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Crypto Terms:  Letter S

What is Settlement Layer?

Meaning:
Settlement Layer - the “anchor” of the blockchain ecosystem that provides it with security.
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2 minutes

Let's find out Settlement Layer meaning, definition in crypto, what is Settlement Layer, and all other detailed facts.

A settlement layer is often considered to be the “anchor” of a blockchain ecosystem. The settlement layer provides the ecosystem with advanced security and objective finality in case any blockchain processes were to require mediation.

Some believe that the blockchain ecosystem is “maximalist” and at odds with itself, as if all blockchains are fighting against each other. The expectation of the maximalist trope is that one blockchain will rise above the rest as the dominant one and will be used as the core protocol to develop any future applications or systems.

The concept of maximalism in the web sphere is far from new. In fact, it was one of the concerns shared by Tim Berners-Lee, the creator of the World Wide Web. Berners-Lee worried that the internet would become a vehicle to push maximalist ideas even further.

The idea of one blockchain dominating over the rest is antithetical to its concept as a decentralized system. A maximalist blockchain ecosystem dominated by a single blockchain network would lead to abuse of power and a new form of corruption.

The settlement argument stands in opposition to maximalism. According to this argument, all blockchains should be able to operate alongside each other, without one taking over the vertical hierarchy. One blockchain is used as the root chain of the whole ecosystem and acts as the settlement layer. 

The settlement layer must uphold certain core qualities: it has to be incorruptible, resilient to any outside attacks, provide absolute security to the network participants, and be continuously available to settle blockchain operations.

Unlike the payment itself, the settlement process may not be finalized until weeks or even months after a transaction. Settlement means that the operation can no longer be reversed.

In cryptocurrency transactions, the settlement is done when the block with the transaction data is added to the blockchain. The settlement layer ensures that the transaction cannot be rolled back and the parties involved in the financial operation do not have their assets stolen after the final settlement is reached.