Built In. What are the layers in blockchain, and how ‘sharding’ can beat the blockchain ‘trilemma’

Blockchain is seen as the darling of Web3. It’s decentralized and distributed digital ledger technology that underlies many cryptocurrencies, such as Bitcoin. It is essentially a chain of blocks, where each block contains a list of transactions. These blocks are linked and secured using cryptographic techniques, forming a secure and transparent record of all transactions on a network.

Blockchain technology consists of three essential layers: Layer 1, which serves as the foundational layer where transactions are processed and secured; Layer 2, which involve solutions that enhance the scalability and throughput by enabling off-chain transactions or alternative consensus mechanisms; and finally, Layer 0. Layer 0 acts as a connector, ensuring seamless communication and interoperability between different layers without compromising the blockchain's integrity.

Built In spoke to 555vCTO.com founder Vaclav Vincalek who shared his thoughts on the blockchain ‘trilemma’ and how to overcome it.

What is the blockchain trilemma and how is ‘sharding’ a solution

Layer 1 in blockchain is considered the only essential layer. So why have multiple layers? It all has to do with security, scalability and decentralization.

“It’s often said that you can have any two, but not all three,” said Vaclav Vincalek, virtual CTO at his consulting firm 555vCTO and author of a weekly tech newsletter, Recurrent Patterns.

“For example, Bitcoin and Ethereum are both secure and decentralized because they use proof of work, but neither is scalable. [Open-source platform] EOSIO, on the other hand, is scalable due to its delegated proof-of-stake consensus mechanism, but not as secure or decentralized as either Bitcoin or Ethereum.”

Vincalek's favored solution to the blockchain trilemma involves implementing sharding. In simple terms, sharding is a technique that involves dividing a blockchain network into numerous smaller networks, known as shards, to distribute computational and storage tasks more efficiently.

“Sharding allows for a more efficient and scalable way of processing transactions,” he said. “This can help to improve transaction speed and reduce congestion on the network.”

So, what is Layer 1 in blockchain?

Layer 1, also fondly called "the mainnet," constitutes the foundational layer of any blockchain platform. It all begins when you log into your cryptocurrency wallet, using special key pairs to access your coin or token balances. Then, your transaction passes through a special system designed just for that blockchain, which checks and confirms the trade. Layer 1 blockchains use their special tokens to pay for transactions or gas fees.

But there's a tricky decision to make when it comes to picking the right consensus mechanism for a Layer 1 blockchain. It's a balancing act that involves weighing three important factors: security, scalability, and decentralization. This trio is famously called the "blockchain trilemma," a term coined by Vitalik Buterin, co-founder of Ethereum. Layer 1 blockchains often grapple with this challenge, with scalability being a common stumbling block. 

That’s where Layer 2 comes in.

How Layer 2 in blockchain works with Layer 1

Layer 2 is essential for boosting blockchain scalability and performance. It's like an overlay on Layer 1, preventing congestion and improving speed. While Layer 1 focuses on security and decentralization, Layer 2 complements with some security and excels in optimizing everyday transactions. It connects the two layers and enhances the blockchain's core functions.

In the world of blockchain, Layer 1 ensures security and a permanent ledger, while Layer 2 optimizes performance and eases congestion. Layer 2 protocols can be tailored for specific needs, bridging the gap between scalability and efficiency. Remember, while Layer 1 is vital, Layer 2 isn't mandatory but can greatly enhance blockchain systems.

Where does Layer 0 fit into blockchain technology?

In the realm of blockchain layers, there's a valuable layer called Layer 0. These blockchains work beneath the main one and help different Layer 1 protocols work together. Layer 0 is like a flexible foundation that keeps the basic rules of Layer 1 intact, making it easy for layers to talk to each other without changing the main structure of the blockchain.

555 vCTO helps your company understand and implement blockchain technology

Is your organization considering blockchain technology? Maybe there’s a different solution. The specialists at 555vCTO.com can help your leaders determine software upgrades that could play an integral role in scaling your business. Let 555vCTO.com help you evaluate possible technologies that can seamlessly integrate into your current tech stack, ensuring a smooth transition with optimal benefits.