From Bitcoin to Sifchain – The Evolution of Blockchain
It has been almost fourteen years since Bitcoin introduced the world to blockchain technology. The whitepaper presented the blockchain as an alternative to peer-to-peer payments. Since then, blockchain technology has grown into something with the potential for much more.
Blockchains use a combination of different technologies to process transactions and store data. These include cryptography, game theory modeling and peer-to-peer networks. Cryptography involves the encoding and decoding of data, while game theory uses mathematical models to study strategic decision making. On the other hand, peer-to-peer networks allow transactions without the need for an intermediary.
These technologies work together to create a trustless system of transactions. It is secure, transparent and decentralized, as envisioned by the Bitcoin Whitepaper. And as blockchain adoption increases, they have had to evolve to meet the growing needs of users. This has led to the development of various blockchain technologies.
In general, blockchain technology can be broken down into layers 0, 1 and 2. Each layer contributes different functionality to the ecosystem. This can be through providing basic security, scalability, interoperability, development and other features.
But what do these layers really mean and how do they relate to the development of blockchain technology?
Understand the layers of Blockchain technology
Create 0
A Layer 0 protocol is the fundamental element of blockchain technology. Think of it as a framework upon which entire blockchains can be built. It contains the physical network infrastructure that forms the basis of a blockchain ecosystem.
As a result, Layer 0 implementation protocols are often thought of as a “blockchain of blockchains.” Examples include Cosmos and Polka dot.
Ultimately, Layer 0 infrastructure holds the key to cross-chain interoperability. Blockchains like Bitcoin and Ethereum have little or no ability to communicate with each other. However, Cosmos and Polkadot provide a platform upon which blockchains can be built to facilitate this cross-chain communication.
Layer 1
Blockchain technologies come to life on Layer 1. Here you will find the programming languages, the consensus mechanism, the dispute resolution, the block time and the parameters that maintain a blockchain’s functionality. Therefore, it is also known as the implementation layer.
The most famous Layer 1 blockchains are Bitcoin and Ethereum.
Bitcoin to Ethereum
The Bitcoin white paper introduced a solution that would decentralize financial transactions. This formed the basis of the Bitcoin blockchain. The chain was designed to remove middlemen in favor of trustless, peer-to-peer transactions. That way, transactions would be cheaper and faster.
This formed the first generation of blockchains. It was (and still is) about economic autonomy. Bitcoin’s goal is to establish a decentralized payment network that operates outside the control of any organization or government.
As the technology became popular, people realized that it could be used for much more than peer-to-peer financial transactions. This inspired the creation of another Layer 1 blockchain: Ethereum.
The Ethereum chain, like Bitcoin, is about creating a decentralized financial system. However, the founders of the Ethereum chain added the ability to write contracts in code. Smart contracts are self-executing contracts that facilitate peer-to-peer transactions and allow for additional functionality, such as decentralized trading, lending/borrowing and countless other functions.
Ethereum’s technology can be seen as a fundamental piece behind the second generation of blockchains. However, it is limited by the weaknesses inherent in Layer 1 blockchains.
The problem with Layer 1 Blockchains
Layer 1 blockchains typically have issues with scalability and/or interoperability. Scalability refers to a blockchain’s ability to handle more transactions as demand arises, while interoperability is the ability to allow communication across chains.
Bitcoin and Ethereum are not exactly scalable. Ideally, these blockchains should support thousands of transactions per second so that they can handle network congestion comfortably. But Bitcoin can only perform 7-10 transactions per second, and Ethereum achieves around 30 per second.
The low speed is because both chains use the Proof-of-work (PoW) consensus mechanism. PoW requires computers to solve complex mathematical puzzles, which takes time and computing power. So when too many transactions are written on the Bitcoin and Ethereum blockchains, the networks become overloaded, causing delays and costly transactions.
Therefore, these chains have difficulty competing with existing payment processing systems. Take Visa and Mastercard as examples. These support thousands of transactions per second, and transaction costs never rise, even when there are many transactions being written on their systems.
One way to solve this problem is to scale Layer 1 blockchains. This means increasing the number of nodes. The more nodes there are in the ecosystem, the faster and cheaper transactions will be. However, this move comes with its own set of problems, often referred to as the blockchain trilemma.
The blockchain trilemma is the belief that a chain must prioritize two of the three blockchain elements: decentralization, security, and scalability. This prioritization comes at the expense of remaining performance.
For example, Bitcoin and Ethereum offer high levels of security and decentralization at the expense of scalability. Solana and BNB, on the other hand, prioritize scalability and security, but are highly centralized.
In the case of Bitcoin and Ethereum, changes made to increase scalability will cause decentralization and security to suffer. Therefore, a solution that does not change the blockchain network is needed. That solution comes in the form of layer 2 scaling.
There is also the problem of poor interoperability. Current layer 1 blockchains exist as their own separate ecosystems. Therefore, they are limited to act in themselves. This is one of the biggest obstacles to the promotion of DeFi as an alternative to traditional finance.
Sifchain’s solution to the lack of interoperability
Sifchain is a tier 1 blockchain project. It has leveraged Layer 0 interoperability to develop new solutions across chains. By doing this, it has been able to create a decentralized multi-chain exchange that allows users to exchange and transfer cryptocurrency between a number of different blockchains within the Cosmos ecosystem.
The project team built the first, and only for quite some time, Cosmos to Ethereum bridge. Not only that, but the project has also introduced plans for a feature called “Omni-EVM” that will extend its capabilities to a wide range of Ethereum Virtual Machine (EVM) blockchains as well.
In addition, Cardano’s recent developments towards EVM compatibility have opened more doors for Sifchain. The project has applied for a grant from the Cardano Project Catalyst to build its next bridge, connecting the Cardano and Cosmos ecosystems.
Layer 2
Layer 2 blockchains were created as solutions to the Layer 1 problem of scalability. These solutions take many forms, such as rollups, sidechains, state channels, nested blockchains, and more. In general, they all involve building a blockchain technology solution on top/next to an existing Layer 1 protocol.
This provides a path where transactions and processes can take place independently of the main chain (layer 1). This greatly improves scalability without changing the main chain’s infrastructure, thus avoiding the blockchain trilemma.
Well-known examples of Layer 2 networks include Polygon and Arbitrum, which are built on Ethereum. Polygon can support up to 65,000 transactions per second. This is 2000 times faster than what the Ethereum blockchain offers. There is also the Lightning Network, which is built on Bitcoin. It processes up to one million transactions per second.
Unfortunately, many Tier 2s fall victim to some of the same issues as Tier 1s, including interoperability. Although these blockchains offer a solution to the blockchain trilemma, they are highly dependent on bridges and other third-party solutions when users want to move funds across chains.
What will be next? Cross chain solutions
Blockchain technology has come a long way and is in constant development. However, existing blockchain ecosystems are isolated from each other. This siled architecture holds the blockchain industry back, and it makes transactions between chains cumbersome and insecure.
The next evolutionary step will be to increase interoperability. Fortunately, projects like Cosmos and Polkadot are pioneering this next step, so a frictionless cross-chain solution may be just around the corner.
The content presented may include the author’s personal opinion and is subject to market conditions. Do market research before investing in cryptocurrencies. The author or publication bears no responsibility for your personal financial loss.
