The blockchain structure is divided into segments that perform different functions. To fully understand how the network works, it is necessary to look deeper into the subject. We aim to explain its operation in simple terms. 

 

Layer 0 - the foundation of network operation

Layer 0 (L0) can be considered as a tool consisting of the components that make it possible to run Layer 1. It is the internet, the hardware and the development kits called SDK. It is possible to launch one's own blockchain or sidechains running independently on it. L0 works on the basis of an inter-chain transfer protocol that allows the transfer of data and tokens.

 

Layer 1 - immutability and security

L1 is the implementation layer. It should be associated with programming languages, consensus mechanisms, resolving disputes or block add time - parameters that maintain the basic functionality of the network. When the number of users increases, there can be scalability problems in this layer. One interesting solution at that point is sharding, which is the compartmentation of the network into smaller areas served by divided nodes. Layer 1 also contains the full transaction history. The most prominent examples of L1 are Bitcoin and Ethereum. 

 

Layer 2 - scaling solutions 

Layer 2 aims to increase the capacity of the network by enabling additional nodes. It can be seen as an „overlay” on the blockchain that implements scaling solutions, such as the Lightning Network in the case of Bitcoin. L2 technologies that solve Layer 1 problems include: 

 

Nested blockchains

This is the implementation of blockchains on top of the parent blockchain to delegate the task of transaction processing to them. They operate according to the parameters of the main blockchain, which is involved in the event of disputes to resolve them. The processed transactions by the nested chains are returned to the main chain. 

 

Sidechains

These are separate networks that have their own validators connected bilaterally to the main network. Assets blocked on the blockchain are knocked out on the sidechain at a 1:1 ratio, once sent back to the mainchain they are unblocked, undergoing simultaneous burning on the sidechain.

 

State channels

This is an off-chain communication environment that extracts part of the base chain's operations via a smart contract or multi-signature to execute transactions. Once all operations are performed and validated, the network state is updated on the main chain. This increases the network bandwidth. 

 

Rollups

ZK-Rollups and Optimistic Rollups involve grouping transactions and settling them off-chain. They are based on zero-knowledge proof. The difference between the two is that in Optimistic Rollups, transactions are assumed to have been executed correctly and only a dedicated „fraud-proof” mechanism analyses them for errors. In Zero-knowledge Rollups, the assumption of their correctness is rejected. Nodes must provide „evidence of validity” of transactions to prove that they are properly executed.

 

Layer 3 - decentralised network applications

The role of Layer 3 is to host decentralised (Dapp) applications and protocols. The leading blockchain in this area is Ethereum. L3 networks allow developers to create applications according to their specific requirements, offering a modifiable infrastructure. This creates innovative applications that have a variety of solutions with the security that is provided by the L1 network. 

 

What is stopping blockchain from going mainstream? 

Blockchain has its limitations like finding the balance between security, decentralisation and scalability. This represents the biggest challenge that developers want to overcome. It is essential for this technology to become part of the mainstream. Projects are making every effort to get as close to this as possible. Mass adoption means overcoming the scalability problem that belongs to Layer 2. L3, in turn, influences blockchain adoption by creating applications designed for real blockchain use cases in everyday life. 

Observing the pace of technological development of the industry in recent years and the market's interest in cryptocurrencies, it is tempting to conclude that the next decade will be an exciting time of many discoveries aimed at enabling blockchain to be 'invited to every household'.