The in-depth knowledge about blockchain starts from the root understanding of how it works, operates and executes activities. Even with the mass adoption of blockchain, decentralization is the widely known technical knowledge about blockchain, but it's far beyond that. According to Statista, global spending on blockchain solutions accelerated from 4.5 billion to 6.6 billion in 2021. In the years to come, increasing demand for security with digital identities and Web 3.0 is set to increase demand for blockchain.
By 2024, Blockchain spending is set to increase to around $19 billion, with more businesses leveraging the technology across data validation, data access, and identity protection strategies. Every single business and individual is trying to be in Web3 through blockchain. Provenance is the number one factor driving the adoption of blockchain and which has made 52% of experts believe and said that blockchain will be needed to authenticate customer identity in the future.
Mass adoption is the key enhancing factor to the growth of blockchain and which has turned a lot of people to web3. At this point having some deep knowledge about blockchain will set you different and more informed about what you're interacting with. Many people don't know the relationship between blockchain and Ethereum, polygon, and Polkadot parachains, and knowing about blockchain layers will clear that. Blockchain Layer 1 and layer 2 are terms that help us understand the structural architecture of diverse blockchains, projects, and tools.
Blockchain Layer 1
The layer can also be called base which makes Layer 1 to be the base network, base networks are the networks connected to the Blockchain directly. This base network can finalize, authenticate and validate transactions without the need for intermediary networks.
Layer 1 is also the base blockchain, Bitcoin (BTC), Ethereum (ETH), Solana and BNB smart chain are all protocols of Layer 1. These base networks are the main networks within their ecosystem. But the required technical knowledge to interact with Layer 1 is quite complex and making improvements to scale up Layer 1 is difficult and this can be seen in Bitcoin. In contrast to the base network and the complexity attached, developers have brought a solution with an Off-chains and Layer 2 network built on top of the base blockchain.
Off-chain layers (Layer 2)
Layer 2 networks rely on Layer 1 for execution, security and consensus, the second layer is built to be easily understandable and it allows users to interact and transact easily and freely before it's been transferred and recorded into the main chain. An example of a layer 2 network is Bitcoin's Lightning Network.
Essentially, all protocols in Layer 2 rely on the base blockchain (Layer 1) to operate while all protocols in Layer 1 finalize transactions on its blockchain with their traditional token used for paying transaction fees.
Scalability is Important for Blockchain Networks
Blockchain has been proving itself to be the next pillar of the global economy, and at the same time facing a unique obstruction from growth which is said to be the "Blockchain Trilemma". It is a way blockchain is looking to set a proportional balance between security, scalability and decentralization within its ecosystem.
Many solutions have been built to resolve the blockchain transaction capacity problem which is drastically decreasing the scaling limits of blockchain before. The solutions quietly brought significant growth and progress to the blockchain.
Due to the massive scale and adoption of the new blockchain-based applications, products and solutions, scalability is a critical requirement. Blockchain scalability will aid in the wide-range expansion of every network's capacity to meet new processing speed and power requirements.
Scalability is crucial to driving many people to blockchain networks which will also increase the frequency of user activity. Scalability is essential for blockchain networks to win over centralized networks in terms of transaction pace, user interactivity, and application development. A layer 1 blockchain protocol when scalable will ensure a higher momentum or the number of transactions executed on a second rate on the network.
Layer 1 scaling
The limiting inability of layer-1 networks to scalability is a common issue. In the occurrence of an unprepared high demand, Bitcoin and other large blockchain networks have struggled to easily process transactions. Although Bitcoin employs the Proof of Work (PoW) consensus mechanism, which necessitates a significant amount of computational resources and tools.
While Proof of work ensures decentralization and security, it also causes PoW networks to break or slow down when transaction volumes are too high and it makes the whole system to be fully congested. Which frequently lengthens transaction confirmation times and raises fees.
For many years, blockchain developers have been working on providing scalability solutions for Blockchain, but there is still much debate about the best alternatives. And there have been so many ideas on it like, Changing the consensus mechanism, as with the upcoming Ethereum 2.0 update which is expected to launch in September 2022, Increasing block size, allowing more transactions to be processed in each block etc.
Top 10 Layer 1 blockchains by market capitalization according to chainanalysis :
Cryptocurrency Market cap
Why Do We Need Layer 1 Blockchain?
Before delving into the answer to the question, The background for the layer 1 solution must be found. When you think about blockchain technology or you want to talk about it, you have to mention the advantages of decentralization, scalability, and security. And also the Intermediary-free transaction for decentralization, and also immutability and transparency to enhance security.
So, how about scalability? Blockchain technology, according to Ethereum founder Vitalik Buterin, only allowed him to offer two properties at a time. If you want decentralization and security, you might have to sacrifice scalability. Bitcoin is one of the best examples of this. The Bitcoin blockchain achieves optimal security and decentralization but falls short of the desired scalability. But with the coming update with the suggested solutions, scalability is entering soon.
Benefits of Layer One Blockchain Solutions
The number one benefit of layer 1 blockchain solutions is scalability. To improve scalability, a layer 1 blockchain solution is trusted to change the underlying protocol. As a result, a layer 1 blockchain solution essentially served to improve the already existing features, decentralization and security, Layer 1 blockchain protocols provide high network consistency and stable economics.
Another key advantage of the solution is the ability to bring a more improved ecosystem that will massively contribute to steady growth and development. These solutions also aid in the incorporation of new tools, technological advances, and other elements into the base blockchain. And surely with these solutions, layer 1 scalability is guaranteed and will be able to serve as a critical foundation and open the door for more innovations in the larger blockchain ecosystem.
These are some examples of layer one networks and their consensus mechanisms :
Bitcoin (BTC) - Proof of Work (POW)
Ethereum (ETH) - Proof of Work (POW)
Algorand (ALG) - Proof of Stake (POS)
Cardano (ADA) - Proof of Stake (POS)
Hedera (HBAR) - Proof of Stake (POS)
Layer 1 vs. Layer 2
Due to the technicality of layer 1, not everything can be solved at Layer 1 when it comes to improvements. And also due to some technical constraints, there are some changes to major blockchain networks that are difficult or even impossible. Ethereum, for example, is transitioning from proof of work (PoW) to Proof of Stake (PoS), but the difficulty there has made it to still be proposed for years.
And also the scalability issues, some use cases do not work at layer 1 due to the absence of scalability. And also the long transaction pace, so many blockchain games could not realistically use the Bitcoin network. However, layer 1 security and decentralization are still two super important features for games. To get the best user experience and usability, build on a layer 2 solution that will use both its features and Layer one's own.
Several examples from the Layer 1 Blockchain and its foundations demonstrate how Layer 1 improves blockchain sensitivity. Blockchain is gradually finding its way into a variety of industries and real-world applications. Layer 1 blockchain networks could usher in a new era of change thanks to changes in base protocols. To ensure security and decentralization, blockchain networks struggle with scalability.