It has been nearly fourteen years since Bitcoin launched the world to blockchain expertise. Its whitepaper introduced the blockchain instead to peer-to-peer funds. Since then, blockchain expertise has grown into one thing with the potential for far more.
Blockchains use a mixture of totally different applied sciences to course of transactions and retailer knowledge. These embody cryptography, recreation concept modeling, and peer-to-peer networks. Cryptography includes encoding and decoding knowledge, whereas recreation concept makes use of mathematical fashions to research strategic determination-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 might be damaged down into layers 0, 1, and a pair of. Each layer contributes totally different performance to the ecosystem. This might be by means of offering fundamental 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 complete blockchains might be constructed upon. It accommodates the bodily community infrastructure that kinds the idea of a blockchain ecosystem.
As a end result, Layer 0 implementation protocols are sometimes seen as a “blockchain of blockchains.” Examples embody Cosmos and Polkadot.
Ultimately, Layer 0 infrastructure holds the important thing to cross-chain interoperability. Blockchains comparable to Bitcoin and Ethereum have little to no capability to talk with each other. However, Cosmos and Polkadot present a platform that blockchains might 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 also referred to as the implementation layer.
The most properly-identified 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 method, transactions can be cheaper and sooner.
This shaped the primary era 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 widespread, folks realized it might be used for far 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, comparable to decentralized buying and selling, lending/borrowing, and myriad different capabilities.
Ethereum’s expertise might be seen as a foundational piece behind the second era of blockchains. However, it’s constrained by the weaknesses inherent with Layer 1 blockchains.
The downside 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 usually are not precisely scalable. Ideally, these blockchains ought to assist hundreds of transactions per second, permitting them to comfortably cope with community congestion. But Bitcoin can solely carry out 7-10 transactions per second, and Ethereum achieves round 30 per second.
The gradual velocity is as a result of each chains use the Proof-of-work (PoW) consensus mechanism. PoW requires computer systems to remedy complicated mathematical puzzles, which take time and computational energy. So, when too many transactions are being written on the Bitcoin and Ethereum blockchains, the networks turn out to be congested, inflicting delays and dear transactions.
Therefore, these chains have issue competing with current fee processing methods. Take Visa and Mastercard as examples. These assist hundreds of transactions per second and the transaction price by no means spikes, even when there are numerous transactions being written on their methods.
One method to remedy this downside is by scaling Layer 1 blockchains. This includes rising the quantity of nodes. The extra nodes there are within the ecosystem, the sooner and cheaper transactions turn out to be. However, this transfer comes with its personal set of issues, generally referred to because the blockchain trilemma.
The blockchain trilemma is the assumption {that a} chain should prioritize two of the three blockchain parts: 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 price of scalability. Solana and BNB, however, prioritize scalability and safety, however are extremely centralized.
In Bitcoin’s and Ethereum’s case, adjustments made to improve scalability, would trigger decentralization and safety to endure. Therefore, an answer that doesn’t modify the blockchain community is required. That answer comes within the type of layer 2 scaling.
There can 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 instead to conventional finance.
Sifchain’s Solution to the Lack of Interoperability
Sifchain is a layer 1 blockchain undertaking. It has capitalized on Layer 0 interoperability to develop new cross-chain options. By doing this, it has been ready to create a multi-chain decentralized change permitting its customers to change and switch cryptocurrency between a quantity of totally different blockchains throughout the Cosmos ecosystem.
The undertaking staff constructed the primary, and just for fairly a while, Cosmos to Ethereum bridge. Not solely that, however the undertaking has additionally launched plans for a function known as “Omni-EVM” that may develop its capabilities to a variety of Ethereum Virtual Machine (EVM) blockchains as properly.
Additionally, Cardano’s current growth in direction of EVM compatibility has opened further doorways for Sifchain. The undertaking 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 have been created as options to layer 1 scalability subject. These options take many kinds, like rollups, sidechains, state channels, nested blockchains, and extra. Generally, all of them contain constructing a blockchain expertise answer on high/alongside an current Layer 1 protocol.
This gives an avenue the place transactions and processes can happen independently of the principle (layer 1) chain. This significantly improves the scalability with out altering the principle chain’s infrastructure, therefore avoiding the blockchain trilemma.
Well-known examples of Layer 2 networks embody 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 be the Lightning Network, which is constructed on Bitcoin. It processes up to 1,000,000 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 get together 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 business and it makes conducting transactions between chains cumbersome and insecure.
The subsequent evolutionary step will likely be to improve interoperability. Fortunately, tasks comparable to Cosmos and Polkadot are pioneering this subsequent step so a frictionless cross-chain answer may be across the nook.
The introduced content material could embody 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.
