Layer 1 vs. Layer 2 Blockchain – Understanding the Difference

The blockchain industry has drastically evolved over the years. Bitcoin was the first blockchain network introduced in 2009. The network performed quite efficiently in the early stages but the people started experiencing scalability issues as the user base increased. The developers then introduced a new scalability solution to overcome this problem.

The new scaling solution is recognized as layer 2 whereas the old one is known as layer 1. Both scaling solutions have their own advantages and drawbacks. The supporters of both scaling solutions provide several arguments to define which one is better than the other.

But the discussion shouldn’t be about defining the superiority of a network. The users should only understand the functions of these scalability solutions to see which one can better accommodate their needs.

The Basic Understanding of Layer 1 vs. Layer 2

Layer 1 is the main infrastructure of the blockchain that keeps a record of the transactions. Layer 2, on the other hand, is a type of blockchain that runs on top of the Layer 1 blockchain. The rules and mechanism of a layer 2 blockchain are slightly different from the main infrastructure. Therefore, it can validate transactions faster than the main network.

A layer 2 blockchain usually consists of a set of parallel chains that run several operations without affecting the performance of the main chain.

Importance of Blockchain Scalability

It’s easy to understand the blockchain network with the example of the highway system. If there’s only one highway from point A to point B. The commuters will have to wait for long hours to go from one point to another because of the traffic congestion, especially during rush hours.

The authorities can consider adding more lanes to the main highway to handle the traffic flow. But it’s an expensive option. Therefore, the authorities prefer making additional service roads to cater to the problem.

In the case of blockchain technology, Layer 1 is the main highway whereas Layer 2 solutions are the additional service roads that can prevent congestion while allowing users to enjoy the benefits of the main network.

Bitcoin, Ethereum, Binance Smart Chain, and Polkadot are some of the leading examples of Layer 1 solutions. Polygon, on the contrary, is a layer 2 scaling solution built on Ethereum. This blockchain network connects to Ethereum on several points so it can regularly update information on the main chain.

The users are mainly concerned about transaction speed and efficiency when choosing a network. A layer 1 blockchain network becomes slow when there are more transactions waiting to be processed. As a result, the transaction fees on the network increase significantly.

The layer 1 blockchain networks can prevent this problem by using a proof-of-stake consensus mechanism compared to the proof-of-work. Still, it can’t achieve the speed levels offered by the layer 2 blockchain solutions.

Problems with Layer 1 Scaling Solutions

The demand for cryptocurrencies has drastically improved but the layer 1 blockchain networks are still struggling to improve their services.

Inefficient Consensus Mechanism

Proof-of-work is an effective way to validate transactions but it’s not strong enough to accommodate the rising demand for cryptocurrencies. The users need to pay additional fees to perform a transaction through this consensus protocol. Moreover, the miners are also required to install expensive computing power to validate the transactions.

Proof-of-stake is an effective solution to the problem. Ethereum has already started implementing this consensus protocol because its community has realized that the proof-of-work can’t handle the number of transactions requested on the network every day. However, the Bitcoin community is still favoring the proof-of-work consensus mechanism to ensure the network’s safety.

Extensive Workload

The layer 1 blockchain updates live data on the network due to which the speed slows down during congestion. Some layer 1 networks are using the sharding technique to solve this problem because sharding breaks the transaction data into small and manageable bits. Thus, the network’s ability to handle multiple transactions at a time can be increased.

What Makes Layer 2 Scaling Different?

Layer 2 protocol is primarily designed to improve the efficiency of the main layer. Layer 2 uses an additional architecture to validate a portion of the transactions from layer 1. Only the result of the transactions is reported to layer 1. Bitcoin’s Lightning Network is a prominent example of layer 2 scaling.

Layer 2 uses different types of scaling solutions to handle a huge number of transactions.

Nested Blockchain

This layer 2 scaling solution establishes a connection to the main chain through several blockchain levels. It operates like a company where the manager assigns tasks to several team members. Thus, the manager can focus on other important tasks rather than worrying about the basic ones.

State Channels

State Channels eliminate the need for a miner by establishing two-way communication between participants. Bitcoin’s Lightning Network and Ethereum’s Raiden Network are examples of state channels.

Rollups

The Rollups provide the security standards of the main chain because they post the data on Layer 1 after executing transactions on a layer 2 architecture. Optimistic Rollups and Zero-knowledge Rollups are the two security models used in this category.

Sidechains

Sidechains use an independent consensus protocol. Thus, they can finalize a wide range of transactions within a short span of time. The mainchain only takes care of the security, transaction records, and potential disputes. The best part is that the sidechains continue operating smoothly even if a few of them are congested or not working for some reason.

Conclusion

The Layer 2 scaling solution can be the right option for users who want fast transaction speeds with low transaction fees. Layer 1 scaling, on the other hand, can be more effective for those who are seriously concerned about the network’s security. However, Layer 1 is an expensive option as compared to Layer 2.

If you need more information about Layer 1 and Layer 2 scaling solutions, feel free to get in touch with us.