The crypto ecosphere is filled with thousands of different projects, each of them trying to bring its share of innovations. This has allowed cryptocurrencies to become coveted assets, with investors looking to buy them for both their increasing value and their usefulness.
Crypto trading has become incredibly popular, with platforms such as Bitlevex providing investors with new ways to speculate on the price of Bitcoin. Simultaneously, decentralized finance is booming, thanks to both smart contract Layer 1 and Layer 2 solutions.
In this article, we will explain the difference between Layer 1 and Layer 2 blockchains. Additionally, we will provide you with a list of the best networks for each type of blockchain. After reading this piece, you will be able to tell how these can complement each other and contribute toward better blockchain interoperability.
What is a Layer 1 blockchain?
Layer 1 blockchains are the base blockchains, which provide the main utilities of the network. These function by themselves and rely on miners or validators for their security and transaction confirmations. However, to provide bulletproof security, Layer 1 blockchains sometimes need to compromise on their speed and scaling.
First-generation blockchains such as Bitcoin were created with one use case in mind, to serve as a digital payment network through a proof of work consensus. And even at the beginning, Bitcoin was considered flawed because of its purposeful lack of speed.
Other Layer 1 blockchains like Ethereum were also initially created on a proof-of-work consensus mechanism. Consequently, Ethereum scales very poorly for its purpose, as its initial design is to allow for mass usage of its network. Layer 2 solutions were created, to allow base blockchain to provide their services while conserving their security features.
What is a Layer 2 blockchain solution?
A layer 2 blockchain solution is third-party software that functions on top of a base chain. They are created to improve the scaling ability of the base layer and make it more efficient for mass usage.
They allow this by alleviating the transaction encumbrance of the base chain to an external computing protocol. These Layer 2 chains then execute batches of transactions on a side chain and report back to the main chain to record the final results on the Layer 1 ledger.
The Lightning network is the perfect example of a Layer 2 solution for Bitcoin. In a nutshell, users that wish to transact with the Lightning Network open a channel of transactions and can make multiple BTC transactions without recording them on the main Bitcoin blockchain.
Once they choose to close the transaction channel, the batch of transactions is recorded in a Bitcoin blockchain block. Consequently, users benefit from the security and immutability of the Layer 1 Bitcoin blockchain. At the same time, they can transact both cost-free and instantly using the Lightning Network state channel.
All in all Layer 2 solutions are needed to overcome the shortcomings of the original networks, whether they have been programmed as such on purpose or by oversight.
Top Layer 1 blockchains
Below are some of the most popular Layer 1 blockchains in the crypto space right now:
- Bitcoin is the original cryptocurrency and was the first practical implementation of blockchain technology. While its initial purpose was to become a peer-to-peer digital payment network, its lack of speed has turned into a store-of-value asset instead.
- Ethereum is the first smart contract-capable blockchain that allowed us to deploy decentralized applications. There are dozens of Layer 2 solutions built upon Ethereum that improve its efficiency, speed, and cost.
- Solana is a rising star in the cryptocurrency space, and one of the fastest Layer 1 blockchains available at the moment. It provides smart contract capability and can be used in deFi and the creation of NFTs using cheap and incredibly fast transactions.
- Polkadot is a layer 1 blockchain that allows the creation of other blockchains upon it. Its ecosystem allows for direct interoperability of these side chains, setting a framework for the future of web 3.0.
Top Layer 2 solutions
Some of the most successful Layer 2 solutions in the crypto ecosphere are depicted below:
- Polygon, previously Matic, is a layer 2 solution that allows for better scaling of the Ethereum network. It provides autonomous smart contracts for creating dApps and NFTs, independently from the gas fees of Ethereum.
- The Lightning Network is a state channel that allows faster transactions for Bitcoin. It can be used for mass usage of Bitcoin as a payment network and is already in mass usage in countries such as El Salvador.
- Arbitrum is another successful Layer 2 solution for Ethereum that allows developers to scale any decentralized application off-chain.
Wrap-up
Layer 2 solutions are necessary for the improvement and scalability of popular base blockchains such as Bitcoin and Ethereum. Base blockchains provide users with great security and robustness while Layer 2 solutions improve their efficiency by alleviating the transaction tedium and executing applications off-chain.
