In 2021, US$6.6 billion has been spent on blockchain solutions. This technology not only underpins the global cryptocurrency market, but also provides unique utility to other industries, such as healthcare, logistics, and real estate.

Blockchain is a decentralized digital ledger made up of blocks that store data on a peer-to-peer (P2P) network. Once the information is stored on this ledger, it is virtually impossible to delete, modify and hack it. It is this unique feature of blockchain that has inspired many people to start their own blockchain-based businesses. But before thinking about how you can use blockchain in your business, it’s important to understand how it works. Let’s take a look at the different layers of blockchain technology to get the most out of what it has to offer.

Understanding the blockchain

There are two methods to comprehend blockchain technology, which is vital to keep in mind when discussing the levels of the blockchain. Understanding blockchain architecture is the first step. The hardware layer, the data layer, the network layer, the consensus layer, and the application layer are the five layers that makeup blockchain technology.

The second is the blockchain network’s split based on protocol. A network’s collection of rules is referred to as a protocol. There are four layers in the blockchain protocol: Layer 0, Layer 1, Layer 2, and Layer 3. Let’s examine each of these categories in turn.

1. Blockchain architecture

The hardware layer

Hardware components including network connections, network computers, and data servers make up the first layer of the blockchain. Data servers house the data that is kept inside a blockchain, and computers connected to the blockchain network can exchange this data. As a result, a P2P network is developed in which each network node (or computer) independently verifies the information.

The data layer

The second layer of this house is the data layer, which manages the information stored on the network. This layer is made up of blocks of information, each of which is connected to the previous layer. The only block that is not connected to another block is the genesis block (the first block in the network).

Each transaction written on these blocks is protected with a private and public key. A private key is an electronic signature known only to the owner to authorize a transaction; The public key is used to verify who signed the transaction. Simply put, if someone sends you cryptocurrency, they will need to know your public key; In order for you to receive crypto, you must use your private key to verify the transaction and prove your ownership of your blockchain wallet.

The network layer

This layer makes it easier for nodes in the blockchain network to communicate with one another. Additionally, blocks are created and uploaded to the blockchain in this layer. This layer is also known as the propagation layer as a result.

The consensus layer

This layer makes ensuring that the network’s rules are upheld consistently throughout the network. To add a transaction to the blockchain, all nodes in the network must concur on it; one node cannot simply do this. The likelihood of fraudulent transactions being added to the blockchain is reduced by this level of verification.

The application layer

This layer makes it easier to use the blockchain for many different things. Smart contracts and decentralized applications make up it (DApps). This layer serves as the blockchain’s user interface and is basically what a user would run into when interacting with a blockchain network.

2. Blockchain protocol

Layer 0

The network hardware, including the internet and any connected devices, coexists at layer zero. It serves as the base upon which the additional layers are erected.

Layer 1

The various transaction-processing blockchains (including Bitcoin, Ethereum, and Binance Smart Chain) make up the protocol’s initial layer. This layer of the protocol, which includes several consensus techniques like proof of work and proof of stake, protects the security of the blockchain.

Layer 2

The execution layer is another name for this layer. The volume of transactions carried out on a blockchain rises as it gets bigger. We require scalable (able to manage the increasing load) Layer 2 solutions to accommodate the increased number of transactions. The initial layer of the protocol’s problems is frequently solved via off-chain (or third-party) solutions. These techniques enhance rather than diminish the initial layer’s features.

Layer 3

The blockchain protocol’s application layer is represented by this. It consists of the various decentralized autonomous organizations (DAOs) and blockchain-based applications (Dapps) that are currently available on the market, such as Decentraland and CryptoKitties.