Understanding Layer One Protocols: Blockchain’s Underlying Rulebook

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As mainstream adoption of blockchain has continued to grow, more and more people have begun making their way into the space without developing at least a base-level understanding of this technology and how it works – which can be limiting to their success and profitability.

In order to fully maximize the potential of your operation, it is important to first gain a knowledge of the concepts powering cryptocurrency and blockchain technology. And at the root of these concepts are the building blocks of layer protocols.

Here is a closer look at what application layers and protocols are and how layer one protocols serve as the foundation for the scalability and future growth of the crypto world.

What are application layers?

Before we get into how layers and protocols work within the blockchain space, we must first understand how application layers function within the computing world.

Application layers – also sometimes referred to as levels – serve to mask the finer technical details of a platform while also serving as that platform’s main user interface. Application layers are responsible for hiding a system’s behind-the-scenes operations in order to make the platform easier to use and less complicated for the ultimate end-user.

Web development can be viewed as an example within this lens, where the underlying code is the primary layer only the developers understand while the webpages themselves are the application layer that can be easily used and interacted with by everyone else around the globe – whether they understand how the code works or not.

Blockchain layers

This same concept can also be applied to blockchain technology, where layers (or levels) are used to establish protocols that define how a given network operates and how users within that platform interact.

Blockchain protocols facilitate all of the information-sharing and dictate all processes within a given network, including:

  • Transaction validation
  • System security
  • Interaction of participating nodes
  • And more

Legacy networks like the internet and webpages have what are called thin protocols and fat applications, where the underlying layer has tremendous value but goes mostly unnoticed by the bulk of that network’s users.

This is reversed in the world of blockchain, however, with networks having fat protocols and thin applications where the majority of value is concentrated at the shared protocol level.

Consider Bitcoin, for example. Despite the massive market cap of the network (over $1.1 trillion at the time of writing), the amount of revenue generated from applications built on top of that network remains fairly small.

The same could be said for Ethereum, which has a market cap of over $500 billion at the time of writing and thousands of DApps that run on the network.

Layer one protocols

Layer one protocols – also sometimes referred to as implementation layers – refer to a system associated with the base or underlying architecture of a blockchain network. The layer one protocol establishes the entire set of rules and parameters for the network, including:

  • Consensus algorithm
  • Block time
  • Transaction throughput
  • And more

In the case of Bitcoin, the layer one protocol establishes the proof-of-work consensus algorithm and the 10-minute block time, in addition to every other rule the network and every user within it must follow in order to complete transactions and gain block rewards.

In some cases (such as Ethereum), layer one may be preceded by a “layer zero” that lays the groundwork for components to support a new layer above. Binance Smart Chain is a layer one protocol that resembles Ethereum at a foundational level but that builds off its layer zero to offer lower transactions and higher transaction speeds. For Bitcoin, this layer would include the hardware, internet, and other components that combine to create the smooth operation of layer one.

Perhaps the most notable aspect of layer one is that it serves as a foundation that can be built upon to make improvements to the network that benefit the end user. Any such layer one solutions would directly change the rules of the protocol, such as increasing the amount of data contained in each block or accelerating the rate at which blocks are confirmed to increase overall network throughput.

Stay tuned for future content that will dive deeper into layer two protocols and how they fit into blockchain’s three-layer protocol ecosystem.

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