A crypto exchange Crypto.com confirmed that hackers stole nearly $34 million during Monday's hack. In a Tuesday update, the exchange revealed that hackers stole 443.93 bitcoin ($18.7 million), 4835.25 ether ($15.2 million) and approximately $66,200 in USD. The company faced criticism over its communication after the incident. The company's CEO only confirmed the hack on Wednesday, three days after it took place. In total, the hack affected 483 users. However, Crypto.com said that they fully reimbursed all of them. The…
The “Layers” of a Platform
Say you want to build a 100-story tall building. You want it to be the tallest it can be, and at the same time, be able to support the weight all the way through. To ensure that the building is sturdy, you start with getting the right materials, building a strong base from a few stories below the ground, stabilizing the base, and carrying on with the construction.
In the world of software and technology, the analogy holds just as well. To build a platform that supports networking, application building, and other features, you have to work your way ground-up. You have to design an infrastructure that is simple at its base and ultimately supports complex specific applications as you move up.
Ground Zero for Building
As we know it today, the Internet was a cumulation of decades of research in computing technologies. To finally end up with a platform that connects billions of people and machines worldwide, we had to solve problems we didn’t even know existed. Eventually, with a mechanism that included 7 different Layers called the OSI Model, the Internet was born.
Just like the internet, Blockchain, too, is a platform that had to be constructed in Layers. The Layer-based model allowed developers and infrastructure architects to focus on their agendas and nothing else. Put into perspective, for an application builder, it is more than enough to focus on the last Layer, the Application Layer. While for a platform developer, knowing the initial Layers is of utmost importance as they form the base for applications to be built on. As we move up, Layer to Layer, the complexity increase while the generality goes down.
To understand what each Layer in a blockchain means and the functions they play, let us start ground-up.
Blockchain and its Layers
Blockchain, an as complex infrastructure as the Internet it runs on, thankfully does not boast as many Layers. The OSI Model goes from physical interactions to the final application, jumping 7 Layers from the bottom up. A Blockchain, on the other hand, uses the OSI Model as the base to develop. This allows blockchain to limit its complexity to 3 or 4 Layers, depending on the application.
To from Ashwath Balakrishnan of , “Think of [Layers] in terms of clothing. Layer 1 is your shirt. It’s the ‘main-chain’ of your outfit. Layer 0 is the undershirt – it keeps you warm, but nobody can really see it doing its job.”
Layer 0 can be considered a bridge between the Internet, the physical world, and the blockchain. Remember that blockchain technology is not all software. It involves physical network infrastructure (like the mining component of PoW platforms, data storage, etc.) that allow a complex technology like Blockchain function. Layer 0 is the basement that is never seen but is as important as the building itself.
Moving on from Layer 0, Layer 1 is the blockchain platform itself. The Bitcoin blockchain, Ethereum, XEM, and other base layer protocols form Layer 1. Layer 1 functions as the soil for applications to germinate and grow on. Layer 1 is usually a simple, broad, and general purpose. When people talk about blockchains and networks, this is what they usually refer to. Layer 1 is responsible for protocols, consensus mechanisms, and anything else that ensures the base-level functionality of a blockchain and its associated cryptocurrency (if any). It is also referred to as the Implementation Layer, alluding to the possibilities of development.
There is general confusion among developers and architects on finalizing what Layer 2 actually is. The confusion arises because several projects differentiate what they use Layer 2 for. For instance, the Lightning network, a scalability update to Bitcoin, functions as a secondary Implementation layer to Layer 1. On the other hand, Smart Contracts, which are a central feature of Ethereum and many other Layer 1 protocols, are applications built on the Implementation Layer. For now, let us assume that Layer 2 is the level where additional updates and generalized applications to Layer 1 are developed.
Currently, Layer 2 is the area amassing the most interest. Ever since Ethereum showed the possibility of using a generalized blockchain to develop narrow and specific applications, developers are flocking in. This has resulted in a variety of innovations in the sector. Smart Contracts, quadratic voting, scalability solutions, atomic swaps, etc. are a few of the general-purpose Layer 2 applications built on Layer 1.
Although not the layer gathering interest right now, Layer 3 could easily become the area rumbling with activity. Layer 3 is where general applications developed on the second layer could be used to develop specific solutions. Using smart contracts or atomic swaps or lightning network or APIs, developers can integrate and build applications that serve a narrow and specific function. ICOs, crypto kitties, Decentralized Finance (DeFi) are just some of the applications built on the third layer.