Understanding what Layer 1 and Layer 2 are in the blockchain is helpful in gaining a better understanding of how crypto works in the crypto marketplace. Further, understanding what these layers are, and which crypto projects are layer 1 or layer 2 projects helps every crypto investor better research and decide which cryptoassets are best for each individual investment portfolio. Finally, it is of value to know that each of these “layer 1” and “layer 2” projects have their own crypto coin or token.
Just a heads up, if you are only looking for the Complete Layer 1 Blockchain List or the Layer 2 Blockchain List just go directly to the end of this article.
The term “scaling” in blockchain technology refers to an increase in the system throughput rate, as determined by the number of transactions performed per second. With the increasing usage of cryptocurrencies in everyday life, it is now essential to construct blockchain layers for improved network security, recordkeeping, and other purposes. The blockchain is the first layer in a decentralized ecosystem. Layer 2 is a third-party incorporation blended with Layer 1 to boost the number of nodes and, as a result, system throughput. Many Layer 2 blockchain solutions are currently being implemented. Smart contracts are used in these solutions to automate transactions.
Why Is Scalability Important?
Blockchain technology provides numerous benefits, including increased security, improved recordkeeping, and hassle-free transactions. However, scalability remains a major concern, prompting debate over whether layer 1 or layer 2 is preferable in discussions about new blockchain networks. Every blockchain network uses a decentralized system to complete transactions in stages.
The various steps needed for blockchain transactions frequently consume a significant amount of time and processing power. Consider a blockchain network that is clogged with transactions that are stacked one on top of the other. In such cases, the application is unable to fulfill all transaction requests from all users, resulting in inequity in user experience. As a result, scalability is a key necessity for the future of blockchain networks.
Layer 1 vs Layer 2
The term “Layer 1” refers to the basic main blockchain architecture. Layer 2, on the other hand, is a network that appears at the top of the underlying blockchain. Consider the Lightning Network and Bitcoin. Bitcoin is a layer 1 network, whereas the lightning network is a layer 2 network. Now that we’ve established the fundamental distinction, let’s look at the layer 1 and layer 2 solutions that businesses are actively developing. We’ll begin with layer-2 solutions.
Layer-1 Scaling Solutions
A layer 1 network is a blockchain in the decentralized ecosystem, whereas a Layer 2 protocol is a 3rd incorporation that could be used in combination with a 1ayer 1 blockchain. Layer-1 blockchains include Bitcoin, Litecoin, and Ethereum. Layer 1 scaling solutions improve scalability by supplementing the blockchain protocol’s base layer. Several methodologies are continuously being built – and implemented – to directly enhance the scalability of blockchain networks.
This is how it works: Layer 1 solutions alter the protocol’s rules directly to increase transaction capacity and speed while accommodating more users and data. Layer-1 scaling solutions may include increasing the amount of data in each block or speeding up the rate at which blocks are confirmed to enhance complete network throughput.
A layer 1 network is a network that acts as infrastructure for other applications, protocols, and networks to build on top of. A public decentralized layer 1 network’s primary characteristic is its consensus mechanism. Different consensus mechanisms provide different levels of speed, security, and throughput.
Some examples of layer 1 networks and their consensus mechanisms are given below. Two common categories of consensus mechanisms are proof of work (PoW) and proof of stake (PoS). Note that these are just two categories and that there are many unique PoS consensus mechanisms.
- Bitcoin – Consensus: Proof of Work, Cryptocurrency: BTC
- Ethereum – Consensus: Proof of Work (planned move to proof of stake), Cryptocurrency: ETH
- Algorand – Consensus: Proof of Stake, Cryptocurrency: ALG
- Cardano – Consensus: Proof of Stake, Cryptocurrency: ADA
- Hedera – Consensus: Proof of Stake, Cryptocurrency: HBAR
Qualities of Layer 1 networks
A layer 1 network is ultimately the source of truth and is responsible for the settlement of transactions. For most network’s this means accounting for a user’s account, or wallet, via asymmetric key pairs and its corresponding cryptocurrency or token balances.
All layer 1 networks have a native token that provides access to the network’s resources. You use a network’s native token to pay for network services like sending its cryptocurrency, minting a token, or calling a smart contract. Note that not all layer 1 networks support the same array of services, although all support transactions. When comparing layer 1 networks, it is essential to learn about its consensus mechanism and the pros or cons that it provides. The consensus mechanisms involved generally have trade-offs between security, speed, and decentralization. There is a lot of innovation in consensus mechanisms and is a field that is constantly evolving and contributing to the array of distributed ledgers known today. Some networks provide security and decentralization at layer one and then delegate speed to layer 2 solutions.
Layer 2- Scaling Solutions
To improve efficiency, Layer 2 blockchain works on the native layer. Layer 2 effectively offloads transactions by transferring a portion of Level 1 blockchain’s transactional burden to another system architecture.
The processing load is then handled by the Layer 2 blockchain, which reports to Layer 1 for result finalization. Because this adjacent auxiliary architecture handles most of the data processing load, network congestion is reduced: not only is the Layer 1 blockchain less congested, but it is also more scalable.
Bitcoin’s Lightning Network is an example of a Layer 1 blockchain, while the Lightning Network is a Layer 2 scaling solution that at the same time takes the load from Bitcoin and reports to it. As an outcome, the Lighting Network speeds up the Bitcoin blockchain’s processing. Furthermore, the Lightning Network integrates smart contracts into the Level 1 Bitcoin blockchain.
In other words, layer 2 networks extend the functionality of their layer 1 counterpart. This can be to increase the layer 1 network’s performance, reduce transaction fees, or increase programmability. For example, on Ethereum, where gas fees can be highly variable and transaction times slow, it is increasingly common for application developers to provide its user the ability to interact with a layer 2 network, like Polygon, to decrease their user’s fees and transaction latency.
Qualities of Layer 2 networks
Like how Layer 1 networks have different approaches to consensus, each layer 2 network will implement a scaling solution, or means to map transactions back to its layer 1. For instance, a commonly discussed layer 2 scaling solution is the implementation of zero-knowledge rollups. The idea is that a sidechain performs transaction ordering and processing and submits mathematical proof that they have processed the transactions fairly. Some examples of layer two scaling solutions are the Lightning Network, Polygon, and Starknet. The majority of scaling layer two solutions depend on cryptographic systems. For resources on the cryptography behind zero-knowledge proofs, I recommend this resource. The watered-down version of what is happening is that a mathematical proof is created by a verifier that some knowledge is correct.
- Lighting network – Scaling with 2 party multi-signature channels
- Starknet – Scaling with Zero-Knowledge Rollups
- Polygon – Commit side chains – Optimistic Rollups (coming soon)
Note that only layer 1 with scaling limitations needs scaling solutions. Networks like Hedera with high native speeds for scale don’t need to scale with layer 2s because they scale at the network layer.
What is the difference between Layer 1 and Layer 2 Blockchain Solutions?
|Criteria||Layer 1||Layer 2|
|Definition||Layer 1 scaling solutions are changes to the blockchain network’s base protocol that improve scalability.||To improve scalability, layer 2 scaling solutions make use of off-chain services or networks.|
|Working||Changes to the base protocol, like bigger block sizes or new consensus mechanisms, can facilitate scalability.||Off-chain solutions improve scalability by sharing the transaction ordering and processing workload.|
|Types||Consensus protocol improvements Sharding Changes in block sizes||Nested blockchain State channels Sidechain|
The most significant impediment to the widespread adoption of cryptocurrencies is scalability. To ensure that cryptocurrencies are scalable and quickly enough during the day transactions, we need protocols designed specifically to address this issue.
Layer 1 Blockchain List
|9||Binance Smart Chain|
|35||Mina (previously Coda)|
|68||Internet Computer blockchain|
|88||Elixxir & Praxxis|
|107||Obyte (previously Byteball)|
Layer 2 Blockchain List