Understanding blockchain networks and blockchain technology
Blockchain technology is a peer-to-peer digital ledger technology that relies on a network of computing devices or nodes to process transactions involving an asset, store the resultant data, and broadcast it among these nodes in the form of “blocks” of immutable data, with all information being transparently exchanged between permissioned network members.
These “blocks” come together to form a shared ledger of transactions that cannot be altered in any way and do away with the redundant labour that is common in traditional business networks such as financial institutions.
The fact that each “block” is connected with the ones that came before it to form a chain of data that cannot be altered is even more impressive, and it is this feature that explains where the term “blockchain” came from.
Because of the vital role that information plays in the success of businesses, the more precise and rapid the flow of information can be, the better a company’s future prospects and the more room it has to grow.
Blockchain networks or protocols, which get their namesake from this game-changing technology, use the internet to exchange information and rely on a network of nodes to verify, maintain and distribute the common transaction ledger within the network.
These blockchain networks are currently powering many decentralized applications (DApps) and are revolutionizing the way citizens all over the world transact with each other over the internet. They have achieved a level of decentralization and transparency that has never been seen before.
Why is blockchain technology’s ability to scale crucial?
The architecture of blockchains often forces developers to settle for a compromise between completely decentralized governance and increasing scalability while designing blockchain networks that can also thwart any malicious cyber-attack. Blockchain proponents envision a future in which a decentralized ecosystem of blockchain networks facilitates all types of contracts. However, blockchain architecture often forces developers to settle for this compromise.
This is because a blockchain network gets stronger as its number of “blocks” increases, but the verification process gets more complex and requires more resources for computing. As a result, this has an effect on the maximum throughput that can be achieved without jeopardizing the network’s security.
If, on the other hand, the validating process or consensus mechanism that underpins various blockchains is tweaked to increase transaction speeds, this can result in the entire blockchain network being more susceptible to attacks from malicious actors or cyber criminals.
This situation brings us to the “blockchain trilemma,” which is a term that was coined by the founder of Ethereum, Vitalik Buterin, to describe the difficulty that developers face when attempting to design a blockchain protocol that is decentralized, secure, and scalable without any compromises being made between any of these three characteristics.
While some developers are navigating these challenges by innovating different layers on top of existing blockchains, others are working on creating blockchain networks that leverage the strengths of protocols such as Bitcoin, Ethereum, and other protocols of a similar nature in order to accomplish all three goals.
What exactly is a layer-1 blockchain, and how does the technology behind it function?
In most cases, the architecture of a blockchain is composed of a number of overlapping layers, including an infrastructure or hardware layer, a data layer, a network layer, a consensus layer, and an application layer.
Even though this topic in and of itself deserves a more in-depth explanation, the existence of blockchain platforms depends on the existence of the consensus and application layers.
The blockchain’s underlying consensus mechanism is responsible for determining how transactions are processed, validated, and added to the blockchain in the form of “blocks.”
On the other hand, the application layer is composed of components such as decentralized applications (DApps), smart contracts, and chaincode. These elements make it possible for user nodes to interact with the blockchain network.
Blockchain networks that are used to run popular cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) are referred to as base blockchains or layer-1 blockchains. These layer-1 blockchain protocols rely on mining or validator nodes to solve cryptographic puzzles in order to generate a hash. This hash is then used by other nodes on the network in order to validate the block. These layer-1 blockchain protocols adopt proof-of-work (PoW) consensus mechanisms. In exchange, the miner who deciphers the riddle first will be awarded a predetermined quantity of the currency that is exclusive to the network.
PoW layer-1 blockchains are inherently more secure; however, the transaction speeds of these blockchains are severely constrained, making them susceptible to congestion as the network attempts to keep up with the growing demand for transactions.
Layer-1 blockchains are turning to modifications to the consensus mechanism to find a solution to the scalability problem they face. For example, to implement new scaling solutions, the Ethereum layer-1 blockchain protocol is currently transitioning to a PoS consensus mechanism.
In some situations, scaling solutions like sharding are considered a potential option to cut down on the amount of computing power required from each validator node in a blockchain network. Layer-1 blockchain protocols are experimenting with increasing the capacity of each “block” in the chain and decreasing the time it takes to generate new blocks to boost transaction throughput. This type of scaling is known as “on-chain scaling.”
These layer-1 scaling solutions, on the other hand, are unable to compete with the processing speeds of conventional business platforms and have a restricted capacity for cross-chain interoperability.
This latter point is very important, particularly for decentralized finance (DeFi) applications, which are dependent on allowing users to transact between different blockchains to compete with established platforms such as Visa and Mastercard.
In addition, worries about the level of security offered by such solutions have encouraged developers to look for novel solutions to the problem of achieving both scalability and cross-chain interoperability simultaneously.
What’s a layer-0 blockchain, and how does it work?
Since layer-1 blockchain protocols are designed to cater to the requirements of the typical user scenario, they frequently require project developers to make concessions in the architectural aspects of the custom DApps they create.
In addition, because developers are building upon layer-1 blockchains, which already have certain inherent constraints, they are unable to pursue further development until the underlying protocol has been updated to address these issues.
Layer-0 blockchain protocols come to the rescue by making it possible for developers to create bespoke blockchains that can be adapted to precisely meet the requirements of their projects.
These layer-0 blockchain solutions allow developers to combine various elements from different layer-1 blockchain protocols while still maintaining their own ecosystems to achieve further performance improvements.
Layer-0 blockchain protocols have a high degree of versatility and are compatible not only with layer-1 blockchain solutions but also with the more targeted layer-2 scaling solutions that are currently proliferating in the blockchain space. Layer-0 blockchain solutions are compatible with layer-1 blockchain solutions.
Most importantly, layer 0 blockchain protocols are supplying developers with the tools they need to create blockchains that permit high levels of cross-chain interoperability and facilitate faster communication between the different chains.
Layer 0 blockchain protocols employ a decentralized network of independent parallel blockchains to create an entire ecosystem of networks with superior cross-chain interoperability. Prime examples of layer 0 blockchain protocols include Cosmos (ATOM) and Polkadot (DOT). Both of these blockchain protocols were developed by Polkadot and Cosmos.
To facilitate transactions not only within their own ecosystem but also across other layer-1 blockchains, they make use of layer-0 crypto tokens that are native to their platforms. One example of this is the ATOM token that is used on the Cosmos blockchain.
These layer-0 blockchain protocols are laying the groundwork for the future of Web3 by utilizing a multichain network that is composed of highly specialized blockchain solutions that operate in parallel with one another.
Layer-0 versus layer-1 blockchain solutions
It is important to understand how the cryptocurrency space can increase mainstream crypto adoption by facilitating faster transactions between the entire ecosystem of blockchain protocols. While both types of blockchain solutions have their own set of benefits, it is important to understand how this can be accomplished.
This is where layer-0 blockchain solutions can prove to be very important because of their ability to work seamlessly with existing layer-1 blockchain protocols while also providing developers with greater flexibility when making design decisions.
Layer-0 blockchain solutions can significantly improve scalability without compromising decentralization or requiring lengthy development cycles. This is made possible by the fact that they provide the ability to expand the number of use cases through the creation of custom parachains.
Platforms such as Substrate are supplying developers with a blockchain framework, which enables the developers to create their own bespoke blockchains that are also capable of existing independently as “solo chains.”
The overall Web3 vision of creating a connected digital infrastructure for people all over the world to conduct business in is getting closer and closer to becoming a reality as more layer-0 blockchain protocols and blockchain software development kits (SDKs) like Substrate are brought to market.
The future route
Scalability and compatibility with decentralized applications are two key aspects that set blockchain layers apart from one another. Additionally, when all of the layers are taken into consideration, each one functions as a separate level of advancement for the blockchain system.
The rapidly developing blockchain ecosystem, which consists of cutting-edge products such as DeFi and NFTs, is attracting the interest of an increasing number of individuals. Scalability is, therefore absolutely necessary for the continued viability of blockchain networks in the long term.
On the other hand, significant blockchain systems may eventually improve their scalability; however, this improvement will take some time to come about.
It is most likely that Layer 0 and Layer 1 networks will focus on security while allowing Layer 2 networks to customize their services for particular use cases. This will be the most likely scenario.
It is likely that large chains such as Ethereum, which have a sizable user and developer community, will continue to dominate in the foreseeable future. In spite of this, it lays a solid groundwork for the development of focused Layer-2 solutions by virtue of its extensive, decentralized validator set as well as its highly regarded reputation.
