Understanding the 5 Layers of Technology in Blockchain Crypto Networks

At its core, a crypto network is a distributed cloud server that uses a token for accounting in an append-only ledger.

This may break some people’s hearts, but a blockchain is just a glorified accounting system and crypto is an application of it. It is definitely a technological breakthrough in terms of the systems that preceded it, but all of the magic behind blockchain is in what is called “triple-entry-accounting”. The terminology is a bit misleading as there is no actual “third entry” taking place; it is automating the process and removing the possibility of errors happening in bookkeeping.

Theoretically, there are a million different ways to build a crypto network.

Regardless of the architectural specifications; every network will/must have these 5 layers within its design in order to qualify as a true DLT/blockchain:

Hardware

The physical infrastructure that is required to host client software, store the ledger, provide computation, and geologically distribute the network.

These are the nodes on the network, ranging from something as simple as a phone that is running a lite client in the form of a wallet to something as sophisticated as a mining rig with dedicated ASIC machinery.

Hardware is a critical point for the decentralization and security of any network. The more individual nodes that can connect, the more decentralized the network can become.

The quality of the equipment on which a network runs will have correlations with the security of the network. Some networks are extremely computationally demanding (such as Bitcoin) and require enterprise-grade equipment in order to really participate (mine); however, this high standard brings extremely high security.

Networking

Nodes on a network need to have some way of communicating information between each other.

Peer-to-peer or server-client interaction; there are two general models of communication in DLTs, Broadcasting & Gossiping.

Broadcasting is when the leader/proposing node sends has to send a message to every other node on the network. This requires extreme bandwidth capacity in order to dispense enough messages, in a proper time frame, to a large number of participants. Slower due to the need for messages to travel large distances and has a higher chance of message failure.

Gossiping is the more popular alternative due to its speed of informational propagation. Here, the leader/proposing node sends messages to its closest peers that then relay that information to their closest peers and so on until every node has a copy of the information.

consensus

This is the special sauce that makes any distributed network work.

Consensus is the protocol that imbues all the philosophical qualities of a distributed system into its operations. This layer coordinates participating nodes and gives them a “rule book” on how to act.

In order for the logic to be orderly, accurate, resilient to manipulation, and trustworthy some kind of a Byzantine fault-tolerant mechanism must be present to provide state guarantees. Then there must be a Sybil mechanism to deter flooding the network with spam. Of course, in the case of a crypto system, there must also be a proper incentivization structure in place, carved from a sound foundation of game theory to protect itself from being hijacked by bad actors.

POW, POS, PoET, POA, Tendermint and countless other mechanisms can be found on the market today.

Data

Raw information about the chain’s status and activity. Digital signatures, hashing, transactions, Merkle trees & any other functions that may be necessary to accurately record entropy.

The very essence of the blockchain’s innovation has been its radical alteration of data structure. The fact that information can only be appended makes blockchains infinitely expanding. The data layer begins at the genesis block and grows forever alongside all the network activity that takes place, batching transaction data into new blocks, adding headers, signing blocks, and linking them all together.

* an element that rarely gets noted, is that the ability to search for data after it has been published on-chain is part of this layer’s functionality.

Application

Sometimes colloquially referred to as the presentation layer, this is the interface for user-side interactions. Blockchains themselves are the back-end, data storage systems, this layer begins to teeter off into the front end as UX/UI.

Think all smart contracts, APIs, and the chaincode.

The killer application here is the actual coin/token of the network. Assuming the tokenomics are designed properly, it is relevant to just about any and every other application that will be built.

Other applications include:

- Wallets (Metamask, Phantom, TronLink)

- Social Media (MASK, Lens, Nostr)

- Browsers (Brave, Tangled, Opera)

- DEFI (Uniswap, dydx, Compound, aave & many more)

- NFT platforms (Opensea, MagicEden, Blur)

What we just covered here is the low-level network architecture, 5 layers of technologies that must be interwoven to create a DLT/blockchain

There is actually a second high-level conversation around the Layers of blockchain technology that relates more to the distinguishing of roles. You might have heard [ layer 0,1,2,3 ] terminology regarding how the blockchain operates in relation to other blockchains. I will be doing a follow-up on “Blockchain: Layers 0–3” in the coming days and will provide a link to it here.

As always,

I hope this serves you well on your journey,

Thank you for reading!

See you all on the other side 🥂