What is Blockchain Layer 0, 1, 2, 3 Explained | Layers of Blockchain Architecture

Summary

This video from Whiteboard Programming delves into the intricacies of blockchain's layered architecture, explaining the roles of Layer 0 (hardware and infrastructure), Layer 1 (protocols and consensus mechanisms), Layer 2 (scalability solutions), and Layer 3 (smart contracts and dApps). It highlights the importance of each layer in maintaining security, decentralization, and scalability, using the Bitcoin blockchain as a reference. The video is a comprehensive guide for understanding how blockchain technology operates and its potential applications.

Takeaways

• 💡 Blockchain technology combines various technologies like mathematical computation, cryptography, game theory, peer-to-peer systems, and validation protocols.
• 🔐 The absence of a central authority in blockchains necessitates robust protection for transactions and secure data storage on a distributed ledger.
• 🏗️ Blockchain architecture is layered, with each layer having a distinct functionality, from hardware infrastructure to application layer.
• 💻 Layer 0 refers to the hardware and equipment required for running the network and consensus mechanisms, including the internet connection.
• 🛠️ Layer 1, or the 'implementation layer,' encompasses the protocols, consensus mechanism, coding language, and rules for blockchain operations.
• 🚀 Layer 2 is designed to improve blockchain scalability by offloading transaction processing to a separate network built on top of Layer 1.
• 🌐 The Network Layer facilitates inter-node communication and is crucial for node discovery, block creation, and block addition.
• 🔒 The Consensus Layer is critical for validating transactions and maintaining the blockchain's decentralized nature.
• 📝 The Data Layer involves bundling validated transactions into blocks, which are then added to the blockchain, ensuring data integrity and 'finality'.
• 📱 Layer 3 involves smart contracts and dApps that interface with real-world applications and execute decisions based on predefined triggers.
• 🌟 The video emphasizes the importance of understanding blockchain layers for grasping how the technology operates and its potential applications.

Q & A

What is the primary function of blockchain technology?

Blockchain technology is designed to eliminate the need for a central governing authority and to securely store transaction data on a distributed ledger, ensuring robust protection for all transactions.

What are the key components that contribute to the blockchain's operations?

The key components include mathematical computation, cryptography, game theory, peer-to-peer systems, and validation protocols, which collectively power blockchain operations.

What is the role of the hardware infrastructure layer in blockchain?

The hardware infrastructure layer encompasses the data servers where blockchain data is securely stored and the client-server architecture that facilitates data exchange between machines and servers in a peer-to-peer network.

How does the data layer contribute to the formation of a blockchain?

The data layer is where transaction data, once validated by nodes, is bundled into blocks, added to the blockchain, and linked with the previous block, forming a continuous chain of blocks.

What is the significance of the digital signature in blockchain transactions?

Digital signatures in blockchain transactions provide 'finality' by ensuring that the data cannot be accessed or tampered with by anyone other than the sender, thus ensuring security and anonymity.

Why is the consensus layer considered critical in blockchain operations?

The consensus layer is critical because it validates transactions and maintains the blockchain's decentralized nature by ensuring no single node has control over transactional data, thus preventing double-spending and other assaults.

What is the primary function of the application layer in blockchain?

The application layer is where smart contracts and decentralized applications (dapps) run, making decisions based on triggers and executing actions, and facilitating communication between user devices and the blockchain.

What does the term 'layer 0' in blockchain refer to?

Layer 0 refers to the hardware and equipment required to run the network and consensus mechanisms, including the internet connection used for blockchain network communication.

How is layer 1 different from layer 2 in terms of blockchain functionality?

Layer 1 focuses on the protocols ensuring security across the blockchain network, including the consensus mechanism and the rules embedded in the code, while layer 2 is designed to improve the throughput by handling transaction authentication and decongest layer 1.

What challenges does the 'classic blockchain trilemma' present?

The 'classic blockchain trilemma' presents the challenge that scalability, decentralization, and security are interdependent; improving one can negatively affect the others, making it difficult to enhance the blockchain's ability to handle a higher volume of transactions without compromising on security or decentralization.

What is the role of layer 3 in the context of blockchain technology?

Layer 3 interfaces between real-world applications and the underlying blockchain layers, focusing on smart contracts and dapps that handle decision-making and execution of actions, thus bridging the gap between blockchain and practical applications.

Outlines

00:00

💡 Introduction to Blockchain Layers

This paragraph introduces the concept of layers in blockchain technology, explaining that blockchain is a combination of technologies like mathematical computation, cryptography, and peer-to-peer systems. It emphasizes the importance of a layered architecture for secure and robust transaction authentication. The paragraph outlines the five layers of blockchain: hardware infrastructure, data, network, consensus, and application layers, each with its unique functionality, from storing data in a distributed ledger to running smart contracts and decentralized applications.

05:01

🔍 Deep Dive into Blockchain Layer Functions

This section delves deeper into the functions of each blockchain layer. Layer 0 refers to the hardware and equipment needed for network operation, including internet connectivity. Layer 1 encompasses the protocols ensuring network security, including consensus mechanisms and coding languages. Layer 2 is introduced as a solution to the scalability issue, allowing for offloading transaction processing to a separate layer to prevent network congestion while maintaining decentralization. Layer 3 focuses on smart contracts and dapps, which interface with real-world applications and execute decisions based on predefined triggers. The paragraph highlights the 'classic blockchain trilemma' of scalability, security, and decentralization, and how layer 2 solutions like the Lightning Network help address these challenges.

10:05

🌐 Conclusion on Blockchain Architecture

The final paragraph wraps up the discussion on blockchain architecture, emphasizing the distributed nature of the network where each participant maintains and updates the blockchain. It mentions that the blockchain structure can be saved in various forms, such as a flat file or a database, and can take on public, private, or consortium forms depending on the requirement. The paragraph concludes by encouraging viewers to engage with the content and subscribe to the channel for more informative videos on related topics.

Keywords

💡Blockchain

Blockchain is a decentralized, distributed ledger technology that allows data to be stored across a network of computers in a secure, tamper-proof manner. It is the foundational technology behind cryptocurrencies like Bitcoin. In the video, blockchain is described as an amalgamation of various technologies including mathematical computation, cryptography, and peer-to-peer systems, which together facilitate secure and robust transaction processing.

💡Layered Architecture

Layered architecture in blockchain refers to the structured organization of its components into different layers, each with a specific function. The video explains that there are five layers in blockchain architecture, including the hardware infrastructure, data, network, consensus, and application layers. This architecture allows for a unique way of authenticating transactions and maintaining the decentralized nature of the blockchain.

💡Hardware Infrastructure Layer

This is the foundational layer of blockchain technology where the data is stored in data servers, and the client-server architecture facilitates data exchange. The video mentions that this layer includes the physical hardware and equipment necessary for running the network and consensus mechanisms, as well as the internet connection for communication within the blockchain network.

💡Data Layer

The data layer in blockchain technology pertains to the structure of the blocks that contain transaction data. As explained in the video, when transactions are validated, they are bundled into blocks, which are then added to the blockchain in a linked sequence. This layer is crucial for maintaining the integrity and 'finality' of transactions, ensuring that once a transaction is recorded, it cannot be altered.

💡Network Layer

The network layer in blockchain is responsible for the peer-to-peer communication between nodes, enabling them to exchange transaction data and reach consensus on the validity of transactions. The video describes this layer as the 'propagation layer' because it manages node discovery, block creation, and block addition, which are essential for the blockchain's operation.

💡Consensus Layer

The consensus layer is critical for validating transactions and maintaining the integrity of the blockchain. As the video explains, this layer runs protocols that require multiple nodes to verify each transaction, ensuring that all nodes agree on the validity of the transaction. It is also responsible for resolving any conflicts that may arise, such as multiple blocks being created simultaneously.

💡Application Layer

The application layer is where smart contracts and decentralized applications (dApps) operate. As described in the video, smart contracts make decisions based on predefined triggers, and dApps execute the subsequent actions. This layer serves as the interface between user devices and the blockchain, acting as the user-facing front end while the main blockchain operates as the secure backend.

💡Layer 0

Layer 0 in the context of blockchain refers to the basic physical infrastructure, including hardware and the internet connection, that supports the operation of the network and consensus mechanisms. The video emphasizes that this layer is essential for the smooth functioning of the blockchain as it provides the necessary foundation for all other layers to operate.

💡Layer 1

Layer 1, also known as the 'implementation layer,' encompasses the core protocols that ensure the security and operation of the blockchain network. It includes the consensus mechanism, coding language, and rules embedded in the code. The video points out that when people refer to a blockchain like Bitcoin, they are typically referring to its Layer 1.

💡Layer 2

Layer 2 is a separate network built on top of Layer 1 to address scalability issues without compromising decentralization or security. The video explains that Layer 2 handles transaction authentication and relieves congestion on Layer 1, allowing for a higher volume of transactions. An example given is the Lightning Network, which operates on top of the Bitcoin blockchain.

💡Layer 3

Layer 3 is where smart contracts and dApps that handle decision-making and execution of actions reside. The video describes this layer as the interface between real-world applications and the underlying blockchain layers. It is the layer that brings the most functionality to the blockchain by facilitating the creation and operation of innovative dApps.

Highlights

Blockchain technology is an amalgamation of various technologies including mathematical computation, cryptography, game theory, peer-to-peer systems, and validation protocols.

Blockchains eliminate the need for a central governing authority, ensuring all transactions are robustly protected and data is stored securely on a distributed ledger.

Blockchain architecture is layered, facilitating a unique way of authenticating transactions.

The hardware infrastructure layer involves data servers and client-server architecture for data exchange in blockchain networks.

Blockchains are peer-to-peer networks where nodes verify transactional data and contribute to the distributed ledger.

The data layer describes how transaction data is bundled into blocks and added to the blockchain, ensuring data integrity and security.

Every transaction in a blockchain is digitally signed with the sender’s private key, ensuring data security and anonymity.

The network layer enables inter-node communication and manages node discovery, block creation, and block addition.

The consensus layer is critical for validating transactions and maintaining the blockchain's decentralized nature.

Layer 1 of blockchain includes the consensus mechanism, coding language, and rules embedded in the code for blockchain operations.

Layer 2 is designed to improve blockchain throughput by offloading transaction authentication to a separate network built atop Layer 1.

Layer 3 focuses on smart contracts and decentralized applications (dApps) that handle decision-making and execution of actions.

The Lightning Network is an example of a Layer 2 solution built on top of the Bitcoin blockchain to enhance scalability.

Blockchain architecture can take public, private, or consortium forms depending on the requirements.

Each participant in a blockchain network maintains, authorizes, and updates new entries, reflecting a distributed and decentralized structure.

Blockchain technology can be represented as a flat file or a simple database, highlighting its adaptability.

Transcripts

welcome to whiteboard programming, where we  simplify programming with easy to understand  

whiteboard videos and today, i'll share with you  how does different layers in blockchain technology  

work and what does the so called terms of layer  0, layer 1, layer 2 and layer 3 mean in the crypto  

world. so, lets get started! now, as we all know  that the blockchain technology is an amalgamation  

of various technologies coming together under one  roof to help the system run smoothly. to name a  

few of them, it includes mathematical computation,  cryptography, game theory, peer-to-peer systems,  

and validation protocols, which essentially  join forces to power blockchain operations.  

further, since blockchains eliminate the presence  of a central governing authority, all transactions  

must be robustly protected, and data must  be stored securely on a distributed ledger.  

and for this, blockchains have a  layered architecture due to which  

they are able to facilitate a unique  way of authenticating transactions.  

in the architecture, there are five  layers involved, each with its distinct  

functionality. now that we know the importance of  these layers of blockchain technology, let us dive  

right in and understand the architecture  and what each layer does. starting with,  

1. hardware infrastructure layer to understand  this layer, we must understand that the blockchain  

data lies securely stored in a data server and  when we browse the web or use any blockchain apps,  

our machines request access to  this data from the server. here,  

the framework that facilitates this data exchange  is known as the client-server architecture.  

as we know that blockchains are peer-to-peer (or  p2p) networks that allow clients to connect with  

‘peer-clients’ to make data sharing faster  and easier. it is nothing but a vast network  

of devices communicating with each other and  requesting data from one another. and this is  

exactly how a distributed ledger gets created and  here each device communicating with another device  

on the network is a node and also, each node here,  randomly verifies the transactional data as well.  

2. data layer so, as we all know that the  blockchains are nothing but a long chain of  

‘blocks’ containing transaction data. when the  nodes validate a certain number of transactions,  

the data is bundled into a ‘block,’ added  to the blockchain, and linked with the  

previous block of data. here, the ‘genesis  block’ is the first block in the chain  

and therefore does not need to be linked with any  of the previous blocks. instead, the subsequent  

block is linked with the genesis block, and the  process is repeated every time a new block is  

added. and this is how a blockchain is formed  and continuously grows progressively. further,  

here, every transaction is ‘digitally signed’  with the private key of the sender’s wallet  

and only the sender has access to this key, thus  ensuring that the data can neither be accessed  

nor be tampered with by anybody else. this is what  we call as ‘finality’ in blockchain terminology.  

this digital signature also protects the owner’s  identity, which is itself encrypted, thus ensuring  

maximum security and anonymity in the network.  next, 3. network layer now, as we all know  

that the p2p framework of blockchain enables  various nodes to exchange transaction data,  

to arrive at a consensus about the validity of a  transaction. this means that every node must be  

able to discover other nodes on the network for  fast communication. and it is the network layer  

that facilitates this ‘inter-node communication’.  and as node discovery, block creation, and block  

addition are also managed by this layer, it is  also referred to as the ‘propagation layer.’  

next, 4. consensus layer this is the most critical  layer in blockchain operations. because this layer  

is responsible for validating transactions,  and without it, the entire system will  

fail. this layer runs the protocol that requires a  certain number of nodes to verify one transaction.  

and therefore, every transaction is processed by  multiple nodes that must then arrive at the same  

result and agree on its validity. further, this  framework maintains the blockchain’s decentralized  

nature so as by ensuring that no node has  sole control over any transactional data,  

and the role is distributed. this is  what we call as the consensus mechanism.  

with so many nodes processing  transactions, bundling them up,  

and adding them to the blockchain, multiple  blocks may get created simultaneously, resulting  

in a branch in the blockchain. however, there  must always be a single chain block addition,  

and it is the consensus layer that also  ensures, that this conflict is resolved.  

next 5. application layer this is the layer  on which smart contracts and decentralized  

applications (or dapps) run. smart contracts  make decisions based on certain triggers  

such as contract expiration  dates, achievement of spot prices,  

etc. the actions that follow these decisions are  executed by dapps. and all of this happens on  

the application layer. if you want to learn what  are smart contracts and what are dapps in detail,  

i'll recommend you to watch the following videos,  link for each is given in description below  

back to our video, do note that dapps also  facilitate the communication between user  

devices and the blockchain. therefore, the  application is like the user-facing front end,  

while the main blockchain is the backend,  where the data remains securely stored.  

so, in all, as a summary, you can state that  

these are the 5 layers of a blockchain  that help it function smoothly.  

and now that you are aware of the blockhain layer  architecturture, you might have heard of the  

terms like layer 0, layer 1, layer 2 and layer  3... lets look into these terms individually,  

and what do they mean first one being, what is  layer 0 this layer consists of the hardware and  

equipments that are required to run the network  and the consensus mechanisms without any glitch.  

it also includes the internet connection which  is used for blockchain network's communication.  

next, what is layer 1 well, this layer governs  the protocols that ensure security across the  

blockchain network. layer 1 includes the  consensus mechanism, coding language,  

and all the rules embedded in the code  for the operations of the blockchain.  

therefore, sometimes this is also called as the  ‘implementation layer.’ and do note that when  

users mention the bitcoin blockchain, they are  referring to this layer. next, what is layer 2 so,  

we do realise that to improve the throughput of  blockchains, processing power must be added. but  

doing so means the addition of more nodes, and  this clogs the network. however, as mentioned  

earlier, the addition of nodes is critical  for maintaining the decentralized nature of a  

blockchain. this means that if either scalability,  decentralization, or security are tinkered with,  

they will affect each other on layer 1. this is  called the ‘classic blockchain trilemma.’ wherein,  

by blockchain's scalability, we refer to its  ability to handle a higher volume of transactions.  

by security, we refer to its ability to secure  data on the blockchain from various types of  

assaults and the blockchain's defense against  double-spending. and by decentralization, we mean  

it as a type of network redundancy that ensures  that the network is not controlled by fewer  

entities. hence, if seen practically, layer 1  cannot be scaled without moving all the processing  

to a separate layer built atop the first layer,  i.e., layer 2. this is made possible by enabling  

the integration of third-party solutions with  layer 1. the result of layer 2 is nothing but  

a new network that handles all the transaction  authentication and decongests layer 1. therefore,  

layer 1 only handles the creation and addition  of blocks to the blockchain and the new layer-2  

network sits over the layer 1 network  and continuously communicates with it.  

the lightning network is an example of a layer  2 blockchain sitting on the bitcoin blockchain.  

next, what is layer 3: here, we have smart contracts and  

dapps that only handle decision making and  execution of follow-up actions. since the maximum  

functionality of the blockchain is derived from  the innovation of dapps, this is the layer that  

interfaces between the real-world applications and  the underlying layers that facilitate everything.  

lastly, as a conclusion, i'd like to say  that in the case of blockchain architecture's  

distributed network, each network participant  maintains, authorizes, and updates new entries.  

hence, a collection of blocks with  transactions in a specific order represents  

the structure of blockchain technology and  while these can be saved as a flat file (, i.e.,  

somewhat of a txt file), it can also  take the shape of a simple database.  

and do remember that blockchain architecture can  take public, private or consortium forms as well,  

if needed. With that, I hope this video was  helpful to you and served value, if you love my  

content, feel free to smash that like button and  if you haven't already subscribed to my channel,  

please do as it keeps me motivated and helps  me create more content like this for you.