We all know that blockchains do not have a single controlling body, all transactions must be safe, and data must be securely maintained on a distributed ledger. The distributed ledger technology follows a predetermined protocol, with multiple computers (or nodes) throughout the network coming to a “consensus” to confirm transactional data. As new entries arrive, each node adds, examines, and changes them.
Blockchains have a layered design to allow this unique kind of transaction authentication.
Layer 0, also known as the Data Transfer Layer, is the lowest layer and mainly involves integration between blockchain and traditional networks. Layer 0 scaling solutions do not change the structure of the blockchain and keep its original ecosystem rules to improve performance.
The Tier 0 solution is very versatile as it does not affect the blockchain itself and is also compatible with the Tier 1 and Tier 2 scaling solutions. They work together to increase the performance of the blockchain network.
Polkadot is frequently called a blockchain of Layer 0.
Layer 1 blockchain acts as the main infrastructure on which other networks, protocols, and applications can be built. These base architectures operate on different consensus mechanisms, where the most common are:
Proof-of-Work (PoW) is used when the technical equipment of the miner solves complex mathematical problems. For adding a verified block to the blockchain, the miner receives a reward in the form of cryptocurrency. Finding solutions is a complex process that requires significant computing power. Once a computer finds a solution, it sends a message to other computers in the community for verification. The solution is easy to check because other computers are given the answer.
Unlike Proof-of-Work, where the algorithm rewards miners who perform calculations to validate transactions and create new blocks, in Proof-of-Stake, the creator of a new block is selected by the system in advance based on its state, that is, its share in the total amount of cryptocurrency.
The idea of proof-of-stake is to solve the problem of proof-of-work associated with high energy consumption. Instead of the computing power of the participants, what matters is the amount of cryptocurrency they have in their accounts.
The idea of PoW and PoS is pretty tricky, but it can be explained using simple things.
Let’s imagine that the rewards to a person are given for growing a particular apple (for instance, red, weighing 27 grams, and sweet&sour). This person spends a lot of time and resources (water, manures, etc.) to grow this just one particular apples. Apples with other features don’t matter as they won’t reward the person. This is PoW.
At the same time, PoS is when the person is rewarded for growing and storing as many apples as possible. The more apples he grows, the more rewards he gets. This is PoS.
An example of a level 1 blockchain is Ethereum. It uses PoW to reach a consensus on account balances and order of operations, among other things. By the way, the leading developers of Ethereum have already announced an Ethereum fork. During the next call, the team previously approved the migration of the blockchain to the Proof-of-Stake (PoS) consensus algorithm on September 19, 2022.
Layer 2 blockchain operates by expanding the capabilities of the Layer 1 networks. They transfer part of the volume of transactions to adjacent systems. Networks of this type improve the underlying network’s scalability and performance, reducing transaction costs.
Layer 2 basically sits on top of Layer 1 in the blockchain ecosystem and constantly exchanges information with it. However, Layer1 is only responsible for adding and creating new blocks to the blockchain.
An example of a Layer 2 network is Polygon (MATIC), which speeds up transactions and reduces gas in Ethereum.