Welcome, Crypto Dummies!
If you’re new here, this substack is focused on educating those that know nothing about crypto and blockchain technology. If that’s you, you’re in the right place!
Here at Crypto4Dummies, we try to break down some of the complexities of cryptocurrencies and blockchain technology in a way that is easy for everyone to understand.
With so many different protocols, layers, and applications, it can be difficult to maneuver the landscape.
Today we’re going to break down the blockchain layers, and explain them from the ground up.
Let’s get started!
By now we should be familiar with most of the most common blockchain layers, Layer1 and Layer 2. (IF you aren’t, don’t worry, we’re here to explain!)
The blockchain stack is comprised of 4 different layers, Layer0, Layer1, Layer2, and Layer3.
Layer 0
Layer0 is the foundation layer. This is where the hardware, internet, and connections exist that allow Layer1s to run smoothly. Layer0 allows a couple of things to take place:
Interactions between other blockchains
Cosmos is a great example of this. Cosmos utilizes its Tendermint Inter-blockchain communication protocol to create an ecosystem of interoperable blockchains.
This is a huge win for developers. If an application can function on one blockchain, it can certainly function on others as long as they are built using the same Layer0. This eliminates the time and resources needed to build the same application on a different chain.
Cheaper + Faster Txns
With Inter-blockchain communication, Proof of Stake consensus can be achieved across multiple chains. This would result in finality happening almost instantaneously. The result? Cheaper and faster transactions on cross-chain exchanges.
Infrastructure
Providing infrastructure means developers won’t need to start from scratch. Rather than building their blockchains from the ground up, devs can take advantage of the pre-built features and implement them immediately.
Layer1
What are Layer1s?
Layer1s are blockchains that process and finalize transactions on their own chain. The best examples are, Bitcoin and Ethereum. On Layer 1, consensus, block time, and dispute resolution take place. Ethereum and Bitcoin are the most popular of the Layer1s, but there are many competitors out there. Ethereum introduced an entire ecosystem for developers to build a world of decentralized applications.
A common problem with Layer1s is their inability to scale. During times of increased demand, big blockchains like Ethereum and Bitcoin have been struggling to process transactions. To solve the scalability issue, Layer2s were implemented.
Layer2
Layer2s are integrations used in conjunction with Layer1s to improve scalability and transaction throughput. It’s no surprise that with the growing number of new users on Ethereum, the chain has experienced high gas fees and a major increase in congestion on the network. Layer2s were designed to ease some of the load off of Layer1s, processing transactions off-chain, and then posting the transactions to the Layer1 once confirmed.
Optimistic rollups, Zero-Knowledge rollups, and side-chains are some of the different implementations of Layer2s in the effort to solve the congestion and scalability of Ethereum.
Layer3
Layer3 is most effectively known as the ‘Application layer.’ This is the layer that we as consumers interact with regularly. Whether we are exchanging tokens, buying NFTs, or using play-to-earn blockchain games, Layer3 is where the user interface resides.
As consumers, Layer3 is the one we tend to interact with the most. In providing a smooth user experience, we tend to forget about the underlying hardware and software that made the User Interface possible in the first place.
Understanding the differences in blockchain layers, and their use cases bring us one step closer to mastering the blockchain and preparing ourselves for the new age of the internet.
Will you be ready when the blockchain revolution takes over?
Great article!! Very well written and easy to comprehend