Blockchain

Blockchains #

2008. In forums and virtual communities of the time, the wave about “Bitcoin: A Peer-to-Peer Electronic Cash System” spread, a document published by a person (or group) under the pseudonym Satoshi Nakamoto, describing the concept of Bitcoin, a cryptocurrency that would use a technology known as blockchain, which would ensure the security and transparency of transactions without the need for intermediaries, providing decentralization, transparency, and resistance to manipulation through P2P exchange and cryptographic puzzles.

The idea of ‘crypto‘ advanced to the point that the first Bitcoin (BTC) transaction was successfully completed in January 2009, thus starting the first public blockchain. Bitcoin implements a distributed ledger, where all transactions are recorded immutably and verified by a decentralized network of nodes. Data is stored in a series of linked blocks secured by cryptography. Each block contains a set of transactions or data, a timestamp, and a link to the previous block, forming an immutable and chronological chain. This structure guarantees the integrity and security of the information, as any alteration in a block would invalidate all subsequent ones.

Over time, blockchain technology has expanded beyond Bitcoin, largely due to expansion limitations as a platform or the controversial consensus mechanism it uses, known as Proof-of-Work, which requires high computational resources, and thus environmental resources. This method is popularly known as mining, the mechanism through which blockchain transactions are validated and recorded, and new bitcoins are created. Miners receive crypto rewards for this work, rewards that in the case of Bitcoin, are halved every 4 years (Halving).

Blockchain Structure #

Blockchains are generally structured into three fundamental layers, each of which performs specific functions to ensure the efficient and secure operation of the network. These layers are:

1. Infrastructure Layer (Base Layer or Network Layer): #

Description: This is the most fundamental layer and refers to the underlying infrastructure that supports the blockchain. Includes network protocols, node distribution, and consensus technology.

Functions: Provide the network of nodes that store and validate transactions, ensure decentralization, and manage consensus algorithms such as Proof of Work (PoW) or Proof of Stake (PoS).

Examples: The Bitcoin network and the Ethereum network.

2. Protocol Layer (Consensus and Security Layer) : #

Description: This layer encompasses the protocols that manage validation and consensus on the network, ensuring that all transactions are verified and recorded in a secure and consistent manner.

Functions: Implement consensus mechanisms to validate transactions, manage block creation and maintain the integrity and security of the distributed ledger.

Examples: Consensus algorithms such as PoW (used by Bitcoin) and PoS (used by Ethereum 2.0).

3. Application Layer (Services and Smart Contracts Layer): #

Description: The application layer refers to the components and applications that interact with the blockchain to provide additional services and functionality.

Functions: Implement and run smart contracts, decentralized applications (dApps), and other services that use the blockchain as a platform.

Blockchain Layers #

Not only each blockchain has its own layering, but there are several blockchains built inside others, which is commonly addressed as Blockchain Layers, usually organized in three: L1 or main networks, L2 built within the L1, and L3 built on top of the L2:

Layer 1 (L1) #

Mother blockchains where first-order tasks are carried out and where all transactions are carried out and executed. They typically use specific consensus methods such as Proof of Work and Proof of Stake, and are typically reigned under a coin. An example of this is the Bitcoin network or the Ethereum network. Layer 1 refers to the main blockchain, the foundation of the network where all transactions are made and recorded. It includes the fundamental protocol and consensus rules that govern the network, and, as is the case with Ethereum, they are also the basic infrastructure for smart contracts and decentralized applications.

Layer 2 (L2) #

Networks that are created on Layer 1, generating a second layer within which it is also possible to develop more apps, currencies, etc., usually with better scalability and efficiency, with less network load, therefore more ;s agility, fewer fees and optimized transaction performance. An example of these is Base, developed on the Ethereum network, or technologies such as Optimism Rollups, which allow off-chain work to be carried out and then consolidated, to improve scalability but preserving the security and decentralization that the blockchain allows.

Layer 3 (L3) #

Layer of applications and services that interact with lower layers. It includes decentralized applications (dApps) and other services that use the infrastructure and scalability solutions provided by layers 1 and 2. They tend to have more practical user interfaces, facilitate the adoption and widespread use of crypto, implement specific use cases such as decentralized finance (DeFi), NFT marketplaces, decentralized social networks, etc. An example is Degenchain, the DEGEN currency network created within Base, which is in turn a L2.Layer 3 (Layer 3, L3).

 Layer 1Layer 2Layer 3
DefinitionFoundation of the blockchainBuilt on top of Layer 1s like EthereumHosts application-specific dApps
Primary RoleSecure and run the networkReduce Transaction costs and improve the scalability of the Layer 1Highly customizable applications that can solve targeted issues
ScalabilityLimited scalabilityImproved scalability as compared to Layer 1Extremely scalable
InteroperabilityUsually works aloneAble to work with limited chainsEnables different blockchains to work together
Transaction FeesHighLowLower depending on the application
Use CasesBasic blockchain functionsAdvanced transactions with more efficiencyComplex applications that can be used across multiple chains
ExamplesBitcoin, EthereumArbitrum, PolygonOrbs, Arbitrum Orbit, zkSync Hyperchains
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