As blockchain use grows, the importance of scalability in the blockchain ecosystem becomes clearer. Blockchain networks can accept new applications and a higher number of transactions with the assistance of slight changes in system throughput rate.
The increasing widespread usage of cryptocurrencies in everyday life has inspired the development of blockchain layers to enhance network security and recordkeeping, among other functions. This essay will provide you with a comprehensive understanding of the various blockchain levels.
Layer 0 protocols are made up of a series of state channels that verify data using user-defined functions. This layer includes nodes and any device linked to the nodes, in addition to the hardware, servers, and systems.
To improve network architecture, it supports numerous consensus techniques and P2P systems, including proof-of-work, proof-of-stake, proof-of-activity, proof-of-reputable observations, directed acyclic graphs (DAG), and others. Layer 0 supplements the three major pillars of blockchain — scalability, neutrality, and adaptability — by providing block encryption and disguising the origin of the block via P2P relaying.
Native tokens serve as the primary consensus layer, providing economic incentives to users to contribute to and preserve the ecosystem inside the HGTP network, hence creating a win-win environment in which all players are equally rewarded for their contributions.
Analog is an example of a protocol that uses Layer 0 technology. The platform uses a Timechain, which is a universal ledger consisting of validated time data that proves that what happened in the past actually occurred.
As a result of the Analog network’s scalability and security features, sovereign blockchains (each with its consensus protocol, use case, design, and tokens) can smoothly interoperate while benefiting from the network’s features such as scalability. The heart of Analog’s interoperability feature (implemented inside the Timegraph API) is a communication protocol that ensures legitimate, trustless transfer of data across networks.
The protocol enables distinct and sovereign blockchains to communicate willingly while sharing just the bare minimum of a common interface in a private, safe, and trustless way. Any other smart contract enabled platform may connect to the Analog network (like Ethereum for example). The Analog network makes use of onchain clients that operate as bridges, enabling values to be transferred across chains.
Each Analog client is constructed as a Tesseract with an onchain smart contract to the Timegraph API on each chain that connects to the Analog network. The Tesseract’s main purpose is to facilitate legitimate delivery by using the Analog’s PoT as a back-end.
On a general level, Layer 1 (L1) refers to a base network as well as the underlying infrastructures that provide support for that network. Bitcoin, Ethereum, and Solana are examples of L1 platforms. Improving the scalability of layer-1 networks is challenging, as shown by Bitcoin. Developers develop layer-2 protocols that depend on the layer-1 network for security and consensus as a solution.
The L1 networks network is in charge of transaction settling. For the majority of networks, this entails accounting for a user’s account, or wallet, using asymmetric key pairs and the related cryptocurrency or token balances.
Every L1 network has a native token that allows users to access the network’s resources. You pay for network services like transmitting bitcoin, minting a token, or invoking a smart contract using a network’s native token. It should be noted that not all layer one networks provide the same set of services, despite the fact that they all offer transactions. When comparing layer one networks, it is critical to understand their consensus method as well as the benefits and drawbacks they provide.
In general, the consensus processes involved make trade-offs between security, speed, and decentralization. Consensus mechanisms have seen a lot of innovation, and it is an area that is continually changing and contributing to the current variety of distributed ledgers. Layer one security and decentralization are provided by certain networks, but layer two speed is delegated.
Layer 2 (L2) is a general term that refers to a framework or protocol that is constructed on top of an existing blockchain system. Polygon is a popular example of an L2 network. These methods are designed to overcome the main blockchain networks’ transaction speed and scalability difficulties.
Bitcoin and Ethereum, for example, are currently unable to perform thousands of transactions per second (TPS), which is damaging to their long-term development. Before these networks can be effectively adopted and used on a broader scale, they need to achieve a higher throughput level.
In this context, Layer 2 refers to the many solutions to the blockchain scalability challenges that have been suggested. The Bitcoin Lightning Network and the Ethereum Plasma are two important examples of layer 2 solutions. Even though they operate on completely different operating principles and features, both technologies attempt to increase the throughput of blockchain networks.
The Lightning Network, in particular, is built on state channels, which are essentially connected channels that conduct blockchain activities and report them to the main chain. State channels are mostly employed for payment. Unlike the Bitcoin blockchain, the Plasma architecture consists mostly of sidechains, which are tiny blockchains that are structured in a tree-like structure.
In a larger sense, layer 2 protocols provide a supplementary framework in which blockchain transactions and operations may occur independently of the layer 1 framework (main chain). As a result, these strategies are often referred to as “off-chain” scaling options.
One of the primary benefits of employing off-chain solutions is that the main chain does not need to be structurally altered since the second layer is introduced as an additional layer. As a result, layer 2 solutions can provide high throughput while maintaining network security.
To put it another way, the second layer may be responsible for the majority of the work that would ordinarily be performed by the main chain. So, whilst Layer 1 (the main chain) provides security, the second layer (the second layer) provides tremendous throughput, capable of doing hundreds, if not thousands, of transactions per second.
L2 platforms make it easier for decentralized applications to integrate with blockchain networks due to the reduced fees and faster transactions. For example, LunaFi, a decentralized betting protocol, works on Ethereum (Layer 1) but plans to bridge over to Polygon (L2 for Ethereum).
LunaFi’s goal is to provide a platform in which developers, liquidity providers, and consumers may interact in a fair and trustless environment. Liquidity providers deposit into house pools to get a part of the profit and receive incentives in $LFI as well.
Lunabets is the protocol’s initial application. It is a non-custodial betting dapp that makes use of LunaFi smart contracts and liquidity pools to enable trustless payments. Users are rewarded with $LFI, which they may collect from LunaFi in addition to betting. The platform is having its Token Generation Event (TGE) on the 8th of June 2022.
Layer 3 is also known as the application layer. It is a layer that hosts DApps as well as the protocols that allow the applications to function. While certain blockchains, such as Ethereum or Solana (SOL), have a robust ecosystem of layer 3 applications, Bitcoin is not designed to support such applications.
As a result, layer 2 solutions are Bitcoin’s most radical departures from the core network. Through forks of the original BTC network, several initiatives are attempting to extend DApp capabilities to the BTC ecosystem.
CakeDeFi, for example, is a Defi program that provides BTC currency holders with services such as staking, lending, and liquidity mining. CakeDeFi is based on the DeFiChain Bitcoin fork. DeFiChain retains “an anchor” to the primary BTC chain for certain of its activities, but it is still officially a distinct blockchain.
According to several industry analysts, one of the most significant drawbacks of BTC is the absence of DApp capabilities. Layer 3 platforms have grown in popularity and value significantly since Ethereum’s introduction in 2015. Nearly 3,000 Layer 3 applications are presently available on Ethereum. The blockchain-based Defi applications now have a combined worth of $185 billion.
Solana, another significant blockchain, supports approximately 500 Layer 3 DApps, with a total value locked in the network’s Defi applications reaching $15 billion.
In contrast, BTC does not have a working app that could be classified as a layer 3 application. There is continuing discussion regarding whether programs aimed at “forcing” DApp capabilities onto BTC are worthwhile. Some in the industry believe that BTC will always be a network for crypto money transactions rather than DApps.
These individuals argue that the layer 1 BTC chain has an industry-leading market value (of $1.3 trillion as of currently) that eclipses the TVL and market cap estimates of all layer 3 initiatives combined. As a result, based on the financial numbers, Bitcoin may not be in desperate need of layer 3 capabilities.
The distinctions between blockchain layers are mostly related to scalability and interaction with dapps. However, when all of the layers are considered, they individually serve as independent levels of improvement on a blockchain system.
The ever-expanding blockchain ecosystem, which includes novel solutions like Defi and NFTs, is attracting more consumers by the day. As a result, scalability is a must for the long-term viability of blockchain networks.
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
Known for identifying cutting edge technologies, he is currently a Co-Founder of a startup and fundraiser for high potential early-stage companies. He is the Head of Research for Allocations for deep technology investments and an Angel Investor at Space Angels.
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