1. Data layer: Comprises the underlying data blocks, together with associated messages (encrypted) and the timestamps.
4. Incentive layer: The individual nodes in a decentralised network are incentivised with rewards to contribute to the overall network goal(s).
2. Network layer: The layer of the Peer-2-Peer (P2P) communications protocol that connects nodes without using a centralised controller.
5. Contract layer. The layer that contains the scripting/programming language that is used to create the smart contracts that achieve specific purposes.
3. Consensus layer: The layer that compensates for having no overall controller by seeking agreement between all network nodes.
6. Application layer: The layer that supports Decentralised Applications (Dapp), often written in conventional programming languages.
The 'Blockchain' is a new (Web3) service that runs on the Internet / World Wide Web.
For context, consider that Web 1 was 'informational' (people read 'static' HTML web pages). Web2 was 'interactive' (Social networks and e-Commerce), and Web 3 is 'transactional' (Enables financial transactions using internet-native money).
In the Web3 world, every change is created by a transaction. So, Alice can send cryptocurrency (money) from her account to Bob's account (Transaction 1) and Bob can buy the original rights to an asset such as a digital artwork (NFT) from Colin (Transaction 2). Bob can then sell copies of artwork to Dawn (Transaction 3), Eve (Transaction 4) and Fred (Transaction 5). Fred can resell his copy of the artwork to Grace (Transaction 6).
All such transactions, occurring anywhere in the world, are bundled together, with others occurring at the same time, into 'blocks' and blocks are chained together. The resulting 'Blockchain' contains the 'complete picture' of transactions that have occurred, over time, across the world. It is the global 'source of truth' of which 'accounts' own which 'assets'.
The Web3 blockchain is enabling and delivering an entirely new financial system and is delivering a finance-centric version of the Internet itself.
Smart Contracts are 'condition-response' computer programs, with rules and logic.
For transactional business scenarios, the contractual terms, breaches of contract, breach liability and external verification (Oracles) are coded into smart contract computer programs, written in a programming language such as Solidity or Rust.
Smart contracts are 'compiled' into machine-readable 'byte-code' (Hexadecimal) and deployed to the blockchain, to execute 'forever'. On the Ethereum networks the byte-code is executed within the Ethereum Virtual Machine (EVM).
Specific actions trigger the deployed smart contracts. For example, human/website interaction, automated trading or machine interaction (IoT). The actions trigger specific transactions. Transactions are placed into blocks, validated then permanently committed to update the blockchain (change state).
For example, Adam visits the Uniswap exchange, and triggers an action to swap some $ETH for some $XLM. This creates transactions to sell $ETH and buy $XLM. Those transactions are bundled and processed within a few seconds. A permanent record of the transaction is recorded on the blockchain, along with appropriate 'events' which can be used for querry purposes, later.
Blockchains such as the Ethereum blockchain can be regarded as comprising a number of logical layers.
The layered approach helps understanding and maintainability.
Ongoing innovation takes place within each layer. Occasionally, if there is a major innovation, an entire layer may be replaced by a new version of the layer. Done properly, the other layers of the blockchain should be largely unaffected by each innovation.
For example, the Ethereum network consensus layer mechanism was originally 'Proof-of-Work', but a decision was made to move to the 'Proof-of-Stake' mechanism. In that event, the blockchain developers needed to re-develop layer 3 (Consensus)
In the Ethereum architecture, the top layer is the 'Application Layer'. This layer supports Decentralised applications (Dapp).
The application layer is where CyberTrade does the 'high-level' programming of its De-Fi applications such as the Decentia, decentralised intelligent arbitrage platform.
Typically, a Dapp comprises a combination of one or more smart contracts (residing on the blockchain), together with supporting web artefacts such as web pages, content, analysis code etc, residing on the (Web2) Internet.
Dapp 'front-ends' are built using common web technology such as Java, Python, libraries and associated application building frameworks.
Daap 'backends' are typically built using Node.js, Solidity and Rust languages.
The 'high-level' programming of the application layer (program flow control and smart contracts), is 'compiled' to produce the lower level (machine readable) 'byte-code' of the 'contract layer'.
The byte-code is deployed to the blockchain, and replicated to nodes across the world, ready for use.
The deployed byte-code is used by decentralised applications (Dapps) to conduct transactions according to the logic of the smart contracts.
Multiple smart contracts are often combined to create comprehensive applications. For example the Uniswap exchange.
Many of those Dapps provided unfettered public access to the use of such applications.
Some of those Dapps are for business / private use (Decentia is in the 'private' use category).
Within Decentralised Ledger Technology (DLT), Consensus nodes are designed to create an ecosystem based upon incentivised validation and accounting activities.
Generally speaking, incentives are orientated towards delivering the security, reliability and performance of the blockchain.
For example, the incentive in Bitcoin's Proof-of-Work consensus mechanism comprises both mining rewards and transaction fees.
Within the Ethereum, ecosystem, the 'incentive' has been migrated from 'mining rewards', to 'validation' rewards.
The result is that 'miners' have become 'validators' and a substantial part of every 'transaction fee' goes to incentivise the validators to ensure the integrity and on-going operation of the blockchain.
The consensus layer is responsible for maintaining agreement on anything between a single data value and the state of an entire decentralised network.
Typically, on a popular decentralised network there may be hundreds of thousands of nodes that have to maintain agreement. Furthermore, agreement has to be maintained if there is a fault on the network.
There are several different types of consensus mechanism, each with advantages and disadvantages.
Common consensus mechanisms use algorithms such as Proof-of-Work and Proof-Of-Stake, Proof-of-History etc.
DLT/Blockchain networks have nodes that are connected using a topography that does not have a centralised node.
Decentralised networks use a Peer-to-Peer protocol (P2P), which can survive points of failure, within the network.
In general, the nodes within the network layer have the properties of equality, autonomy and distribution.
The data layer provides the blockchain data structure and physical storage.
The blockchain data layer contains data blocks, Merkle trees, asymmetric encryption, and a blockchain of linked transactions.
Blocks are data structures which bundle sets of transactions to be distributed to all nodes on the network.
Transactions are stored as part of a Merkel tree structure, which creates an overall digital fingerprint.
Asymmetric encryption protects the transmission of blockchains across the network.
The blockchain consists of the transactions created by users, all linked together by storing the hash of the previous block, where each block stores the root hash of the Merkle tree where the actual transactions are stored.