Welcome back to our ongoing series of blockchain basics guides. If you've already tackled the question "What is a blockchain," you're ready to delve deeper into its layers.
In this installment, we define Layer 1 blockchains, exploring their key features, examples, scaling solutions, and their crucial distinctions with Layer 2 protocols.
Tl; DR:
Layer-1 (L1) blockchains like Bitcoin, Ethereum, and Solana make a foundational base of the whole crypto ecosystem. They provide a secure and decentralized platform that enables developers to create and deploy their own applications, protocols, and even other blockchain networks (Layer-2s) on top of them
What is Layer 1?
So-called Layer One crypto networks are “classic” blockchains with their own structure, rules, and incentives.
They can autonomously process and finalize transactions without relying on external networks or protocols for their core functionalities.
Traditional examples of such blockchains include Bitcoin, Ethereum, BNB Chain, Solana, and Cardano.
Layer-1 blockchain key features
The main characteristic of L1 networks is that they serve as a base upon which other components can be built, hence the naming:
- Provide the necessary tools and infrastructure for developers to build and deploy on: Imagine each of these networks as an operating system for cryptocurrencies, NFTs, blockchain-based services, and smart contracts;
- Can serve as the foundation for creating separate blockchain networks: Layer-2s interact with the main layer and add to its functionality. In this context, a Layer-1 network is also called the main chain, base or parent blockchain, or foundational layer.
Designed to host many applications and protocols relying on them, L1 chains prioritize security by utilizing robust consensus algorithms, often sacrificing speed and scalability.
Layer 1 protocols: Examples
Various Layer-1 crypto networks may differ in architecture and the range of available functionalities. Two prime cases are Ethereum, known for its programmable nature, and Bitcoin, recognized for its secure and efficient peer-to-peer transactions.
Bitcoin
The oldest and the most popular cryptocurrency relies on a processor-intensive consensus method called Proof-of-Work. It provides robust security, making the network resistant to hacking and fraud.
Bitcoin’s architecture was designed to be simple, safe, and secure to enable direct wallet-to-wallet transactions.
Building upon this foundation, various solutions emerge to enhance the network's capabilities. For example, the Ordinals protocol has enabled the hosting of NFTs on the Bitcoin blockchain.
Moreover, the Lightning Network specializes in facilitating rapid and cost-effective transactions, whereas Layer-2 networks such as Stacks and Rootstock add smart-contract functionality.
Ethereum
With the implementation of smart contract technology, Ethereum quickly rose to success following its initial launch in July 2015. Today, its robust infrastructure and developer-friendly tools make it the go-to choice for creating and deploying dApps of all types.
Its developmental milestones include the Merge event in 2022 and the most recent Dencun hard fork, signaling ongoing evolution and improvement within the network.
An extensive list of Layer-2 blockchains contributes to Ethereum's dominance in the decentralized space.
Solana
Solana is one of the most trending L1 blockchains. It was launched in mainnet in March, 2020 by Qualcomm and Microsoft veteran Anatoly Yakovenko. Solana employs Proof-of-History consensus which makes it a high-performance and secure decentralized network.
As of Q1, 2024, Solana is a native platform for almost 250 dApps and fourth largest blockchain ecosystem by total value locked in DeFi. Solana’s core native token SOL is Top-5 cryptocurrency by market capitalization.
Avalanche
Avalanche L1 blockchain is an attempt to address the bottlenecks of Ethereum (ETH) scalability and developer experience. Avalanche was launched in 2020 by Bitcoin OG Emin Gun Sirer and his colleagues.
Avalanche boasts unique technical design as it includes consensus layer and execution layer. Smart contracts level is dubbed Avalanche C-Chain and is popular due to high speed and unrivaled scalability opportunities.
Cardano
Introduced by blockchain veteran Charles Hoskinson, Cardano is the second-largest Proof-of-Stake (PoS) blockchain only surpassed by largest smart contracts platform Ethereum. Cardano prioritized decentralization and censorship-resistance for its staking ecosystem.
Cardano is the largest UTXO-based blockchain with smart contracts. As a blockchain L1 for DeFi, it leverages Marlow add-on for better programming experience.
How can Layer 1 scale?
As blockchain attracts an increasing number of developers and users, the demand for faster transaction processing becomes a pressing issue.
To give an estimation, Bitcoin and Ethereum can process anywhere between 20-30 transactions per second (TPS) combined, making gas fees soar when users try to process more than the network can handle.
There are two main approaches to addressing this problem.
Scalable Layer-1: On-chain solutions
One approach involves implementing in-protocol optimizations to enhance the performance of blockchains.
For instance, Cardano is progressively increasing its block size, currently set at 88KB, while Solana and Aptos leverage transaction parallelization techniques.
Another promising scaling solution is sharding, a mechanism already utilized in blockchains such as Polkadot and TON. Also, Ethereum’s very recent Dencun upgrade marks the first iteration of its sharding roadmap.
Sharding works by splitting the Layer One network into smaller segments, with each segment responsible for only a subset of tasks.
Layer-2: Off-chain scaling
Layer-2 solutions operate as enhancements layered atop base chains, primarily focusing on improving transaction speed at reduced costs.
Comparing Ethereum vs L2 gas fees, Source L2 Fees
These solutions are termed "off-chain" as transactions are processed on a separate chain built upon the base network infrastructure. Once completed, the transaction data is periodically posted back to Layer-1, where it is secured and finalized on the immutable blockchain.
By offloading the core functionality from the main chain, they alleviate congestion and bottlenecks.
For deeper insights, consult our guide on Ethereum L2 scaling solutions.
Layer 1 vs. Layer 2: Main differences
Since two layers of blockchain are designed with distinct purposes, the differences between them reflect their respective functionalities.
This table outlines the major Layer 1 vs Layer 2 blockchain differences, covering four key aspects:
| Aspect | L1 Blockchains | L2 Blockchains |
|---|---|---|
| Fundamental Function | Serves as the foundational blockchain network | Operates alongside L1, offering additional functionalities |
| Transaction Processing | Prioritizes security over transaction speed | Emphasizes transaction speed by reducing the workload of the core chain |
| Security Mechanisms | Provides maximum security with decentralized consensus | Relies on the base chain's security |
| Scalability Approach | Often face scalability limits due to focus on decentralization and security | Specifically created to be performant and scalable |
Considering these distinctions can help users, developers, and researchers make informed decisions about which solution is most suitable for their specific use cases.
What are the advantages of using Layer 1 protocols over Layer 2 solutions?
As developers look for the best base for their decentralized apps, it's crucial to evaluate the unique advantages of Layer-1 solutions.
- Security: Provide the best assurance of a secure and reliable platform for hosting the applications handling sensitive data;
- Ecosystem: Often have large and thriving ecosystems with extensive developer communities, tooling, and infrastructure support;
- Transparency: Transactions occur directly on the public blockchain, unlike Layer 2 computations, often taken off-chain, posing challenges for auditing or verifying integrity.
Overall, the choice in favor of Layer 2 crypto networks depends on the project’s needs and objectives. For dApps prioritizing speedy and cheap transactions, e.g. GameFi projects, they may provide more benefits.
Summing up
Various Layer-1 blockchains work in harmony to bring users a digital decentralized global economy, acting as the base for building a sustainable ecosystem. However, to support the growing ecosystem of dApps and ensure their smooth operation, Layer-1 networks must scale to process 100x more, whereas Layer-2 solutions may potentially fill the gap.
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