Blockchain is a revolutionary technology that has brought about a tremendous transformation in many industries. To better understand the operation and infrastructure of blockchain, we need to take a closer look at its various layers. Each of these layers plays a specific role in the security, speed, efficiency, and scalability of blockchain. In this article, we will examine the layers of blockchain and explore the characteristics of each.

Blockchain Scalability Review

Scalability in blockchain technology has become one of the main challenges in its development. Scalability refers to the ability of a network to increase the number of transactions it can process per second without compromising the network's security or efficiency. Generally, in blockchains like Bitcoin and Ethereum, the transaction processing speed is limited due to structural limitations and consensus mechanisms (such as PoW or Proof of Work). For example, Bitcoin can process only about 7 transactions per second, which is significantly lower than centralized electronic payment systems like Visa, which supports up to 20,000 transactions per second.

The solutions proposed to increase blockchain scalability primarily focus on the development of new technologies and different network layers. One of these solutions is Layer 2, which creates off-chain networks that can process a large number of transactions without negatively impacting the main chain. An example of this technology is the Lightning Network for Bitcoin, which processes transactions off-chain and then sends the final result back to the main network.

Sharding is another scalability solution that divides the main chain into smaller parts, or shards, with each shard independently processing transactions. This approach is particularly being developed for networks like Ethereum. Given the rapid growth of blockchain applications in various fields, developers and engineers of this technology are seeking solutions to improve scalability by increasing throughput and reducing transaction costs without sacrificing security or decentralization.

Blockchain Layers and the Blockchain Trilemma

The Blockchain Trilemma refers to the inherent challenge between the three key characteristics of blockchain networks: decentralization, security, and scalability. According to this concept, blockchain networks cannot fully achieve all three characteristics simultaneously, and one of these three concepts usually has to be sacrificed.

Definition of the Trilemma:

Decentralization: This means that no central entity controls the network, and power is distributed equally among participants.

Security: Ensures that the network is resistant to attacks and malicious activities, and transactions are conducted correctly and without alteration.

Scalability: The ability of the network to process a large number of transactions per second without reducing the network’s performance.

The Trilemma Challenge:

Modern blockchains are usually only able to optimize two of these three elements. For example, Bitcoin and Ethereum have high security and decentralization, but low scalability. Networks that focus on scalability often resort to some form of centralization or compromise on security.

What is the structure of blockchain layers?

The structure of blockchain layers can vary based on different models, but one comprehensive model is the 7-layer model, which explains each part of the blockchain system in detail. In this model, each layer has its specific tasks and functions that contribute to the overall operation of the blockchain network. Below, we will explore these 7 layers:

Infrastructure Layer

This layer includes the hardware and physical infrastructure of the network where data is stored. Servers, storage devices, and communication networks are important components of this layer. The infrastructure layer allows blockchain nodes to connect and communicate with each other. Each node is an independent computer that participates in maintaining and processing blockchain data.

Data Layer

In this layer, transactions are recorded and categorized into blocks. Each block contains multiple transactions that, once verified, are added to the blockchain. The data structure in blockchain is such that each block is linked to its predecessor and connected through cryptographic algorithms. This layer ensures that information is stored securely and immutably.

Network Layer

The network layer is responsible for establishing communication between nodes and distributing information. This layer operates in a peer-to-peer (P2P) manner and is tasked with discovering transactions and disseminating new blocks. Since blockchain is a distributed system, the network layer must continuously synchronize the nodes and ensure proper data dissemination.

Consensus Layer

The most critical layer in blockchain is the consensus layer. This layer is responsible for verifying transactions and validating blocks. Based on the chosen consensus mechanism (such as Proof of Work (PoW) or Proof of Stake (PoS)), nodes must agree on which transactions are valid. This layer also prevents potential attacks and malicious attempts to alter data.

Incentive Layer

This layer deals with how rewards are given to nodes that participate in the process of validating transactions and creating blocks. Rewards are distributed in the form of cryptocurrencies (like Bitcoin or Ether) to incentivize active participation in the network. Additionally, this layer determines how much fee is required to process transactions.

Contract Layer

The contract layer is responsible for managing smart contracts and other types of on-chain agreements. These contracts are executed automatically and define specific rules and conditions for transaction execution. There are four main types of contracts in this layer:

Service Contracts: Related to providing specific services.

Data Contracts: Manage data and access to it.

Message Contracts: For exchanging messages between nodes.

Policy and Obligation Contracts: Mandatory rules and policies that must be followed by nodes.

Application Layer

This layer includes decentralized applications (DApps), smart contracts, and execution protocols. The application layer is the interface between the end user and the blockchain, providing practical services. Applications in this layer refer transaction instructions to the lower layers to ensure their execution.

Types of Blockchain Layers

The division of blockchain layers based on scalability refers to four main layers: Layer 0, Layer 1, Layer 2, and Layer 3. Each of these layers has specific functions that help improve performance, scalability, security, and interactions within the blockchain network. Below, we will examine each layer in more detail:

Layer 0

Layer 0 acts as the infrastructure for blockchain networks and includes technologies that have enabled the creation of blockchains like Bitcoin and Ethereum. This layer consists of hardware, the internet, and communication protocols that are essential for the functioning of the higher layers. Essentially, Layer 0 connects networks to each other and facilitates cross-chain interactions while supporting the technical infrastructure.

Notable projects operating on Layer 0:

Polkadot

Avalanche

Cardano

Cosmos

Layer 1

Layer 1 includes the main blockchain chain, on which networks like Bitcoin, Ethereum, and Solana are built. This layer is responsible for key tasks such as security, consensus, and transaction processing. Scalability issues are more prominent in this layer due to the increasing number of users and transactions. To address these problems, new methods like Proof of Stake (PoS) are being used instead of Proof of Work (PoW).

Notable Layer 1 projects:

Ethereum

Bitcoin

Solana

Binance Smart Chain (BSC)

Layer 2

Layer 2 is a solution to improve the scalability of Layer 1. This layer uses side protocols to process transactions without adding additional load to the main chain. Layer 2 conducts interactions off the main chain, and after processing, sends the results back to Layer 1. This layer can significantly increase transaction speed and reduce network costs.

Layer 2 scalability solutions:

Nested blockchains: Layer 1 handles the primary settings, while Layer 2 executes transactions.

State channels: Transactions are processed off-chain and then submitted to the blockchain.

Sidechains: Parallel chains that help increase network speed and scalability.

Rollups: Off-chain transactions that return the results to the main layer, boosting throughput.

Notable Layer 2 projects:

Bitcoin Lightning Network

Polygon

Ethereum Raiden

Loom Network

Layer 3

Layer 3, or the application layer, is where users interact with the blockchain. This layer includes user interfaces, decentralized applications (DApps), and application protocols such as decentralized exchanges and liquidity management platforms. Layer 3 allows blockchain to be used in the real world and acts as a bridge between users and the underlying layers.

Notable Layer 3 projects:

Uniswap decentralized exchange

Binance platform

Coinbase

Aave liquidity management protocols

Conclusion

Blockchain networks have always faced a fundamental challenge due to the "security," "decentralization," and "scalability" triad, commonly known as the "blockchain trilemma." Achieving these three features simultaneously is usually difficult, as improving one often leads to the weakening of the other two. Therefore, the approach of using layered architecture in blockchain networks has been employed to solve this issue. This division into different layers helps address scalability issues and optimize blockchain performance. Layer 0 serves as the foundation for various networks, Layer 1 focuses on the security and core functionality of the blockchain, Layer 2 addresses scalability improvements, and Layer 3 provides a way for users to interact with blockchain applications. By using these layers together, blockchains can improve scalability and security without sacrificing decentralization.