What are Blockchains and Networks?

Step 1: Understanding Blockchains and Networks

To begin, let’s clarify what blockchains and networks are.

What is a Blockchain?

A blockchain is a decentralized digital ledger that records transactions across a network of computers. It consists of a series of blocks, each containing a list of transactions, which are cryptographically linked to the previous block, forming a chain. This structure ensures that data cannot be altered without the consensus of the entire network, making it secure and transparent. Blockchains are the underlying technology for cryptocurrencies like Bitcoin, but they can also be used for many other applications, such as smart contracts and decentralized applications.

Think of a blockchain as a digital notebook where each page (block) is permanently connected to the next. Everyone who uses this notebook has the same copy, so nothing can be changed unless everyone agrees. This makes it secure and trustworthy.

What is a network?

In the blockchain context, a network refers to the infrastructure that connects all the nodes (computers) participating in a blockchain. Each blockchain operates on its own network, which enables nodes to communicate, share, and validate transactions. For example, the Bitcoin network is the infrastructure that supports the Bitcoin blockchain, and the BNB Smart Chain network supports the BNB Smart Chain blockchain. Different networks have different protocols and rules for how transactions are processed and validated, and each serves as the backbone for its respective blockchain.

A network is like a road system where cars (data) travel between different places (nodes). Each blockchain has its own road system, with unique rules about how cars move and how traffic is controlled. This system allows everything to run smoothly and securely.

Step 2: Types of Blockchain Networks

Blockchain networks can be categorized into different types based on their functionality and layers. Below are the main types of blockchain networks and how they work.

Layer 1 Networks

Layer 1 networks are the foundational blockchains that operate independently and have their own native cryptocurrencies. Examples include:

Ethereum: Known for strong security and smart contract capabilities, but often criticized for high transaction fees (gas fees) and slower processing times during network congestion.

Bitcoin: The original blockchain, highly secure and decentralized, but transactions can be slow and it lacks advanced features like smart contracts.

BNB Smart Chain (BSC): A faster and more cost-effective alternative to Ethereum, designed for lower fees and quicker transactions, but it is more centralized—something that can be seen as a trade-off in security.

Layer 2 Networks

Layer 2 networks are built on top of Layer 1 blockchains to improve scalability and reduce transaction costs. They work by handling transactions off the main chain and then settling them back on the Layer 1 network.

Polygon: A popular Layer 2 solution for Ethereum, offering faster and cheaper transactions while leveraging Ethereum’s security.

Lightning Network: A Layer 2 solution for Bitcoin, designed to enable faster transactions with lower fees by creating payment channels between users.

Step 3: Summary

Let’s summarize the key differences between Layer 1 and Layer 2 networks:

Layer 1 Networks: These are like the foundation of a building. They operate independently, provide the main base for transactions, and have their own native tokens (e.g., Bitcoin, Ethereum). They are responsible for the core structure and security of the blockchain.

Simplified Example: Think of Layer 1 as the main highway system that supports all traffic and infrastructure. It forms the base on which everything else is built.

Layer 2 Networks: These are like additional lanes added to the highway to prevent traffic jams. They are built on top of Layer 1 to improve scalability and transaction speed while still benefiting from the security of the underlying Layer 1.

Simplified Example: Imagine a toll lane added to the main highway to help reduce congestion and speed up travel time. Layer 2 networks do the same by making transactions faster and cheaper while still being connected to the main highway (Layer 1).

Different blockchains have unique advantages and disadvantages. For example, Ethereum offers advanced smart contracts but with high fees, while BNB Smart Chain is more cost-effective but less decentralized. The key takeaway is that each network serves a specific purpose depending on what you need—whether it’s security, speed, or low fees.

Step 4: A Practical Example

Imagine you are using X4T to send USDT across different networks.

Scenario: You want to send USDT from your wallet, but you see different options like USDT BEP20, USDT ERC20, and USDT TRC20.

Explanation: These different versions of USDT are like different types of fuel for cars. If your car runs on gasoline, you can’t fill it with diesel without causing problems. In the same way, USDT BEP20 is for Binance Smart Chain, USDT ERC20 is for Ethereum, and USDT TRC20 is for Tron. Sending USDT on the wrong network is like using the wrong fuel—it won’t work and could lead to a loss of funds.

Always double-check the network before making a transaction to ensure your funds are safe and reach their intended destination.

Step 5: Next Steps

Learn More About Networks: Visit our detailed articles to better understand Layer 1 and Layer 2 solutions, their benefits, and how to use them efficiently.

Verify Network Compatibility: Always check network compatibility when sending or receiving cryptocurrencies. This simple step can prevent you from losing funds.

Open an X4T Account: If you haven’t already, open an account with X4T to explore trading across different blockchain networks easily and securely.

Stay Informed: The blockchain world is constantly evolving. Stay informed with our educational resources to keep up to date and get the most out of your crypto assets.

Understanding blockchains and networks can seem complex, but with X4T by your side, we make it easier to navigate this exciting technology step by step.

Updated on: 18/12/2025