Blockchain Layer 1 and Layer 2 scaling solutions

The adoption of cryptocurrencies and blockchain technology is growing exponentially, with the number of users and transactions increasing rapidly. The pioneering nature of blockchain is evident, but scalability—the system’s ability to grow while meeting increasing demand—has always been a challenge. Highly decentralized and secure public blockchain networks often struggle to achieve high throughput.

This is commonly described as the blockchain trilemma, meaning that a decentralized system can rarely achieve the same high levels of decentralization, security, and scalability simultaneously. In reality, blockchain networks typically only have two of these three factors.

Fortunately, thousands of enthusiasts and experts are working hard to find scaling solutions. Some of these solutions aim to modify the architecture of main blockchains(Layer 1), while others focus on Layer 2 protocols that operate on top of the underlying network.

Introduction

With so many blockchain and cryptocurrency options available, you might not know whether you’re using a Layer 1 or Layer 2 chain. Avoiding blockchain complexity has its benefits, but it’s worthwhile to understand the systems you’re investing in or using. In this article, you’ll learn the differences between Layer 1 and Layer 2 blockchains and various scalability solutions.

What are Blockchain Layer 1 and Layer 2?

Layer 1 refers to the foundational layer of blockchain architecture. This is the main structure of the blockchain network. Bitcoin, Ethereum, and BNB Chain are examples of Layer 1 blockchains. Layer 2 refers to networks built on top of other blockchains. For example, if Bitcoin is Layer 1, then the Lightning Network running on Bitcoin is an example of Layer 2.

Scalability improvements for blockchain networks can be categorized into Layer 1 and Layer 2 solutions. Layer 1 solutions directly change the rules and mechanisms of the original blockchain. Layer 2 solutions leverage an external parallel network to facilitate transactions outside the main chain.

Why is blockchain scalability so important?

Imagine a large city and its rapidly developing suburbs connected by a new highway. As traffic increases, congestion becomes common, especially during peak hours, and the average travel time from point A to point B increases significantly. Given the limited capacity of the road infrastructure and the growing demand, this situation is not surprising.

What can authorities do to help more commuters travel faster along this route? One solution is to improve the highway itself by adding extra lanes on both sides. But this isn’t always feasible due to high costs and significant inconvenience for travelers. Another option is to get creative—consider alternative methods unrelated to changing the core infrastructure, such as building additional service roads or even a light rail line along the highway.

In the world of blockchain technology, the main highway is the Layer 1 (the primary network), while additional service roads are Layer 2 solutions (secondary networks that increase overall capacity).

Bitcoin, Ethereum, and Polkadot are considered Layer 1 blockchains. They are the underlying blockchains that process and record transactions within their ecosystems and have native cryptocurrencies—usually used to pay fees and provide broader utility. Polygon is an example of an Ethereum Layer 2 scaling solution. The Polygon network periodically submits checkpoints to the Ethereum mainnet to update its state.

Throughput is a key element of blockchain. It measures speed and efficiency, indicating how many transactions can be processed and recorded within a specific timeframe. As user numbers and concurrent transactions increase, using Layer 1 blockchains can become slow and costly. This is especially true for Layer 1 blockchains that use proof-of-work rather than proof-of-stake mechanisms.

Current issues with Layer 1

Bitcoin and Ethereum are both Layer 1 networks facing scalability issues. Both rely on a distributed consensus model to ensure network security. This means all transactions must be validated by multiple nodes before confirmation. Miners compete to solve complex computational puzzles, and successful miners are rewarded with the network’s native cryptocurrency.

In other words, all transactions require independent validation by several nodes before being confirmed. This effective method records accurate and validated data on the blockchain while reducing the risk of malicious attacks. However, once your network becomes popular like Ethereum or Bitcoin, throughput demands become increasingly severe. During network congestion, users face slower confirmation times and higher transaction fees.

How do Layer 1 scaling solutions work?

For Layer 1 blockchains, several options exist to increase throughput and overall network capacity. If the blockchain uses proof-of-work, switching to proof-of-stake might be an option, which can increase transactions per second(TPS) and reduce processing fees. Nonetheless, the crypto community holds differing views on the benefits and long-term impacts of proof-of-stake.

Scalability solutions on Layer 1 are typically introduced by the project’s development team. Depending on the solution, the community may need to perform hard forks or soft forks. Some minor changes are backward compatible, such as Bitcoin’s SegWit update.

Major changes, like increasing Bitcoin’s block size to 8MB, require a hard fork. This creates two versions of the blockchain—one with the update and one without. Another way to increase network throughput is sharding, which splits the operation of a blockchain into multiple smaller parts that can process data simultaneously rather than sequentially.

How do Layer 2 scaling solutions work?

As discussed above, Layer 2 solutions depend on secondary networks that run parallel to or independently of the main chain.

Summary

Zero-knowledge rollups (the most common type) bundle Layer 2 off-chain transactions and submit them as a single transaction to the main chain. These systems use validity proofs to verify transaction integrity. Assets are stored on the original chain via bridging smart contracts, which confirm that the rollup functions as intended. This approach ensures the security of the original network while reducing resource consumption for rollups.

Sidechains

Sidechains are independent blockchain networks with their own set of validators. This means that the bridging smart contracts on the main chain do not verify the validity of the sidechain network. Therefore, you need to trust that the sidechain operates correctly, as it can control assets on the original chain.

State channels

State channels are bidirectional communication environments between transaction parties. Participants lock a portion of the underlying blockchain and connect it to an off-chain transaction channel. This is often done via pre-agreed smart contracts or multi-signature schemes. Then, parties execute one or more transactions off-chain without immediately submitting transaction data to the underlying distributed ledger (the main chain). Once all transactions in the set are completed, the final “state” of the channel is broadcast to the blockchain for validation. This mechanism increases transaction speed and overall network capacity. Solutions like Bitcoin’s Lightning Network and Ethereum’s Raiden are based on state channels.

Nested blockchains

This solution relies on a set of secondary chains built on top of a main “parent” blockchain. Nested blockchains operate according to rules and parameters set by the parent chain. The main chain does not participate in executing transactions; its role is limited to resolving disputes when necessary. Daily operations are delegated to “child” chains, which process transactions off the main chain and return processed data to the main chain. OmiseGO’s Plasma project is an example of a Layer 2 nested blockchain solution.

Limitations of Layer 1 and Layer 2 scaling solutions

Both Layer 1 and Layer 2 solutions have unique advantages and disadvantages. Layer 1 solutions can provide the most effective means for large-scale protocol improvements. However, this also means convincing validators to accept changes via hard forks.

Validators may be reluctant, such as when transitioning from proof-of-work to proof-of-stake. Moving to a more efficient system can cause miners to lose income, reducing their motivation to improve scalability.

Layer 2 offers a faster way to enhance scalability. However, depending on the method used, the security of the original blockchain may be significantly compromised. Users trust networks like Ethereum and Bitcoin because of their resilience and security record. If certain aspects of Layer 1 are abandoned, you often have to rely on Layer 2 teams and networks to improve efficiency and security.

What comes after Layer 1 and Layer 2?

A key question is whether we still need Layer 2 solutions as Layer 1 scalability improves. Existing blockchains have been improved, and new networks with good scalability have been created. But enhancing the scalability of main systems takes a long time and is not guaranteed. The most likely approach is to focus Layer 1 on security and allow Layer 2 networks to tailor services based on specific use cases.

In the near future, large chains like Ethereum are likely to remain dominant because of their large user and developer communities. Their extensive, decentralized validator sets and reputation provide a solid foundation for Layer 2 solutions.

Summary

Since the advent of cryptocurrency trading, the pursuit of scalability improvements has led to a dual approach: Layer 1 enhancements and Layer 2 solutions. If you hold multiple crypto products, you are very likely already interacting with both Layer 1 and Layer 2 networks. Now you understand the differences between them and the various methods they offer for scaling. **$BLAST **$LA **$LAYER **