Blockchain A Comprehensive Guide

What is blockchain technology

A blockchain is a type of database that stores information in blocks that are linked together in a chain. Each block contains a timestamp and a link to a previous block. This makes it very difficult to change or hack the data in a blockchain, as any changes would need to be made to every block in the chain.

Blockchain Architecture

Blockchain architecture refers to the layers and components that make up a comprehensive blockchain system. Each blockchain layer plays a specific purpose, from data storage to network communication to system-wide consensus.

Types Of Blockchain Architecture

Public blockchains:

Decentralized blockchains open for anyone to with an internet connection who wants to participate. Anyone can join a public blockchain and contribute to the network. Public blockchains are often used for cryptocurrencies, and NFT's such as Bitcoin, Ethereum, Celo. Because of its decentralized nature, public blockchains are also called Permissionless and also trustless with its anonymous users.

Private blockchains:

Private blockchains also known as permissioned blockchains are owned and accessible to a select group of individuals or organizations. Only authorized users can join a private blockchain such as Hyperledger, Fabric, Corda. The restricted access of private blockchains tends to make them more attractive to enterprises who wish to keep some or all of their transaction information private.

With private blockchains the first block created is called a Genesis block and each block added afterward will have a cryptographic hash that refers to the previous block, allowing users to trace transactions and changes to information going back to the Genesis block.

Consortium blockchains:

Consortium blockchains are owned and governed by a consortium of organizations. Only members of the consortium can join a consortium blockchain. Consortium blockchains are often used for applications that require collaboration between multiple organizations, such as insurance claims processing.

As per the Blockchain Council report, the consortium owners possess the authority to modify or invalidate erroneous transactions while actively fostering collaboration among their members. Some of Consortium blockchains include: TradeLens, Voltron

Hybrid blockchains:

Hybrid blockchains combine elements of public, private, and consortium blockchains. Some examples include: Quorum, Ripple

Components of a blockchain architecture

Nodes: Nodes are computers that participate in the blockchain network. They store the blockchain data and verify new transactions.
Transactions: Transactions are records of data that are stored on the blockchain. They can represent anything from financial transactions to property ownership records.
Blocks: Blocks are groups of transactions that are linked together in a chain. Each block contains a timestamp, a link to the previous block, and the transaction data.
Consensus mechanism: A consensus mechanism is a process that is used to verify new transactions and add them to the blockchain. The most common consensus mechanism is proof-of-work, which involves solving complex mathematical problems to add new blocks to the chain.
Cryptography: Cryptography is used to secure the blockchain network and protect the data that is stored on it. Cryptography is used to encrypt transactions, verify signatures, and create digital signatures.
Smart contracts: Smart contracts are self-executing contracts that are stored on the blockchain.
Chain: This is an ordered sequence of blocks

Layered Structure Of Blockchain Architecture

Layer	Description	Components
Application layer	This layer provides the interface for users to interact with the blockchain. It acts as a bridge between the blockchain network and the end-users or external systems.	Smart contracts, Decentralized applications (dApps), APIs, Wallets
Consensus layer	This layer is responsible for ensuring the authenticity and integrity of the blockchain data. It includes algorithms and protocols that allow nodes to reach a consensus on which transactions are valid and should be added to the blockchain.	Proof of Work, Proof of Stake, Delegated Proof of Stake
Data layer	This layer stores the blockchain data. It encompasses the structures and protocols used to organize, store, and access the data within the blockchain network.	Blocks, Transactions
Network layer	This layer facilitates communication between nodes on the blockchain network. It encompasses the protocols, mechanisms, and infrastructure that enable nodes in the network to connect, exchange information, and participate in the blockchain consensus process.	P2P, Network Protocol
Infrastructure	This layer provides the underlying infrastructure for the blockchain network.	Hardware, Software, Protocols, and other resources that are needed to run the blockchain network

The concept of blockchain layers, including layer 1, layer 2, layer 3, and even layer 0, is often discussed in the blockchain community. However, it's important to distinguish that this categorization is distinct from the explanation of the five layers of blockchain architecture described above. Instead, the categorization of layers in this context is primarily focused on the capabilities and functions of a blockchain.

Layer 0

Layer 0 is the foundational layer of blockchain technology. It provides the underlying infrastructure for other layers to build on top of. Layer 0 includes consensus mechanisms, networking protocols, and other technologies that enable nodes on a blockchain network to communicate and collaborate.

Examples of blockchain networks at layer 0 are Avalanche, Cosmos, Cardano and Polkadot. Cosmos and Polkadot have a special system that regulates the blockchain ecosystem on it (Parachain for Polkadot and Zones for Cosmos).

The function of layer 0 is to provide the software and technology infrastructure so that all the blockchains on it can work simultaneously and interact with each other. In this context, layer 0 provides the network layer technology and infrastructure for blockchains within its ecosystem.

Layer 1

Layer 1 is the base layer of blockchain technology. It is responsible for storing data and processing transactions. Celo, Ethereum, Solana, Binance Smart Chain and Bitcoin are the most dominant L1s in Web3. Layer 1 blockchains are foundational and self-sustaining chains. They are mostly public and permissionless.

Layer 2

Layer 2 is a secondary layer that sits on top of Layer 1. It is used to improve the performance and scalability of Layer 1. Layer 2 includes technologies such as sidechains, state channels, and payment channels. Layer 2 blockchains offer fast transaction processing and much cheaper transaction fees than layer 1.

One of the advantages of a layer 2 blockchain is that it still gets the security of layer 1 above it. So, it combines faster transaction processing and lower transaction fees but inherits the security of layer 1. Some examples of blockchain networks at layer 2 are Polygon, Arbitrum, Optimism, Loopring, Starkne and Aurora.

Layer 3

Layer 3 is the application layer of blockchain technology. It includes the decentralized applications (dApps) that are built on top of blockchains. Layer 3 allows users to interact with blockchains and use the services that are provided by dApps.

The function of layer 3 is to carry out all transaction activities that occur in the application. Some examples of layer 3 are UniSwap, AAVE, Curve, and STEPN.

Blockchain Usecases:

Conclusion

Each layer of blockchain technology plays an important role in the overall system. Layer 0 provides the foundation, Layer 1 provides the base, Layer 2 improves performance and scalability, and Layer 3 provides the applications.