Exploring Blockchain Layers: Understanding Functions and Differences

Concordex Labs
3 min readApr 5, 2024

Exploring Blockchain Layers: Understanding Functions and Differences

Blockchain technology has emerged as a transformative force, reshaping industries and revolutionizing the way we manage data and transactions. At the heart of this innovation lies a layered structure, comprising distinct tiers that work in concert to deliver security, transparency, and efficiency.

In this article, we delve deep into the intricate layers of blockchain, unravelling their functionalities and significance. So let’s get started!

Blockchain Technology’s Layered Structure

At its core, blockchain operates across five layers: the hardware infrastructure, data storage, network communication, consensus mechanism, and application development layers. Each layer serves a unique purpose, culminating in a comprehensive solution for managing data and building applications. Let’s explore these layers in detail:

  1. Hardware layer: This foundational layer encompasses the physical components supporting the blockchain network, such as computers and servers. Nodes, or network participants, decrypt transactions, collectively forming the blockchain ledger.
  2. Data layer: Following the hardware layer, transaction details are stored in this layer. Each block contains information like cryptocurrency transfers, recipient public keys, and sender private keys. Blocks are linked sequentially, with only the genesis block connected solely forward.
  3. Network layer: Responsible for facilitating communication between blockchain nodes, this layer connects peers, propagates transactions, and disseminates data. It ensures that all nodes stay informed about validated transactions across the network.
  4. Consensus layer: Vital for maintaining agreement among network nodes, this layer employs consensus mechanisms like Proof of Work (PoW) or Proof of Stake (PoS) to validate and append transactions to the blockchain securely.
  5. Application layer: At the forefront of blockchain innovation, this layer hosts the development of smart contracts, decentralized applications (dApps), and other software leveraging blockchain security and transparency. It empowers developers to create diverse applications, spanning from wallets and social media platforms to DeFi apps and NFT marketplaces, with decentralized backend data storage.

Blockchain Layer Structure

The blockchain operates through several layers:

  • Layer 0: Known as the foundational layer, Layer 0 encompasses the blockchain itself. Implementing blockchain technology requires internet connectivity, hardware components, and various connections. Layer 0 serves as the initial stage of blockchain, enabling networks like Bitcoin and Ethereum to operate. It also enables cross-chain interoperability communication across different layers, establishing fundamental infrastructure, protocols, and standards governing the blockchain network. Some of the examples are Cosmos, Polkadot, and Avalanche.
  • Layer 1: Building upon Layer 0, Layer 1 represents an advancement in blockchain functionality. While maintaining network functionality, scalability remains a challenge in Layer 1. Modifications or issues in Layer 0 protocols can affect Layer 1. Also referred to as the implementation layer, Layer 1 includes blockchains such as Concordium, Bitcoin, Ethereum, Cardano, and Ripple.
  • Layer 2: Layer 2 streamlines interactions from Layer 0 and provides a scaling solution for specific blockchains. It allows for third-party integration and removes restrictions present in Layer 1. Layer 2 is commonly used to address scalability issues in Proof-of-Work (PoW) networks, with various industries implementing layer two technologies. Some of the examples are Lightning Network, Arbitrum and Polygon.
  • Layer 3: Also known as the “application layer,” Layer 3 hosts decentralized applications (dApps) and other protocols facilitating various applications. This layer divides the blockchain protocol into two significant sub-layers: application and execution. It offers an effective solution for separating blockchains with cross-chain capabilities, aiming to achieve genuine interoperability. Some of the examples are Uniswap, MetaMask, and CryptoKitties.


In summary, the diverse layers of blockchain collaboratively form a potent and revolutionary technology poised to reshape numerous sectors. Through its facilitation of secure, transparent, and streamlined transactions sans intermediaries, blockchain holds promise for substantial cost reduction and heightened trust in business operations. As the adoption of blockchain expands across industries, anticipate an influx of innovative applications and use cases, heralding a promising horizon for the blockchain landscape.

About Concordex

Concordex is a cutting-edge Decentralised Exchange (DEX) that operates on the Concordium Blockchain. Renowned for emphasising institutional-grade security, transparency, and user-centric design, Concordex offers various services, including staking, swapping, and perpetual trading. With a mission to bridge the divide between traditional finance and decentralised systems, it offers users an unparalleled trading environment.

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Concordex Labs

Institutional-Grade Decentralized Exchange on the Concordium Blockchain