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Layer 1 vs. Layer 2 Blockchains, Explained

April 17, 2022 - 7 min read

Layer 2 is a third-party integration in Layer 1 that increases the number of nodes and hence the system throughput. Scalability and large transaction difficulties are addressed by Layer 2 solutions.

Scalability of Blockchain

Increased security, simpler transactions, and record-keeping are just a few of the benefits of blockchain technology. However, as it increases in popularity, a number of issues have emerged. 

One of the most critical concerns with blockchain is scalability. The capacity of a blockchain network to accommodate high transactional throughput and future expansion is referred to as scalability. In simple terms, scalability refers to a system’s ability to manage an increasing quantity of work.

To verify a transaction using the standard algorithm, a series of blocks in the blockchain must pass verification for all blocks. As a result, as the chain increases, this operation becomes more time-consuming and expensive, requiring the payment of a large commission. Many people still regard any increase in throughput, latency, startup time, or transaction fees in blockchain to be scaling. Further computer power, servers, or bandwidth should be linked to scale a blockchain system, as this necessitates additional work to adapt the system to cope with the increasing strain.

Every transaction in a decentralized system must go through multiple processes with blockchain. This approach needs a substantial amount of time and computing power. That’s where Layer 2 comes into the picture. Developers are presenting a solution that extends Layer 2 into the structure to boost the processing capability of the blockchain.

Blockchain Trilemma

Vitalik Buterin coined the phrase “blockchain trilemma.”

In 1999, scientists proposed the consistency, availability, and partition tolerance theorem (CAP), which asserts that a decentralized data storage like a blockchain can only meet two of the three qualities listed above at the same time.

In the context of currently distributed networks, this theorem has developed into the blockchain trilemma. It’s a common misconception that a public blockchain infrastructure must forego security, decentralization, or scalability.

As a result, creating a safe network in a broadly dispersed network while still handling internet-scale transaction volume is the holy grail of blockchain technology.

For example, two blockchains with the same proof of work (PoW) method have the same degree of decentralization and regard the blockchain’s hash rate to determine its security. As the hash rate rises, the confirmation time lowers, and scalability rises as security rises. As a result, continual decentralization is proportionate to scalability and security.

Blockchain Layers


Scaling solutions are implemented at several levels on the blockchain, depending on whether they are implemented directly on the blockchain or as a distinct yet dependent protocol or network. Layer 1 blockchain networks are built for scalability, speed, and security. The second level of scalability refers to technological advancements and products that can be utilized to increase the scalability of existing blockchain networks. Finding the ideal balance between the two Layers might be a game-changer for blockchain acceptance and decentralized network growth.

The Layered method is advantageous because it allows you to Layer multiple parts of functionality on top of one another, making it easier to update, modify, or change one Layer without impacting the others. These Layers, in general, make up the blockchain’s architecture, consensus, network, and applications.

Layer 1 Blockchain

The primary chain of the blockchain, also known as the original blockchain architecture, is referred to as the Layer 1 Blockchain.

The first Layer 1 blockchain was developed with Bitcoin. Due to its volatility and scalability concerns, it is now primarily used as a store of wealth. As a consensus method, Bitcoin employs proof of work (PoW). In a block, the number of transactions to be recorded is restricted. Furthermore, the time it takes to confirm a block, around an hour, makes Bitcoin unsuitable for numerous transactions.

Here are a few of the Layer 1’s drawbacks:

  • Layer 1 of the blockchain still employs the inconvenient PoW consensus algorithm. Although this approach is more secure than others, it requires more CPU resources and slows down the system.
  • As the number of users grows, so does the workload on the Layer 1 blockchain, which slows down processing speed and capacity.

Scaling a Layer 1 blockchain can be accomplished by:

  • Layer 1 can be scaled via PoS consensus. This will also be the consensus mechanism used in Ethereum 2.0. This consensus technique certifies new blocks of transaction data based on the stakes of the network’s stakeholders, speeding up the process.
  • Sharding is a scalable solution for overburdened workloads. Simply put, sharding divides the job of validating and confirming transactions into small, manageable chunks and distributes it around the network so that more nodes can benefit from the processing capacity. Multiple transactions can be performed sequentially at the same time since the network processes shards in parallel.
  • Increasing a block’s data storage capacity.

These scaling options, when combined, boost the network’s throughput. Layer 1 appears to be slipping behind its intended purpose in light of the expanding number of blockchain users. 

Layer 2 Blockchain

As previously stated, Layer 2 blockchains are constructed on top of an existing blockchain to offer features such as scalability and speed.

Layer 2 solutions have been developed to address Bitcoin’s scalability issue. The Lightning Network is an essential example, since it leverages micropayment channels to allow Bitcoin transactions to take place off-chain. In the Layer 1 chain, only channel openings and closings are recorded.

Here are some other Layer 2 scaling solutions:

Nested blockchains

The nested blockchain is a Layer 2 blockchain that runs on top of a Layer 1 blockchain; in other words, Layer 1 defines the parameters, while Layer 2 arranges the process execution. On the main chain, there might be numerous tiers of blockchain.

The OMG Plasma project, for example, works as a Layer 2 blockchain for Ethereum’s Layer 1 protocol, allowing for cheaper and quicker transactions.

State channels

State channels allow blockchain pLayers to communicate in both directions. State channels function by removing miners and acting in accordance with smart contracts. Since no miners are engaged in the operation, the wait time is reduced.

A state channel is exemplified by Bitcoin’s Lightning Network. Lightning Network allows users to complete a sequence of microtransactions in a set amount of time.

Sidechains

Layer 2 blockchain technology uses sidechains as a scalability option. A sidechain is a tradable chain that permits a large number of transaction executions. It features its own consensus method that is geared for scalability and processing speed, independent of the main blockchain. The main chain must confirm transaction data, maintain security, and resolve disputes in the context of sidechains.

ZK-Rollups

In this Layer 2 solution, the legality of a transaction is ensured by mathematical proof employing zero-knowledge (ZK) protocol. ZK-Rollups boosts scalability by combining bulk transfer processes into a single transaction.

Final Thoughts

So, Layer 1 Or Layer 2?

In theory, all existing solutions have advantages and disadvantages, and they do not scale well in all contexts. Furthermore, the safety of some solutions has either not been shown or has only been established under particular theoretical conditions.

Will Layer 1 or Layer 2 be the greatest blockchain scaling solution?

This question raises the issue when addressing scalability, and continues to generate debate. Finding the right mix between the two Layers might be a game-changer for blockchain adoption and network expansion in the years to come.

References

  1. A beginner’s guide to understanding the layers of blockchain technology. CoinTelegraph.
  2. (2022, 5 Mar.). The blockchain trilemma: Fast, secure, and scalable networks. Gemini.
  3. Blockchain layer 1 vs. layer 2: Things you must know. ByBit.
  4. Schaffer, E. (2021, 4 Nov.). System design fundamentals: What is the CAP theorem?. Educative.
  5. (2022, 6 Apr.). What is layer 1 in blockchain?. Binance Academy.
  6. Blockchain: Layer-1 vs Layer-2. Moralis Academy.

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