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It has been nearly fourteen years since Bitcoin launched the world to blockchain expertise. Its whitepaper offered the blockchain as a substitute to peer-to-peer funds. Since then, blockchain expertise has grown into one thing with the potential for rather more. 

Blockchains use a mix of totally different applied sciences to course of transactions and retailer knowledge. These embrace cryptography, sport principle modeling, and peer-to-peer networks. Cryptography includes encoding and decoding knowledge, whereas sport principle makes use of mathematical fashions to examine strategic choice-making. On the opposite hand, peer-to-peer networks enable for transactions with out the necessity for an middleman. 

These applied sciences work collectively to create a trustless system for transactions. It is safe, clear, and decentralized, just like the Bitcoin whitepaper envisioned. And, as blockchain adoption will increase, they’ve had to evolve to meet the rising wants of customers. This has led to the event of totally different blockchain applied sciences.

Generally, blockchain expertise may be damaged down into layers 0, 1, and a couple of. Each layer contributes totally different performance to the ecosystem. This may be by way of offering primary safety, scalability, interoperability, growth, and different capabilities.

But what precisely do these layers imply and the way do they tie into the evolution of blockchain expertise?

Understanding the Layers of Blockchain Technology  

Layer 0

A Layer 0 protocol is the foundational factor of blockchain expertise. Think of it as a framework that whole blockchains may be constructed upon. It comprises the bodily community infrastructure that kinds the idea of a blockchain ecosystem.

As a consequence, Layer 0 implementation protocols are sometimes seen as a “blockchain of blockchains.” Examples embrace Cosmos and Polkadot. 

Ultimately, Layer 0 infrastructure holds the important thing to cross-chain interoperability. Blockchains akin to Bitcoin and Ethereum have little to no capability to talk with each other. However, Cosmos and Polkadot present a platform that blockchains may be constructed upon so as to facilitate this cross-chain communication.

Layer 1

Blockchain applied sciences come to life at Layer 1. Here, you’ll discover the programming languages, consensus mechanism, dispute decision, block time, and the parameters that keep a blockchain’s performance. Therefore, it’s often known as the implementation layer. 

The most effectively-recognized Layer 1 blockchains are Bitcoin and Ethereum.

Bitcoin to Ethereum

The Bitcoin white paper launched an answer that will decentralize monetary transactions. This shaped the idea of the Bitcoin blockchain. The chain was designed to take away intermediaries in favor of trustless, peer-to-peer transactions. That manner, transactions could be cheaper and sooner.

This shaped the primary technology of blockchains. It was (and nonetheless is) all about monetary autonomy. Bitcoin’s purpose is to set up a decentralized fee community that operates exterior the management of any group or authorities. 

As the expertise turned in style, folks realized it may very well be used for rather more than peer-to-peer monetary transactions. This impressed the creation of one other Layer 1 blockchain: Ethereum. 

The Ethereum chain, like Bitcoin, is all about making a decentralized monetary system. However, its founders added to the Ethereum chain the flexibility to write contracts in code. Smart contracts are self-executing contracts that facilitate peer-to-peer transactions and permit for extra performance, akin to decentralized buying and selling, lending/borrowing, and myriad different capabilities.

Ethereum’s expertise may very well be seen as a foundational piece behind the second technology of blockchains. However, it’s constrained by the weaknesses inherent with Layer 1 blockchains.

The drawback with Layer 1 Blockchains

Layer 1 blockchains usually have points with scalability and/or interoperability.  Scalability refers to a blockchain’s capability to deal with extra transactions as demand arises whereas interoperability is the flexibility to enable for cross-chain communication.

Bitcoin and Ethereum should not precisely scalable. Ideally, these blockchains ought to assist 1000’s of transactions per second, permitting them to comfortably take care of community congestion. But Bitcoin can solely carry out 7-10 transactions per second, and Ethereum achieves round 30 per second. 

The sluggish pace is as a result of each chains use the Proof-of-work (PoW) consensus mechanism. PoW requires computer systems to resolve advanced mathematical puzzles, which take time and computational energy.  So, when too many transactions are being written on the Bitcoin and Ethereum blockchains, the networks develop into congested, inflicting delays and expensive transactions.

Therefore, these chains have problem competing with current fee processing methods. Take Visa and Mastercard as examples. These assist 1000’s of transactions per second and the transaction value by no means spikes, even when there are a lot of transactions being written on their methods.  

One manner to resolve this drawback is by scaling Layer 1 blockchains. This includes growing the quantity of nodes. The extra nodes there are within the ecosystem, the sooner and cheaper transactions develop into. However, this transfer comes with its personal set of issues, generally referred to because the blockchain trilemma. 

The blockchain trilemma is the idea {that a} chain should prioritize two of the three blockchain components: decentralization, safety, and scalability. This prioritization comes on the expense of the remaining profit. 

For instance, Bitcoin and Ethereum supply excessive ranges of safety and decentralization on the value of scalability. Solana and BNB, alternatively, prioritize scalability and safety, however are extremely centralized. 

In Bitcoin’s and Ethereum’s case, adjustments made to enhance scalability, would trigger decentralization and safety to undergo. Therefore, an answer that doesn’t modify the blockchain community is required. That resolution comes within the kind of layer 2 scaling.

There can also be the issue of poor interoperability. Current Layer 1 blockchains exist as their very own separate ecosystems. Therefore, they’re restricted to transacting inside themselves. This is one of the most important obstacles to the development of DeFi as a substitute to conventional finance. 

Sifchain’s Solution to the Lack of Interoperability

Sifchain is a layer 1 blockchain challenge. It has capitalized on Layer 0 interoperability to develop new cross-chain options. By doing this, it has been in a position to create a multi-chain decentralized trade permitting its customers to trade and switch cryptocurrency between a quantity of totally different blockchains inside the Cosmos ecosystem. 

The challenge crew constructed the primary, and just for fairly a while, Cosmos to Ethereum bridge. Not solely that, however the challenge has additionally launched plans for a function known as “Omni-EVM” that may broaden its capabilities to a variety of Ethereum Virtual Machine (EVM) blockchains as effectively.

Additionally, Cardano’s latest growth in direction of EVM compatibility has opened further doorways for Sifchain. The challenge has utilized for a grant from the Cardano Project Catalyst to construct its subsequent bridge, and join the Cardano and Cosmos ecosystems.

Layer 2

Layer 2 blockchains had been created as options to layer 1 scalability difficulty. These options take many kinds, like rollups, sidechains, state channels, nested blockchains, and extra. Generally, all of them contain constructing a blockchain expertise resolution on high/alongside an current Layer 1 protocol. 

This offers an avenue the place transactions and processes can happen independently of the primary (layer 1) chain. This enormously improves the scalability with out altering the primary chain’s infrastructure, therefore avoiding the blockchain trilemma. 

Well-known examples of Layer 2 networks embrace Polygon and Arbitrum, that are constructed on Ethereum. Polygon can assist up to 65k transactions per second. This is 2,000 instances sooner than what the Ethereum blockchain presents. There can also be the Lightning Network, which is constructed on Bitcoin. It processes up to one million transactions per second. 

Unfortunately, many Layer 2s fall sufferer to some of the identical points as Layer 1s, together with interoperability. While these blockchains supply an answer to the blockchain trilemma, they’re extremely reliant on bridges and different third social gathering options when customers need to transfer funds throughout chains.

What’s Next? Cross-Chain options

Blockchain expertise has come a great distance and is in a continuing state of evolution. However, current blockchain ecosystems are remoted from each other. This siloed structure is holding again the blockchain trade and it makes conducting transactions between chains cumbersome and insecure. 

The subsequent evolutionary step will probably be to enhance interoperability. Fortunately, tasks akin to Cosmos and Polkadot are pioneering this subsequent step so a frictionless cross-chain resolution could be across the nook.

Passionate about Blockchain and has been researching and writing in regards to the Blockchain expertise for over a yr now. Also holds experience in digital advertising. observe me on twitter at @sagar2803 or attain out to him at sagar[at]coingape.com

The offered content material might embrace the private opinion of the writer and is topic to market situation. Do your market analysis earlier than investing in cryptocurrencies. The writer or the publication doesn’t maintain any duty in your private monetary loss.