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What are Blockchain Layers and How Do They Work?

What are Blockchain Layers and How Do They Work?

Blockchain layers are distinct levels within a blockchain network, each serving a specific function, ensuring system efficiency. Learn more about what are blockchain...

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Cryptography, game theory, and other modern technologies are concepts that combine to create blockchain technology, which has a wide range of potential uses, one of them being a cryptocurrency. By offering transparency and security, a blockchain reduces the need for intermediaries, decreases costs, and increases efficiency. By combining technology, trust is fostered between individuals or groups who otherwise wouldn’t have any incentive to do so. This enables secure value and data exchange between users on blockchain networks. 

Blockchains must be incredibly secure because there is no central authority. They also need to be very scalable in order to accommodate growing user counts, transaction volumes, and other data. Blockchain layers (in other words – blockchains on top of blockchains), were developed in response to this need for scalability while maintaining the highest level of security.

What is Blockchain Scalability?

Blockchain layers are now practically a necessity due to the growing use of cryptocurrencies in daily life as it goes about enhancing network security, reinvents recordkeeping, and more.

Take Bitcoin for example.

Bitcoin’s primary chain cannot process more than seven transactions per second, while the Visa network’s electronic payment network can process over 20,000. The difference is staggering. Which is why there are numerous layer two blockchain technologies in use right now. These systems automate transactions through the use of smart contracts.

Why is Blockchain Scalability Important? 

A blockchain must make trade-offs because it cannot concurrently optimize for all desired characteristics. Transaction costs have escalated as a result of the increased demand to the point where some people are no longer able to use the blockchain.

Blockchains like Bitcoin and Ethereum now have a limited capacity for expansion. As a result, an international community of IT companies, startups, and researchers is frantically developing layer one and layer two solutions to resolve the blockchain trilemma. Blockchain networks are made to be quick, secure, and scalable. They also support new technologies and products that can increase the scalability of already-existing blockchain networks. By adding a layer to the current blockchain layer, Bitcoin aims to solve the issue. 

As Bitcoin becomes a more powerful force in the commercial sector, blockchain developers are attempting to expand the scope of blockchain efficiency. Through the development of blockchain layers and the enhancement of scalability via what we now call “layer two” solutions, we can decrease processing times and boost TPS (transactions per second).

What are Blockchain Layers? 

When you study blockchain technology, it is important that you understand the answer to questions like what are blockchain layers?

On a blockchain, due to the lack of a centralized controlling body, all transactions are strictly protected and data safely kept on a distributed ledger that everyone can access and verify. Such a distributed ledger system follows a predetermined protocol, requiring a “consensus” to be reached by numerous computers (or nodes) in the network to validate transactional data. Each node continuously adds, examines, and modifies new entries.

Coming to the exact question – what are blockchain layers? – blockchains offer this unique technique of transaction authentication through the use of a layered architecture. There are five stages of play, and each has its own set of responsibilities. The blockchain layers explained below.

Blog Highlights

1. Blockchains use a layered architecture for security and functionality.

2. There are 5 main layers: Hardware, Data, Network, Consensus, and Application.

3. Layer 1 (L1) is the core blockchain, responsible for security and consensus. (e.g. Bitcoin, Ethereum)

4. Layer 2 (L2) solutions improve scalability by handling transactions off-chain (e.g. State Channels, Sidechains).

5. Applications and user interfaces interact with the blockchain through Layer 3 (L3) and above.

6. Different layers address specific needs, working together for a robust blockchain system.

The Layered Structure of Blockchain and Architecture

In this section, we discuss the many blockchain layers, and also talk about the various features that make up these layers of blockchain.

Each network participant in the dispersed network of a blockchain architecture layers maintains, approves, and updates new entries. The structure of blockchain architecture layers is represented by a set of blocks with transactions listed in a particular sequence. The blockchain architecture layers might be public, private, or consortium-based.

The following six levels make up layers of blockchain architecture:

1. The Hardware Layer 

A blockchain data can be stored on individual nodes or even on a server at a data center. A client-server architecture is essentially the model used when users browse the web or use any apps to request content or data from application servers. But a blockchain is a peer-to-peer computer network that computes, verifies, and orderly records transactions in a shared ledger. Clients can communicate directly with one another and exchange data. A vast network of computers that share data is referred to as a peer-to-peer network. As a result, all data, transactions, and other relevant data are stored in a distributed database.

2. The Data Layer

The data structure of a blockchain is described as an ordered linked list of blocks. Pointers and a linked list are the two main components of the blockchain’s data structure. Transactions are digitally signed to ensure the security and integrity of the data present in the layers of blockchain. Transactions are signed with a private key, and the signer can be verified by anybody who has a public key. 

The digital signature both checks for unity and identifies information modification. Since the data is encrypted with a specific, unique ‘hash’, it cannot be tampered with. The identity of the sender or owner is likewise shielded and not directly identifiable. A signature is therefore irrevocably connected to its owner and cannot be ignored.

3. The Network layer

The network layer is where inter-node communication takes place. It is also known as the P2P layer or the propagation layer. This network layer manages block propagation, transactions, and discovery. A P2P network is a type of computer network where nodes are dispersed and share network workloads in order to accomplish a shared goal. This P2P layer ensures that nodes can connect to one another, communicate, share, and synchronize to maintain the integrity of the blockchain network. Nodes process transactions on the blockchain.

4. The Consensus Layer

The consensus layer is essential for blockchain platforms to work. Whether it’s an Ethereum, Hyperledger, or other blockchains, the consensus layer is the most important and required layer. The blocks are ordered, validated, and guaranteed to be in the correct sequence by the consensus layer. A precise set of agreements between nodes are established by the consensus layer. It consists of rules that nodes follow in order to validate transactions and create blocks in accordance with those rules. No one has complete control over the blockchain because it keeps power decentralized and diffused. It has universal acknowledgment of the truth.

5. The Application Layer

The application layer is made up of decentralized applications, smart contracts, and chain code. The application layer and the execution layer are further divisions of them. The application layer includes the software that consumers use to communicate with the blockchain network. It consists of application programming interfaces, frameworks, scripts, and user interfaces. 

The blockchain network serves as the back-end technology for these applications, and they communicate with it through APIs. Chain code, smart contracts, and underlying logic are all parts of the execution layer. Even though a transaction moves from the application layer to the execution layer, it is still accepted and executed at the semantic layer. Applications control the execution layer, which executes commands and upholds the blockchain’s determinism.

Want to know more about the difference between blockchain layers? 👉 Check the detailed guide Now on Layer 1 and Layer 2 Blockchain.

Blockchain Layers Explained 

Now that you know what blockchain layers are and the different levels that make up the layers of blockchain, let’s discuss the elements making up the blockchain layers:

1. Layer 0

The elements that makeup blockchain layer zero are the ones that contribute to its creation and core function. This is the technology that makes it possible for blockchain networks like Bitcoin, Ethereum, and others to run. The internet, hardware, and connections that support layer one are considered layer 0 components. 

2. Layer 1

The security of this blockchain layer’s foundation rests on its immutability. It is responsible for consensus procedures, programming languages, block duration, dispute resolution, and the guidelines that uphold a blockchain network’s fundamental functionality. Together, these scalability options increase the network’s throughput, but its speed remains a constraint. As the number of users has increased, so has the workload on blockchain layer one. A scalable solution for the burden is slicing. creates smaller, more manageable portions for the work of checking and authenticating transactions.

3. Layer 2

L2 solutions are the overlapping networks that are positioned above the base layer. In contrast to the first layer, which is a decentralized ecosystem, blockchain layer two is a third-party integration that works with layer one to increase the number of nodes and, consequently, the system throughput. A state channel enables two-way communication between a blockchain and off-chain transactional channels, increasing overall transaction volume and speed. A sidechain is a separate transactional chain that works in tandem with the blockchain and is used for extremely large numbers of transactions. By doing transactions outside of the layer one network and uploading the resulting data to the layer two blockchain, rollups are layer two blockchain scaling options.

4. Layer 3

Blockchain Layer three, or L3, is frequently used to refer to the application layer. The L3 projects serve as a user interface while hiding the communication channel’s technical details. According to the layered structure of the blockchain architecture, L3 apps are what give blockchains their practical utility.

5. Layer 4

Layer 4 is the application layer that includes the smart contracts, the dapps or the decentralized applications, and the software that runs on a blockchain network. 

6. Layer 5

Layer 5 is the user layer that contains end-users interacting with the blockchain networks via browsers and wallets, or any other applications.

Differences Between Layers 0,1,2,3

The following table explains the contrast between the different layers of blockchain-

Layer 0Layer 1Layer 2Layer 3
Components include hardware, internet and connections that help make blockchain a reality.

In charge of programming languages, consensus mechanism and dispute resolution.
Bitcoin and Ethereum blockchains are examples of L1.
In charge of increasing scalability and can be integrated with third-party solutions.

L2 is used along with L1 for enhancing the number of nodes.
Hosts dapps (decentralized applications) and other user-facing applications on the blockchain. 


Blockchains inherited the problems with distributed data storage from which they were derived. Scalability is one of the factors making widespread crypto adoption in the blockchain industry unattainable today.

Nischal Shetty and Omar Syed developed Shardeum, the only network that uses auto-scaling. It can automatically grow, reduce shards, and achieve infinite scalability. Real decentralization and trustworthy security are feasible with Shardeum. Transaction rates will rise thanks to the Shardeum network. With Shardeum, the entire potential of sharding is realized without sacrificing decentralization.

The urge to develop new blockchain protocols will increase along with the demand for cryptocurrencies. The scalability trilemma can only be resolved by creating a system that can overcome the limitations that each blockchain level has.

Frequently Asked Questions (FAQs)

1. What do Blockchain Layers mean?

When we talk about blockchain, it is important to understand blockchain architecture layers. For enabling a blockchain to function and perform, it has different layers in charge of different tasks. The 5 layers of blockchain are the hardware, data, network, consensus and the application layers. If we look at the layers of blockchain by the rules that govern the blockchain network, they are- layer 0, layer 1, layer 2, layer 3, and so on. 

2. What is Layer 1 vs 2 vs 3 Blockchain?

Layer 1 has what it takes to maintain the fundamental functionality of the blockchain network. Layer 2 is what primarily provides the scaling solution to the blockchain network, and works for third party integration. Layer 3, also known as the application layer, hosts the dapps and other protocols.

3. What are the 4 Levels of Blockchain?

The 4 levels of blockchain are- 

  • Layer 0, for fundamental elements contributing to its creation and core functionalities.
  • Layer 1, for programming languages, consensus mechanism and dispute resolution.
  • Layer 2, primarily for increased scalability.
  • Layer 3, for hosting dapps and other user-facing applications on the blockchain. 

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