What is Blockchain Layer 0?

Layer 0 is the network infrastructure that runs underneath the blockchain forming the fundament of the technology. The blockchain ecosystem comprises protocols, connectivity, hardware, miners, and other components.

Why is Blockchain protocol Layer 0 Important?

The short version is that Layer 1 protocols have limitations and layer 0 deigns to fix them. As the root layer, it addresses several issues, which include:

Scaling 

Layer 0 addresses the scalability problem. The lack of scalability is a scathing indictment of the sustainable growth of blockchain-based solutions. DApps built on top of proof-of-work layer 1 protocols are subject to the competitive whims of blockchain resources and this results in slow transaction speeds.

Usability

Usability is the essence of any software endeavor. Layer 1 developers have to make concessions in design and efficiency because the Layer protocol is optimized for the run-of-the-mill use case rather than the developer’s utility. Additionally, developers are restricted to a choice of few programming languages. In order to upgrade conventional Layer1s, a “fork the network” event has to ensue, which can take months of work and even lead to the disintegration of a community.

Sovereignty 

Sovereignty is a basic right, even in software. DApps are subservient to the rule of the Layer 1 protocol on which they bend the knee. When the Layer 1 protocol is invaded by a bug then nothing can be done until the Layer 1 protocol vises the bug. 

How Does a Layer 0 Blockchain Work?

Layer 0 is made up of a number of state channels that verify data using user-defined routines. This layer also includes nodes and any devices connected to the nodes, in addition to the hardware, servers, and systems. A state channel is a two-way communication channel between users that allows them to undertake off-chain interactions that would normally occur on the blockchain. This cuts down on waiting time because you are no longer reliant on a third party, such as a miner. Layer 0 lends support to various consensus algorithms and P2P systems, that is:

• Proof of work
• Proof of stake
• Proof of activity

Layer 0 compliments the three layers of blockchain: scalability, neutrality, and adaptability. One has to stake or purchase a platform’s native token in order to build a business using a Layer 0 protocol. In exchange, one gets out-and-out access to the Layer 0 ecosystem, innovative elements, products, and data-rich solutions. Procuring your tokens enables you to reward structures, authenticate data, mint special tokens, and create business logic, among several things. Once tokens are procured you can use them to mint unique tokens, create business logistics, reward structures, data validation, etc. 

Use Cases For Layer 0 Blockchain Protocols

Layer 0 protocols have nearly infinite applications. They can be used for whatever the programmer wants, including data validation, digital currency wrapping, cryptocurrency minting, and blockchain development. Cosmos and Polkadot are the two most popular Layer 0 blockchain systems.

Polkadot

Polkadot is a next-generation blockchain protocol that connects a network of primary-function blockchains, permitting them to work together smoothly at scale. 

• It utilizes blockchain shards called parachains and parathreads, sovereign blockchains which link to and are secured by the Polkadot relay chain 
• Polkadot bridges grant these parachains and threads to associate and communicate with external networks, such as Ethereum and Bitcoin
• The native currency DOT can fuel several use cases including governance, staking, and bonding.
• Anyone can create an application-specific Polkadot parachain using Polkadot’s Substrate framework. Polkadot has been used by many well-known projects, including Acala, Moonbeam, and Efinity, to design blockchains that are compatible through Polkadot’s ecosystem

The Layer 0 protocol is the foundation of all blockchain protocols, interfacing easily with others to create interwoven value chains. The Layer 0 protocol has various applications, viz:

• Validation of data
• Creating unique incentive structures
• Wrapping digital currency (ETH – WETH)
• Serves as a rudiment layer that allows all layer 1 protocols – Ripple, BTC, and ETH – to engage with each other

What Are Layer 1 Blockchains and How Do They Work?

The blockchain space is fast expanding as creative approaches and apps are deployed on a number of networks, many of which are experiencing scaling issues. One of the three pillars of the blockchain trilemma, along with security and decentralization, that provides a problem for the proliferation and operability of blockchain networks is scalability.

• Layer 1 solutions are presently the prime solution to addressing the scalability problem. 
• A Layer 1 blockchain is a set of solutions that ameliorate the base protocol itself to make the overall system more extendable. There are two approaches for implementing L1 solutions 
  • Sharding 
  • Consensus Protocol
• Operating Layer 1 blockchains include: Ethereum, Binance, and the XRP Ledger.

Types of Layer 1 Blockchain Solutions 

A consensus protocol precludes a single party from controlling or manipulating the “truth” of what should be recorded on a blockchain. Double spending is an illustration of what could happen if one entity attempted to take control of the entire network by producing its own blockchain variant.

Consensus Protocol

The classic consensus technique for Bitcoin and Ethereum is Proof-of-Work, or PoW. Its goal is to use miners to decode sophisticated cryptographic algorithms to achieve both consensus and security. PoW, on the other hand, has two major flaws: it is slow and resource-intensive. What are the crucial elements of consensus protocols?

1. Proof of Stake – PoS is a mechanism that features a distributed consensus over the blockchain where
   1. Users can authenticate block transactions on the basis of their stake
   2. PoS towers over PoW in terms of transaction speed 
   3. PoS kowtows before PoW in terms of safety 

2. Proof of Work – PoW is the traditional consensus mechanism using miners to decipher advanced cryptographic algorithms to achieve both consensus and security
   1. Slow and resource-intensive. For instance, Bitcoin, which has a capacity of only 7 transactions per second

Sharding 

Sharding is a technique for making a database more computer-friendly. This method has been employed in many current applications, however, it is still relatively new in blockchain. When it comes to crypto, sharding is crucial because many networks struggle to scale.

3. It is an experimental approach as it involves breaking up the network into a series of separate database blocks known as shards
4. It essentially makes blockchain more manageable

Layer 1 Vs. Layer 2 Blockchains

The underlying primary blockchain architecture is referred to as Layer-1. On the other side, Layer-2 is an overlaying network that sits on top of the blockchain. Consider the Lightning Network and Bitcoin. The Bitcoin network is Layer-1, while the Lightning Network is Layer-2.

• Not everything can be solved on Layer 1 due to technological constraints
  • Scalability
    • For example, a blockchain game cannot realistically use the Bitcoin network because of lengthy transaction times. However, the game may want to deploy the security and decentralization of a Layer 1 ledger: basically, build on top of the Layer 1 network with a Layer 2 solution 

• Layer 2 solutions build on Layer 1 and rely on it to finalize transactions
  • Example: Lightning Network
    • It lets users make speedy payments with Bitcoin off the main chain and the eventual balance is reported back to the primary chain later; it’s like bundling all transactions into one ultimate record, saving both time and resources 

Layer 1 Blockchain Examples:

Elrond

• Uses sharding to expand performance scalability 
• Processes over 100,000 transactions per second
• Two unique features: Secure Proof of Stake Consensus & Adaptive State Sharding
  • Secure Proof of Stake 
  • Adaptive State Sharding happens via shard splits and merges as the network loses or gains users 

THORChain

• A cross-chain permissionless decentralized exchange 
• Uses the Tendermint consensus mechanism for validating transactions 
• The main objective is to allow for decentralized cross-chain liquidity without the need to peg or wrap an asset
  • For multichain investors, pegging and wrapping adds a risk to the process 
• Determinately, it is a value manager that monitors deposits and withdrawals
  • Helps create decentralized liquidity and removes centralized intermediaries

Layer 2 Blockchain Protocols

Layer-2 is a network or platform that runs on top of a blockchain protocol to increase its scalability and efficiency. This type of scaling solution involves offloading a portion of a blockchain protocol’s transactional weight to an adjacent system architecture, which then performs the majority of the network’s processing and only reports back to the main blockchain to complete the process. The base layer blockchain becomes less crowded — and eventually more scalable — by abstracting the majority of data processing to supplementary architecture.

Bitcoin, for example, is a Layer-1 network, and the Lightning Network is a Layer-2 solution designed to increase transaction speeds on the Bitcoin network in this way. Layer-2 solutions can also be found in:

• This type of scaling involves offloading some of a blockchain protocol’s transaction processing to an adjacent system architecture, which then returns to the main blockchain to settle the results.
• The base layer blockchain becomes less crowded and ultimately more scalable by extrapolating the majority of data to an auxiliary.

Examples of Layer 2 Blockchain Solutions

Nested Blockchains

A nested blockchain is a blockchain that exists inside — and indeed, on top of — another blockchain. The nested blockchain design often includes a core blockchain that establishes the parameters for a larger network, with executions taking place on a web of secondary chains that are interconnected. A mainchain can support several blockchain tiers, each with its own parent-child link. The parent chain assigns work to kid chains, which process it and then return it to the parent. Unless there is a need for dispute resolution, the substrate base blockchain does not participate in the network functions of subsidiary chains.

Example: OmiseGo Plasma Project 

• Nested blockchain infrastructure that is used atop the Layer 1 ETH protocol so as to facilitate faster and cheaper transactions

Plasma follows a simple design principle:

The core, foundational blockchain will establish the ground rules for the entire system. It will not participate in any operations directly until it is required to address some issues.

On top of the main chain, there will be numerous tiers of blockchains. A parent-child chain link will be formed by connecting these levels. Work is delegated by the parent chain to its subsidiary chains. The child chains then carry out these actions and report back to the parent chain with the results.

This solution not only reduces the burden on the root chain but also increases scalability enormously if properly enforced.

State Channels 

A state channel improves total transaction capacity and speed by allowing two-way communication between a blockchain and off-chain transactional channels. A state channel does not require Layer-1 network nodes to validate it. Rather, it’s a network-adjacent resource that’s protected by a multi-signature or smart contract mechanism. The end “state” of the “channel” and all its inherent transitions are posted to the underlying blockchain when a transaction or batch of transactions is completed on a state channel. State channels include the Liquid Network, Celer, Bitcoin Lightning, and Ethereum’s Raiden Network. State channels lose some decentralization to acquire higher scalability in the Blockchain Trilemma bargain.

Example: Ethereum Raiden Network

• Enables two-way communication via multi-signature or smart contracts, allowing users to transact off-chain quickly and easily — after the entire transaction set has been completed on the state channel, the optimal state is added to the underpinning blockchain at once.
• The high transaction throughput at a low cost is an advantage.

Sidechains

A blockchain-adjacent transactional chain that is connected to the blockchain and is used for big bulk transactions. They employ a self-contained consensus process that may be tuned for speed and scalability. The primary responsibility of this position is to ensure overall security, confirm batch transaction data, and settle disputes.

A number of key differences distinguish sidechains from state channels. To begin with, sidechain transactions are not private between parties; instead, they are published openly on the ledger. Furthermore, security breaches on sidechains have no effect on the mainchain or other sidechains. Because the infrastructure is normally developed from the ground up, establishing a sidechain could take a long time.

Sidechains provide a framework for constructing interconnected blockchain networks.

Example: Polygon (Matic)

• It is a Layer 2 solution built on the Ethereum network.
• A scaling solution that provides multiple tools to reduce the cost and complexities of blockchains while upgrading transaction speeds. 
• Polygon attempts to tackle challenges of the Ethereum network such as lack of community governance and elevated transaction costs. 

The Blockchain Trilemma

The term “scalability trilemma,” coined by Vitalik Buterin, Ethereum’s founder, refers to a blockchain’s ability to balance three organic aspects that make up its essential principles: security, scalability, and decentralization.

According to the trilemma, any blockchain system can only have two properties at a time, never all three. Ergo, one of the essential features of existing blockchain technology will always be compromised. Bitcoin is a great example of this. While its blockchain has optimized decentralization and security via no fault of its own, it has had to sacrifice scalability through no fault of its own.