchain performance and security, ensuring a more efficient and secure system.

Each sidechain in aelf’s architecture is dedicated to a specific function or application, enhancing scalability and efficiency. The interconnected ecosystem leads to a seamless interaction between different layers and sidechains, creating a robust and flexible blockchain environment.

In Closing

By peeling off the different layers of a blockchain, we've set up a foundation to dive into the concepts of parachains and sidechains, which are crucial in improving efficiencies in decentralised systems.

Each layer plays its role in addressing the challenges of scalability, customisation, and interoperability; coupled with sidechains and parachains, we see greater results in the form of reduced network congestion, a safer space for innovations, and expanded room for specialised creations.

aelf’s innovative approach, integrating AI with a multi-layered sidechain architecture, exemplifies how these technologies can be combined to overcome the limitations of traditional blockchains. By leveraging these different layers and chain types, the blockchain ecosystem is set to become more efficient, flexible, and capable of supporting a broader range of applications in the digital economy.

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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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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.

Sidechains and Parachains: What They Are, and How They Fire Up Layer 1, 2, and 3 Blockchains