Layer 1 and Layer 2 Blockchain Networks: What Are They and Why Do They Matter?

Introduction to Layer 1 and Layer 2 Blockchain Networks

Monday 23rd May, 2022

Since Satoshi Nakamoto and the Bitcoin whitepaper, cryptocurrency has gone a long way. With so many rival chains (also known as altcoins) being created with the ultimate aim of a permissionless, decentralized financial system, these altcoins are competing not only with Bitcoin, but also with legacy payment processing systems.

To accomplish this, blockchain networks have to become highly scalable, meaning they must be able to expand quickly enough to accommodate the increasing number of projects, users, transactions, and data that are created on them every day.

As a result, decentralized networks must strike a balance between the decentralization ethos and the need for scalability and security. Blockchain networks will only stand a chance against legacy systems if they adequately incorporate all three (trilemma) into their structure.

The blockchain trilemma is made up of three pillars: scalability, security, and decentralization. The blockchain space is rapidly expanding due to the constant launch of new alternatives, which raises the issue of scalability.

If you're learning about cryptocurrency or blockchain, you've probably heard various projects referred to as layer 1 or layer 2 projects. Hearing these terms for the first time, without any existing understanding or context, can be confusing.

In this article, you'll learn the basics about Layer 1 and Layer 2 blockchain, as well as their significance in making better investment decisions.

Layer 1 Blockchain Network

Blockchains have never been tested as thoroughly as they are now, and with all of the unrealistic promises of scalability while also promoting security and decentralization, one has to always give.

Scaling allows blockchain networks to compete with centralized networks for transactions by providing greater processing capabilities and functionality.

The underlying structure designed to optimize blockchain performance is Layer 1. Layer 1 solutions are a collection of services that enhance the network itself in order to make the base layer or protocol more scalable. These solutions are used to address the issue of scalability and popular Layer-1 blockchains include Bitcoin, Ethereum, BNB, Terra, Avalanche, Fantom, Harmony, Cosmos, and others.

Layer 2 Blockchain Network.

Layer-2 solutions are networks that run on top of a Layer-1 blockchain protocol to increase scalability and efficiency. This allows Layer-1 to offload some of its transactional pressure to an adjacent network, which then manages the transaction's processing requirements before returning it to the main blockchain to be finalized.

The base layer blockchain will become less congested and ultimately more scalable by offloading a large portion of processing power to an external network. Polygon and Ethereum are two good examples. Polygon is an Ethereum-compatible blockchain interoperability layer-2 scale solution.

Users can deposit Ethereum tokens into a Polygon smart contract, interact with them within the platform, and then withdraw them to the Ethereum main chain to complete transactions. The Lightning Network is another Layer-2 solution for Bitcoin. This was created to help the Bitcoin network improve transaction speeds in this way.

The Importance Of Layer 1 And Layer 2 Blockchain Networks

Both Layer-1 and Layer-2 scaling solutions have the same goal: to speed up the adoption of crypto's technological breakthrough (blockchain technology) by making networks faster and much more accommodating to a fast-expanding user base.

Also, they don't have to become mutually exclusive; for example, while Ethereum is transitioning from a Layer-1 to a PoS model, Layer-2 solutions such as Polygon will be essential to preserving scalability in Ethereum without the need to abandon the other two parts of the blockchain trilemma. The greater the number, the better.

 

Tags:

Ethereum Bitcoin