If you've ever asked yourself what the connection is between Polygon and Ethereum or Polkadot and its para chains, familiarizing yourself with Layer 1 and Layer 2 of the blockchain architecture can help provide the answers. These terms can help you better understand blockchains, projects, and development tools.
Layer-1 blockchains are the foundation of many popular networks, such as Bitcoin, BNB Chain, and Ethereum. These networks are designed to finalize and validate transactions autonomously without another network. However, increasing the scalability of layer-1 networks can be difficult, as we've seen with Bitcoin. To overcome this issue, developers often create layer-2 protocols that work with the underlying layer-1 network, providing users with increased speed and throughput. A prime example of this is Bitcoin's Lightning Network. It functions as a layer-2 protocol, allowing users to make off-chain transactions that get recorded into the main chain later.
What Is Layer 1?
Layer 1 refers to the physical layer of the OSI model, which is responsible for transmitting raw bits across a network. A layer-1 protocol can process and settle transactions on its blockchain. Additionally, this same protocol has its token, which is used to pay for these transaction fees.
Layer-1 networks are the basic building blocks for blockchain technology. These include BNB Smart Chain, Ethereum, Bitcoin, and Solana, among others. They are called layer-1 because they are the main networks that form the foundation of their respective blockchain ecosystems. Off-chain and layer-2 solutions are built on top of the layer-1 protocols.
Layer 1 Scaling
The scalability of layer-1 networks, such as Bitcoin, is often limited by the underlying consensus mechanism, namely Proof of Work (PoW). As demand grows, PoW presents a challenge in processing sufficient transactions promptly, leading to scalability issues. Various solutions have been proposed to increase the network's transaction throughput to combat this, such as expanding block sizes and implementing sharding.
Unfortunately, the difficulty of PoW networks maintaining decentralization and security leads to slower transaction speeds and higher fees when the number of transactions is high. This results in extended waiting times for confirmation and increased costs.
For many years, much debate has been about which scaling solution is best for blockchain technology. Blockchain developers have explored layer-1 scaling options such as sharding and off-chain solutions. For layer-1 scaling, some options are considered:
- Increasing the size of each block will enable more transactions to be processed simultaneously.
- With the upcoming Ethereum 2.0 update, altering the consensus mechanism would be possible.
- Implement sharding, a type of data partitioning.
Implementing Layer 1 upgrades demands a great deal of effort. Unfortunately, not every network user is likely to agree to it, thus potentially resulting in a community divide or even a hard fork, as the case of Bitcoin and Bitcoin Cash in 2017 showed.
Bitcoin's SegWit (segregated witness) is a layer-1 solution for scaling that does not affect the network's security. A soft fork was used to implement it, which enabled older Bitcoin nodes to continue processing transactions without requiring an update. By changing how block data is organized, SegWit removed digital signatures from the transaction input and freed up more space, thus increasing Bitcoin's transaction throughput.
Layer-1 sharding is a blockchain scalability technique that divides network blocks into smaller partitions, or “shards,” to improve block processing speeds and transaction throughput rates.
Sharding is a widely utilized layer-1 scaling approach to maximize transaction throughput. This method of database splitting is often used for blockchain-distributed ledgers. The network and its nodes are fractioned into multiple shards to equalize the load and elevate the rate of transactions. Each shard looks after a specific network segment, holding its transactions, nodes, and blocks.
Sharding eliminates the need for each node to possess a complete blockchain replica. Instead, each node updates the main chain with info on their local data, such as addresses' balance and other essential measurements.
Layer 1 VS Layer 2
When it comes to improving, many things cannot be addressed on layer 1 of the main blockchain network. This is because of technical limitations, making implementing specific changes difficult or even impossible. For example, it took Ethereum several years to transition from Proof of Work to Proof of Stake.
If a use-case needs an extensive scale application, running solely on layer 1, such as a blockchain game, is not practical. For the game to still utilize layer 1's security and decentralization, the best option is to employ a layer-2 solution to build upon the network. This will reduce transaction times and help the game reach its optimal potential.
Layer 2 solutions use Layer 1 as a foundation to complete transactions. A famous case of this is the Lightning Network. When the Bitcoin network experiences a lot of activity, the processing of transactions can take hours. With the Lightning Network, users can effortlessly send payments with their Bitcoin on a non-primary block. Finally, the result is broadcasted back to the original block, saving time and resources. Through this, everyone's transactions are compiled as a single report.
Layer 1 Blockchains Examples
Once we understand what layer 1 is, we can closely examine some of the numerous layer-1 blockchains available. These range in offering usage for diverse circumstances, demonstrating that there are alternatives to Bitcoin and Ethereum. Different networks have found solutions to the crypto trilemma, which revolves around decentralization, security, and scalability.
Founded in 2018, Elrond is a layer-1 blockchain network that leverages sharding to increase its scalability and performance. By employing its unique Secure Proof of Stake (SPoS) consensus protocol and Adaptive State Sharding technology, the Elrond network is equipped to process more than 100,000 transactions per second (TPS).
Adaptive State Sharding enables the maintenance of a balanced network topology through shard splits, merges, and reallocation of validators as the number of users on the network fluctuates. The entire blockchain infrastructure, including its records of transactions, account balances, and more, is divided into shards to provide scalability and prevent malicious actors from dominating a single shard.
The Elrond network is the only blockchain-certified Carbon Negative, meaning it offsets more CO2 emissions than are produced from its Proof of Stake consensus mechanism. Elrond's native token, EGLD, can be used for transaction fees, deploying DApps, and rewarding users participating in the network's validating processes.
Harmony is a layer-1 blockchain network utilizing Effective Proof of Stake (EPoS). To support sharding, it has four shards, which function in parallel to create and validate new blocks independently. These shards can work at different speeds, which means their respective block heights can vary.
Harmony is leveraging a "Cross-Chain Finance" strategy to draw developers and users. The trustless bridges that connect it to Ethereum and Bitcoin are fundamental to this, as they let users swap tokens safely, devoid of the risks typically encountered with such bridges. At the heart of how Harmony looks to achieve scalability in Web3 lies a focus on DAOs and zero-knowledge proofs.
The trajectory of DeFi appears primed for immense potential, with multi-chain and cross-chain capabilities leading the way. Harmony's bridging services are highly sought-after due to the progressive possibilities, particularly around NFT infrastructure, DAO tooling, and inter-protocol bridges.
The native Harmony, ONE token can be used to pay network transaction fees and stake in the network's consensus mechanism and governance. Successful validators can earn block rewards and transaction fees by participating in these processes.
Founded in 2017, Celo is a Layer 1 network based on Go Ethereum (Geth). Yet, its developers have made several significant changes, including implementing Proof of Stake and a different address system. The Celo platform contains DeFi, NFTs, and payment solutions, boasting over one hundred million verified transactions. On Celo, anyone may use a phone number or email address as a public key. The Celo blockchain is designed to be easily operated on ordinary computers, making the need for specialized hardware unnecessary.
Celo's primary token is CELO, a special digital coin for transactions, security, and incentives. The Celo network also offers cUSD, cEUR, and cREAL, which serve as stablecoins. These are generated by users and are kept stable using a system reminiscent of MakerDAO's DAI. On top of that, payments made in Celo's stablecoins can be settled using any other Celo asset.
CELO's address system and stablecoin are designed to make crypto more accessible and increase adoption. The rapidly fluctuating cryptocurrency prices and the fact that inexperienced users often need to learn how crypto works are disheartening factors for many potential investors.
THORChain is a layer-1 network powered by the Cosmos SDK and the Tendermint consensus protocol. It aims to provide investors with a safe, permissionless, and decentralized platform for exchanging assets across multiple chains without pegging or wrapping mechanisms, which can add risk.
THORChain is a decentralized vault manager that eliminates centralized intermediaries and creates secure liquidity. RUNE, the native token of THORChain, is used to pay transaction fees and to take part in governance, security, and validation processes.
The base pair for THORChain's AMM model is RUNE, which can be used to swap for other supported assets. This project is similar to Uniswap, with RUNE acting as a settlement and security asset for liquidity pools.
The Kava Network is a layer-1 blockchain that fuses the lightning-quick speed and cross-chain communication of Cosmos with the strong developer support of Ethereum. Its architecture includes a "co-chain," which creates two distinct blockchains: one for the Ethereum Virtual Machine and one for the Cosmos Software Development Kit. The support of Inter-Blockchain Communication on the Kava co-chain allows developers to create dapps that can communicate and transfer value between the Cosmos and Ethereum environments effortlessly.
The Kava Network utilizes the Tendermint PoS consensus mechanism to achieve robust scalability for applications on the EVM co-chain. Additionally, the KavaDAO provides funding for developer incentives which are open and on-chain, awarding the top 100 projects on each co-chain based on their usage.
The KAVA network has a native token, KAVA, and a US-dollar-pegged stablecoin, USDX. Validators are required to stake KAVA and receive remuneration from KAVA emissions. Moreover, KAVA token holders can delegate their Kava tokens to reliable validators and earn rewards in addition to the KAVA inflation rewards. All network members are allowed to cast their votes on proposed changes to the network protocol that would affect the network parameters. KAVA can be further utilized to pay transaction fees.
Founded in 2017, IoTeX is a layer-one network specializing in combining blockchain technology with the Internet of Things. This technology empowers users to take complete control over the data produced by their own devices. As a result, they can build "machine-backed DApps, assets, and services" which guarantee secure ownership of their personal information.
IoTeX combines hardware and software to offer a distinct solution to people who want to protect their data and privacy without compromising the user experience. This system is called MachineFi, allowing users to earn digital assets via their real-world data.
IoTeX has released two exceptional pieces of hardware – the Ucam and Pebble Tracker. The Ucam is an advanced home security camera that can keep track of your home from anywhere with total privacy. The Pebble Tracker is a smart GPS with 4G support and a track-and-trace feature. It records real-time GPS information and environmental data like temperature, humidity, and air quality.
IoTeX incorporates a multi-layer architecture that includes a variety of layer two protocols. This architecture provides numerous tools and features that allow developers to construct specialized networks with IoTeX as their backbone. These distinct sub-chains can also be interconnected and share data through IoTeX. Furthermore, user transactions, stakeholding, governance activities, and network validation are facilitated by the IOTX token.
The blockchain environment of today consists of multiple layer-1 blockchains and layer-2 protocols, which can be perplexing when first encountered. However, once a basic understanding of the concepts is achieved, the overall structure and design are more straightforward. Acquiring this expertise is beneficial when researching new blockchain-based initiatives, particularly those centering on network communicability and atomic swaps between chains.