Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The crypto market ends the week at a total market capitalization of $2,17 trillion. Bitcoin continues to trade at around $62,300. Ethereum experiences no changes and stagnates at around $2,400. XRP is down by 2%, Solana by 1%, and Dogecoin by 3%. Almost all altcoins are trading in the red, with very few exceptions. The DeFi sector decreased the total value of protocols (TVL) to around…
Beginner’s Guide to Blockchain Layers
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The “Layers” of a Platform
Say you want to build a 100-story tall building. You want it to be the tallest it can be and, at the same time, be able to support the weight all the way through. To ensure that the building is sturdy, you start with getting suitable materials, building a solid base from a few stories below the ground, stabilizing the base, and carrying on with the construction.
In software and technology, the analogy holds just as well. You must work your way ground-up to build a platform that supports networking, application building, and other features. Then, you must design an infrastructure that is simple at its base and supports complex specific applications as you move up.
Ground Zero for Building
As we know it today, the Internet was a cumulation of decades of research in computing technologies. To finally end up with a platform that connects billions of people and machines worldwide, we had to solve problems we didn’t even know existed. Eventually, the Internet was born with a mechanism that included seven different Layers called the OSI Model.
Just like the Internet, blockchain is a platform that had to be constructed in Layers. The Layer-based model allowed developers and infrastructure architects to focus on their agendas and nothing else. For an application builder, it is more than enough to focus on the last layer, the Application Layer. While for a platform developer, knowing the initial Layers is of utmost importance as they form the base of applications to be built on. As we move up, Layer to Layer, the complexity increase while the generality goes down.
Let us start ground-up to understand what each layer in a blockchain means and the functions they play.
Blockchain and its Layers
Blockchain, an as complex infrastructure as the Internet it runs on, does not boast as many Layers. This is because the OSI Model goes from physical interactions to the final application, jumping 7 Layers from the bottom up. A Blockchain, on the other hand, uses the OSI Model as the base to develop. This allows blockchain to limit its complexity to 3 or 4 Layers, depending on the application.
Layer 0
To borrow an analogy from Ashwath Balakrishnan of marketpsycles.com, “Think of [Layers] in terms of clothing. Layer 1 is your shirt. It’s the ‘main chain’ of your outfit. Layer 0 is the undershirt – it keeps you warm, but nobody can see it doing its job.”
Layer 0 can bridge the Internet, the physical world, and the blockchain. Remember that blockchain technology is not all software. It involves physical network infrastructure (like the mining component of PoW platforms, data storage, etc.) that allows a complex technology like Blockchain function. Layer 0 is the basement that is never seen but is as essential as the building itself.
Layer 1
Moving on from Layer 0, Layer 1 is the blockchain platform itself. For example, the Bitcoin blockchain, Ethereum, XEM, and other base layer protocols form Layer 1. Layer 1 functions as the soil for applications to germinate and grow on. Layer 1 is usually a simple, broad, and general purpose. When people talk about blockchains and networks, this is what they typically refer to. Layer 1 is responsible for protocols, consensus mechanisms, and anything else that ensures the base-level functionality of a blockchain and its associated cryptocurrency (if any). It is also called the Implementation Layer, alluding to the development possibilities.
Layer 2
There is general confusion among developers and architects on finalizing what Layer 2 is. The confusion arises because several projects differentiate what they use Layer 2 for. For instance, the Lightning network, a scalability update to Bitcoin, functions as a secondary Implementation layer to Layer 1. On the other hand, Smart Contracts, a central feature of Ethereum and many other Layer 1 protocols, are applications built on the Implementation Layer. Therefore, let us assume that Layer 2 is where additional updates and generalized applications to Layer 1 are developed.
Currently, Layer 2 is the area amassing the most interest. Ever since Ethereum showed the possibility of using a generalized blockchain to develop narrow and specific applications, developers have been flocking in. This has resulted in a variety of innovations in the sector. For example, smart Contracts, quadratic voting, scalability solutions, atomic swaps, etc., are a few of the general-purpose Layer 2 applications built on Layer 1.
Layer 3
Btc
Bitcoin
$62.547
price
price
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Although not the layer gathering interest, Layer 3 could quickly become the area rumbling with activity. Layer 3 is where general applications developed on the second layer could be used to create specific solutions. For example, developers can integrate and build applications that serve a narrow and specific function using smart contracts, atomic swaps, lightning networks, or APIs. ICOs, crypto kitties, and Decentralized Finance (DeFi) are just some of the applications built on the third layer.
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Sudarshan M
@Sum
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