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Guide: Layer 1s & Layer 2s

Layer 1s & Scalability

‘Layer 1’ refers to a simple base blockchain network, such as Ethereum, Solana, Avalanche, and BSC. They’re called Layer 1s as they are the core networks within their ecosystem. 

Improving the scalability of Layer 1s has proven difficult. For example, as more and more users joined Ethereum, the network’s efficiency declined. Right now, on Ethereum, some smaller transactions are currently priced out-it can cost hundreds of dollars in gas fees to complete a single transaction.

Blockchain networks must become highly scalable to accommodate an exponentially increasing number of users and transactions. This will enable blockchains to compete with legacy, centralised platforms. For example, Bitcoin can process between 4-7 transactions per second (TPS). Visa, in comparison, processes thousands of transactions every second. 

However, scalability must also be achieved without reducing the blockchain’s decentralisation and security. This is where scaling solutions come in. 

Layer 1 scaling solutions

Layer 1 solutions or “on-chain solutions” add utility directly to an existing blockchain network to improve its performance. However, due to certain technological constraints, not everything can be solved on Layer 1. Developers are creating secondary (Layer 2) scaling solutions as a solution. 

Layer 2 scaling solutions

A Layer 2 solution refers to a secondary framework built on top of the existing blockchain (L1). The goal is to improve the main blockchain’s scalability (transaction speed, cost, etc.) without altering its structure. L2s create an additional framework where transactions and processes can occur independently of the main chain. This is referred to as an ‘off-chain’ scaling solution. The first layer provides the security and the second layer increases scalability. 

Ethereum Layer 2s, for example, are an additional layer built on top of Ethereum that reduces the load on the main chain while keeping the same usability & security. Click here to learn more about Ethereum Layer 2s.

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

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Nicola Rainsford

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