Understanding the basics of blockchain is as important as a block in a blockchain. It is a decentralized digital ledger composed of blocks that record data over a peer-to-peer (P2P) network. Once data is placed on this ledger, it is nearly impossible to erase, alter, or hack. This distinct feature of the blockchain has prompted many people to start their blockchain-based businesses.

But, before you consider how to use it in your organization, you should first grasp how it works. Let’s look at the various layers of blockchain technology to get the most out of what it has to offer.

1. Blockchain architecture

A. The hardware layer 

The first layer of the blockchain is made up of hardware such as network connections, computers in the network, and data servers. Data servers host the data held within a blockchain, and computers on the blockchain network can share this data. This results in the construction of a peer-to-peer (P2P) network in which information is vetted by individual nodes (or computers) on the network.

B. The data layer

The data layer is the second tier of this home, where information saved on the network is maintained. This layer is made up of information blocks, each of which is linked to the one before it. The genesis block is the sole one that is not related to another (the first block in the network).Each transaction written on these blocks is secured by a private and public key pair. A private key is a digital signature that only the owner knows, and it is used to authorize a transaction; a public key is used to verify who signed for the transaction. 

Simply for eg: if someone sends you any cryptocurrency, they will need to know your public key; for you to get the cryptocurrency, you must use your private key to validate the transaction and confirm your ownership of your blockchain wallet.

C. The network layer 

This layer provides communication among the many nodes in the blockchain network. This layer is also where blocks are created and added to the network. As a result, this layer is known as the propagation layer.

D. The consensus layer 

This layer ensures that network rules are adequately implemented to maintain network consistency. A transaction cannot be added to the blockchain by a single node; all nodes in the network must agree on it. This level of verification reduces the possibility of adding fraudulent transactions to the blockchain.

E. The application layer 

This layer makes it easier to use the blockchain for a wide range of purposes. It comprises smart contracts and decentralized applications (DApps). This layer serves as the blockchain’s front end and is what a user would generally encounter when functioning within a blockchain network.

2. Blockchain protocol

1. Layer 0

Layer zero coexists with network hardware (the internet and linked devices). It serves as the foundation for the subsequent layers.

2. Layer 1

The first layer of the protocol comprises several blockchains that may handle transactions (such as Bitcoin, Ethereum, and Binance Smart Chain). This layer of the protocol protects the security of the blockchain by incorporating several consensus processes like as proof of work and proof of stake.

3. Layer 2

This layer is often referred to as the execution layer. The number of transactions executed on a blockchain increases as it grows. Scalability (ability to manage higher load) Layer 2 solutions are required to support the increased number of transactions. Off-chain (or third-party) solutions are frequently used to address flaws in the protocol’s initial layer. These methods enhance rather than detract from the first layer’s capabilities.

4. Layer 3

This is the blockchain protocol’s application layer. It consists of the various blockchain-based applications (Dapps and decentralized autonomous organisations [DAOs]) that are already available on the market, such as Decentraland and CryptoKitties.

To summarise, blockchain technology is made possible by hardware such as data servers and connected gadgets. This hardware’s network stores information blocks in the data layer. The data layer stores information that is shared within the network within the network layer and confirmed within the consensus layer. Finally, the blockchain is given real-world utility in the application layer through the use of additional applications and tools.

Unlike the layers of the blockchain architecture that keep the network functioning, the protocol layers are concerned with increasing the utility of the blockchain. Layer 0 establishes the foundation for the subsequent protocols, on top of which various blockchains are built. Scalability solutions are implemented in Layer 2 to address concerns with these blockchains, while Layer 3 is how users interact with the blockchain.

The worldwide blockchain market is growing rapidly and is predicted to be worth $67.4 billion by 2026. The growing importance of blockchain necessitates that people understand more about it. Looking at these sub-categories as a whole should help you gain a fundamental understanding of this technology.