What Are the Layers of a Blockchain?

01/23/2023

     What are Bitcoin, Ethereum or any other Blockchain Layers? It's a little known term among crypto investors, but it's an essential concept for all those who want to venture into this market!

What Are the Layers of a Blockchain?
What Are the Layers of a Blockchain?

What are Layers?

     Layers basically means: the Layers; both from Bitcoin and from any other Blockchain - or any other smart contract platform and in all there are 4 layers. One is superimposed over the other. An ecosystem that became well known in 2021 was Polkadot.

     the most practical example we can bring you to better understand what these layers are about is through the Ethereum Blochchain, but below we will also explain it to you in a simpler way:

  • Tier 0: Ethereum itself;
  • Tier 1: USDC - Stablecoin built on the Ethereum network;
  • Tier 2: Optmism - Second layer token that allows faster, cheaper and scalable transactions than layer 0;
  • Tier 3: Uniswap - Decentralized Cryptocurrency and Tokens Brokerage that we access directly through the uniswap.org website, so there is no need to enter layer 1 to access this application.


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Layer 0: The Architecture:

     Layer 0: it is the base structure for the Blockchain to be built on and it is this layer that will provide interoperability for those blockchains that are built on layer zero. Layers apply not only to bitcoin, but also to several other cryptocurrencies such as Polkadot, Cardano, Solana and Cosmos and this zero layer makes these ecosystems operate with each other in a clean and navigable way.

     With that, this layer will serve as a basis for other projects to be built, in this case, the tokens as we know them. Example from Polkadot: Their Parachains like Acala and Aventus Network.


Layer 1: The Blockchain:

     Layer 1: It's the blockchain itself! This blockchain consists of 3 layers of protocols: the data layer (also called storage) with that, it is where all transactions and data history are stored.

     Second layer: the network layer. in this case, it is the P2P network (person-to-person transfer) where essentially, in the case of Bitcoin, we have many participants. And the third layer, the consensus layer: it is in this layer where transactions are validated.


Layer 2: The Scalability:

     Layer 2: Layer 2 has the task of scaling some blockchains (in theory, slower networks like btc and eth) 2 very common examples that we have on the ethereum network are Polygon and Optimism, a classic example of the bitcoin network it's the lighting network. As the bitcoin network is slow in its base layer, the lightning network contributes to the scalability of the network and makes transactions much faster.

     The most interesting point here is that, as we know, cryptocurrencies like btc and eth are extremely secure and, consequently, as these secondary layers are built within the blockchain of these cryptocurrencies, they end up inheriting this security.

     There are projects like Solana and Avalanche that seek to bring this "scalability" right into their base layer, however, they may end up compromising the security of their respective networks. That's why they are considered very bold projects. These second layer protocols process the information outside and then play the transactions inside the primary blockchain, thus facilitating the scalability of the network used.


Layer 3: The Decentralized Applications:

     Layer 3: are the Decentralized Applications. Two classic examples of decentralized applications are Uniswap and AAVE which are decentralized exchanges within the Ethereum network. In this layer, users interact directly with the application.

     There are also other more "daring" brokerages within other blockchains, such as Raydium from the Solana network, which, by using the SOL network, makes transactions much simpler and cheaper to carry out.

We recommend reading: Why Do Cryptocurrencies Fall So Much?


Lucas Lippe

Passionate about the digital world, from classic marketing to the fabulous world of cryptocurrencies. The idea of freedom is fascinating and bitcoin gives us that in many ways. Explaining ideas of a decentralized web on the Bitcoin Lovers website.


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