BLOCKCHAIN TECH STACK

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BLOCKCHAIN LAYERS

Application layer

Modeling layer

Contract layer

System layer

Data layer

Network layer

BLOCKCHAIN

What are the six layers of Blockchain technology?

An organized way to categorize the complexity of blockchain technologies

Cryptocurrencies, led by Bitcoin was the first successful application of blockchain technologies, an ingenious combination of several mature technologies, namely cryptography, peer-to-peer technology, and game theory. Blockchains process and share transaction records across a network of users. Transactions can be verified by each user and tied together using cryptography that makes the altering of records almost impossible. Blockchains bring immutability, transparency, efficiency, auditability, and security resulting in lower costs across a wide range of industries and applications.

Because of the multitude of issues that blockchains can potentially address, academics have been increasingly researching Blockchains, its applications and implications on the status quo. Several academics have also tried to categorize different aspects of blockchain technologies such as the technology layers, generations, and types, amongst others.

Many are taking a ‘wait and see’ approach to Blockchain technologies

While there has been a tremendous amount of hype surrounding blockchain technologies, many industries are watching developments closely to see how the technology evolves.

Two industries that have been taking action lately in the form of investments and pilot projects are also the ones with the most to lose – the financial services and banking industries. Recent research has found that there are billions of dollars in cost savings to be realized by the sector in the form of productivity gains, reduced back office operations, reduced overhead and compliance costs and more. These same studies have found that finance executives previously taking a “wait and see” approach are now actively pursuing projects and are expecting to realize significant ROIs. In some cases, close to a 20% return.

While there are industries making significant investments, many more are taking a ‘wait and see’ approach before ‘jumping on the bandwagon. Examples of such industries include stock exchanges and the energy industry.

Reasons for not investing in Blockchain technologies

There are several reasons to take a ‘wait and see’ approach. The first such reason is a lack of trust, at this point in the technology. ‘Decentralization’ and ‘trustless’ environments are still relatively new concepts and require more research before committing time and resources.

A second reason is that many industries have made significant investments in current technologies, workflows, and processes that have been built around a number of regulations. As a result, such a transition to blockchain technologies would necessitate not only a significant investment but also scrapping some of what is already in place.

While Bitcoin and blockchain technologies have been around for almost ten years now, they still have years, if not decades before they are fully integrated into our social and economic fabric. There are significant technical hurdles that need to be solved as well. Even then, there is no guarantee that the blockchain technologies of today will be the blockchains of tomorrow.

Examples of hurdles that have yet to be addressed include transaction throughputs, governance, and security. While solutions to these problems are emerging, there are just too many unanswered question for many.

To guide the research and development process regarding blockchain technologies, models are emerging to guide the collection of knowledge.

Blockchain properties

Blockchain strive to attain the following three properties:

Decentralization

Blockchains are naturally decentralized, do not rely on a trusted third party and provide censorship resistance for data and dapps. Additionally, blockchain data should be anonymous and confidential in a trustless environment.

Consistency

The blockchain should be exactly identical at all nodes at all times. Previously committed transactions should be immutable. The entire history of the blockchain should be verifiable and all queries should be identical on all nodes on the network.

Scalability

Performance, capability, and availability of the system should increase as the number of resources allocated to the network increases. This includes the number of nodes on the network and computational power. The system should be able to easily accommodate additional demands in the form of concurrent users, smart contracts, transactions and queries.

Currently, blockchains can attain only two of the three properties listed above. Public blockchains such as Bitcoin and Ethereum can attain primarily decentralization and consistency at the expense of scalability.

In contrast, private blockchains such as Hyperledger and Ripple attain consistency and scalability at the expense of decentralization. However, the goal remains to create a blockchain that can attain all three properties – decentralization, consistency, and scalability at the same time.

Generations of Blockchain technologies

As blockchain technologies continue to be developed, classification schemes enable new projects to be easily categorized. Current blockchain projects can be categorized into generations, as follows:

Blockchain 1.0 – Cryptocurrencies

These are cryptocurrencies applications. Decentralized ledgers are used to store transactions as exchanges of digital assets between the wallets of multiple clients. Processes such as governance and the consensus algorithm are hard-coded into the system.

Blockchain 2.0 – Decentralized Apps (DApps)

Blockchain 2.0 are decentralized ledgers using smart contracts that support decentralized applications. DApps serve a specific purpose for their users such as buying and selling event tickets.

Blockchain 3.0 – Widespread Apps

Widespread apps involves decentralized ledgers that are specific to the needs of a particular industry and the public sector. This includes blockchains for the healthcare industry, international trade and local governments.

The development of different generations of blockchains is taking place concurrently. Since Blockchain 1.0 projects have been around the longest, those in development are much further along. To help clarify, Bitcoin is an example of a Blockchain 1.0 project whereas Ethereum is an example of a Blockchain 2.0 project.

Six layers of blockchain technology

Blockchains are currently very complex requiring years to develop. To simplify and better understand them, it helps to break down the different parts making up a blockchain into technology layers. The layers making up blockchain technology include, the:

Application layer

The application layer focuses on developing blockchain solutions for use across different applications and industries.

Modeling layer

The modeling layer facilitates smart contracts. This layer is responsible for establishing workflows and defining how the user will interact with the system.

Contract layer

Whereas the modeling layer has to do with workflows, the contract layer has to do with the contract itself. Since there are financial repercussions to a poorly defined or executed contract layer, great care must be utilized to ensure that the contract is issued correctly and free of potential weaknesses. The software also needs to be verifiable, secure and reliable., the contract must be executed correctly and be free of potential weaknesses. The software needs to be verifiable, secure, and reliable.

System layer

The system layer consists of core components that are needed to maintain the blockchain itself. This includes such systems as the consensus protocol and associated subsystems.

Data layer

The data layer is the management of information stored both on the blockchain (on-chain) and within the database (off-chain) itself.

Network layer

Blockchains operate over a network, a peer-to-peer network. Peers share information about the state of the network. Privacy and security is included in the network layer.

While the technologies underlying blockchains are not new, how they are integrated to create a potentially decentralized and trustless systems is. As a result, a great deal of research and experimentation is needed to fully understand the technology and its implications.

Hopefully, this serves as a way to start the process of organising the research and development that is needed to fully realize the potential of this revolutionary new technology.

Putting it all together

While some of the buzz surrounding cryptocurrencies has died down since early January when Bitcoin hit an all-time high, the excitement has in no means died down. On the contrary, it may be increasing slightly with the promise of security tokens.

According to experts, there are three properties of blockchain technologies, including:

Decentralization

Consistency

Scalability

Currently, three generations of blockchain technology has been defined which are defined herein.

Lastly, academics have identified six layers of technology making up blockchain, specifically the:

Application layer

Modeling layer

Contract layer

System layer

Data layer

Network layer

This information will hopefully be helpful in categorizing new developments of blockchain technologies as they emerge. Hopefully, we have identified the six layers of blockchain technology

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BLOCKCHAIN TECHNOLOGY STACK

he blockchain operates on a technology stack that includes the following components:

Blockchain Technology Stack

In the next couple of sections — starting from the bottom of the stack — I will elaborate on the technology layers that support blockchain applications.

The Internet

The Internet is the foundational technology layer. It is a network of networks of global interconnected devices (computers, smartphones, IoT devices, etc) that relies on the Internet Protocol Suite (TCP/IP) that defines how data should be packetised, addressed, transmitted, routed and received.

When the World Wide Web (WWW) or Web version 1 (Web1) was invented in 1989, it facilitated the Internet of Information. Web1 provided the framework to define web resources (documents and other media) and to access these resources by their Uniform Resource Locators (URLs).

By the early 2000s, with advancing technology, the WWW saw an upgrade to Web version 2 (Web2). This gave rise to the Internet of Interactions that supported higher order services like social media and ecommerce. Peer-to-Peer (P2P) interactions grew rapidly and were facilitated by large organisations acting as intermediaries. These intermediaries built platforms that profited from the content generated and shared by subscribers; largely through targeted advertising.

There is a growing number of people who describe the current version of the Internet as Web version 3.0 (Web3) — the Internet of Value. The blockchain protocol is behind this transformation where P2P interactions can be completed without intermediaries. The bitcoin, the best known blockchain application today, enables value (in the form of cryptocurrency) to be transferred between individuals without the need for a whole strata of financial intermediaries — multiple banks and settlement institutions. The same blockchain technology may lead to the development of social media applications without the need for Facebook and Twitter, ride sharing applications without the need for Uber and Grab, accommodation sharing without Airbnb and multimedia sharing without YouTube. This will lead to a truly Decentralised Web.

The Blockchain Protocol

The blockchain protocol operates on the Internet through a peer-to-peer network of computing devices (the nodes) that execute the protocol, completing transactions based on a cryptographic consensus algorithm on identical copies of the distributed ledger of these transactions hosted on this P2P network of devices.

The protocol builds an open, shared and trusted public ledger of transactions that is not controlled by a single entity. These recorded transactions cannot be changed and can be inspected by anyone. The protocol provides sufficient economic incentives to the owners and operators (the miners) of the computing devices to sustain the cryptographic transactions in the distributed ledger. These incentives are represented in the form of tokens.

In the case of the bitcoin network, the bitcoin token determines the circumstances under which new transaction blocks are validated before they are appended to the blockchain ledger.

For additional details, review these stories: The Blockchain Demystified and Different Blockchains for Different Folks

The Application Layer

The bitcoin, the first and best known blockchain application, has developed on the ‘native’ blockchain protocol for most of its existence; except for recent changes introduced in the form of forks. The bitcoin network lead to the development of a Decentralised Autonomous Organisation (DAO) with the disintermediation in the transfer of value as currently seen in centralised financial structures with national/regional bankers, banks, settlement agencies and other financial intermediaries. DAOs allowed people to contribute to the development of economic value through cryptographic tokens generated in an open transparent network without the need for formal contracts or agreements.

For more complex blockchain based applications to develop, it was necessary for an evolutionary step to occur to go beyond consensus algorithm computation and data storage.

Ethereum lead the innovation into the development of a custom built public blockchain that executes smart contracts — applications that run as programmed on a P2P network that is not subject to fraud, interference or downtime. With Ethereum, tokens have moved up the technology stack and can be issued as DAO or distributed application (dApp) tokens. dApps provide the framework to support more complex services in the form of smart contracts. These smart contract tokens are critical to the continued development of blockchain based applications.

The User Experience

The underlying technology layers in the blockchain technology stack have supported the development of applications that we use in our day to day activities. Increasingly, we will witness the continued development of dApps accessed by specialised dApp browsers on our device of choice.

Use cases for blockchain applications are rising as more people become familiar with the technology. You may review the following stories to get an overview of current blockchain applications: Emerging Use Cases for the Blockchain (Part 1) and Emerging Use Cases for the Blockchain (Part 2)

This story has relied extensively on information from the following references:

Wikipedia

BlockchainHub.net

The Ethereum Project