It has been virtually fourteen years since Bitcoin launched the world to blockchain expertise. Its whitepaper offered the blockchain as a substitute for peer-to-peer funds. Since then, blockchain expertise has grown into one thing with the potential for far more.
Blockchains use a mix of various applied sciences to course of transactions and retailer knowledge. These embrace cryptography, recreation idea modeling, and peer-to-peer networks. Cryptography entails encoding and decoding knowledge, whereas recreation idea makes use of mathematical fashions to review strategic decision-making. Then again, peer-to-peer networks permit for transactions with out the necessity for an middleman.
These applied sciences work collectively to create a trustless system for transactions. It’s safe, clear, and decentralized, just like the Bitcoin whitepaper envisioned. And, as blockchain adoption will increase, they’ve needed to evolve to satisfy the rising wants of customers. This has led to the event of various blockchain applied sciences.
Usually, blockchain expertise might be damaged down into layers 0, 1, and a pair of. Every layer contributes totally different performance to the ecosystem. This may be by way of offering fundamental safety, scalability, interoperability, improvement, and different capabilities.
However what precisely do these layers imply and the way do they tie into the evolution of blockchain expertise?
Understanding the Layers of Blockchain Expertise
Layer 0
A Layer 0 protocol is the foundational factor of blockchain expertise. Consider it as a framework that whole blockchains might be constructed upon. It incorporates the bodily community infrastructure that kinds the premise of a blockchain ecosystem.
In consequence, Layer 0 implementation protocols are sometimes seen as a “blockchain of blockchains.” Examples embrace Cosmos and Polkadot.
In the end, Layer 0 infrastructure holds the important thing to cross-chain interoperability. Blockchains akin to Bitcoin and Ethereum have little to no potential to speak with each other. Nonetheless, Cosmos and Polkadot present a platform that blockchains might be constructed upon to be able to facilitate this cross-chain communication.
Layer 1
Blockchain applied sciences come to life at Layer 1. Right here, you’ll discover the programming languages, consensus mechanism, dispute decision, block time, and the parameters that keep a blockchain’s performance. Due to this fact, it’s also called the implementation layer.
Essentially the most well-known Layer 1 blockchains are Bitcoin and Ethereum.
Bitcoin to Ethereum
The Bitcoin white paper launched an answer that may decentralize monetary transactions. This fashioned the premise of the Bitcoin blockchain. The chain was designed to take away intermediaries in favor of trustless, peer-to-peer transactions. That manner, transactions could be cheaper and sooner.
This fashioned the primary technology of blockchains. It was (and nonetheless is) all about monetary autonomy. Bitcoin’s aim is to ascertain a decentralized cost community that operates exterior the management of any group or authorities.
Because the expertise turned standard, individuals 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. Nonetheless, its founders added to the Ethereum chain the flexibility to jot down contracts in code. Sensible contracts are self-executing contracts that facilitate peer-to-peer transactions and permit for extra performance, akin to decentralized buying and selling, lending/borrowing, and myriad different capabilities.
Ethereum’s expertise might be seen as a foundational piece behind the second technology of blockchains. Nonetheless, it’s constrained by the weaknesses inherent with Layer 1 blockchains.
The issue with Layer 1 Blockchains
Layer 1 blockchains usually have points with scalability and/or interoperability. Scalability refers to a blockchain’s potential to deal with extra transactions as demand arises whereas interoperability is the flexibility to permit for cross-chain communication.
Bitcoin and Ethereum usually are not precisely scalable. Ideally, these blockchains ought to assist 1000’s of transactions per second, permitting them to comfortably cope with community congestion. However Bitcoin can solely carry out 7-10 transactions per second, and Ethereum achieves round 30 per second.
The sluggish pace is as a result of each chains use the Proof-of-work (PoW) consensus mechanism. PoW requires computer systems to resolve advanced mathematical puzzles, which take time and computational energy. So, when too many transactions are being written on the Bitcoin and Ethereum blockchains, the networks change into congested, inflicting delays and expensive transactions.
Due to this fact, these chains have problem competing with present cost processing programs. Take Visa and Mastercard as examples. These assist 1000’s of transactions per second and the transaction price by no means spikes, even when there are various transactions being written on their programs.
One solution to remedy this drawback is by scaling Layer 1 blockchains. This entails rising the variety of nodes. The extra nodes there are within the ecosystem, the sooner and cheaper transactions change into. Nonetheless, this transfer comes with its personal set of issues, generally known as the blockchain trilemma.
The blockchain trilemma is the idea {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 at the price of scalability. Solana and BNB, then again, prioritize scalability and safety, however are extremely centralized.
In Bitcoin’s and Ethereum’s case, modifications made to extend scalability, would trigger decentralization and safety to undergo. Due to this fact, an answer that doesn’t modify the blockchain community is required. That resolution comes within the type of layer 2 scaling.
There’s additionally the issue of poor interoperability. Present Layer 1 blockchains exist as their very own separate ecosystems. Due to this fact, they’re restricted to transacting inside themselves. This is likely one of the greatest obstacles to the development of DeFi as a substitute for conventional finance.
Sifchain’s Resolution to the Lack of Interoperability
Sifchain is a layer 1 blockchain venture. It has capitalized on Layer 0 interoperability to develop new cross-chain options. By doing this, it has been in a position to create a multi-chain decentralized alternate permitting its customers to alternate and switch cryptocurrency between quite a lot of totally different blockchains throughout the Cosmos ecosystem.
The venture workforce constructed the primary, and just for fairly a while, Cosmos to Ethereum bridge. Not solely that, however the venture has additionally launched plans for a function known as “Omni-EVM” that can develop its capabilities to a variety of Ethereum Digital Machine (EVM) blockchains as effectively.
Moreover, Cardano’s latest improvement in the direction of EVM compatibility has opened extra doorways for Sifchain. The venture has utilized for a grant from the Cardano Mission Catalyst to construct its subsequent bridge, and join the Cardano and Cosmos ecosystems.
Layer 2
Layer 2 blockchains had been created as options to layer 1 scalability situation. These options take many kinds, like rollups, sidechains, state channels, nested blockchains, and extra. Usually, all of them contain constructing a blockchain expertise resolution on prime/alongside an present Layer 1 protocol.
This gives an avenue the place transactions and processes can happen independently of the principle (layer 1) chain. This vastly improves the scalability with out altering the principle chain’s infrastructure, therefore avoiding the blockchain trilemma.
Nicely-known examples of Layer 2 networks embrace Polygon and Arbitrum, that are constructed on Ethereum. Polygon can assist as much as 65k transactions per second. That is 2,000 instances sooner than what the Ethereum blockchain gives. There’s additionally the Lightning Community, which is constructed on Bitcoin. It processes as much as 1,000,000 transactions per second.
Sadly, many Layer 2s fall sufferer to among the similar points as Layer 1s, together with interoperability. Whereas these blockchains supply an answer to the blockchain trilemma, they’re extremely reliant on bridges and different third social gathering options when customers need to transfer funds throughout chains.
What’s Subsequent? Cross-Chain options
Blockchain expertise has come a good distance and is in a continuing state of evolution. Nonetheless, present blockchain ecosystems are remoted from each other. This siloed structure is holding again the blockchain trade and it makes conducting transactions between chains cumbersome and insecure.
The following evolutionary step will likely be to extend interoperability. Fortuitously, initiatives akin to Cosmos and Polkadot are pioneering this subsequent step so a frictionless cross-chain resolution could be across the nook.
The offered content material might embrace the non-public 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 accountability on your private monetary loss.