Summary

(e.g. Bitcoin, Binance Chain, Ethereum), and the infrastructure of these networks. Layer 1 blockchain can verify and complete transactions without the participation of other networks. Improving the scalability of Layer 1 networks is very difficult, as Bitcoin has proven. To solve this problem, developers created Layer 2 protocols that operate on the security and consensus of Layer 1 networks. Bitcoin’s Lightning Network is a typical example of a Layer 2 protocol. The Lightning Network allows users to conduct free transactions before writing them to the main chain.

Introduction

The terms Layer 1 and Layer 2 can help us understand different blockchains, Architecture of projects and development tools. If you’ve ever wondered what the relationship is between Polygon and Ethereum, or between Polkadot and its parachains, understanding the different blockchain layers can help unravel the mystery.

What is Layer 1?

Layer 1 network is another name for the underlying blockchain. Binance Smart Chain (BNB), Ethereum (ETH), Bitcoin (BTC), and Solana are all Layer-1 protocols. We call them Layer 1 because they are the main networks in their ecosystem. In contrast, off-chain solutions and Layer 2 solutions are both built on the main chain.

In other words, the Layer 1 protocol is able to process and complete transactions on its own blockchain, while bringing its own native tokens for paying transaction fees.

Layer 1 expansion

Layer 1 networks generally have the problem of difficulty in expansion. Faced with growing transaction demand, Bitcoin and other large blockchains are trying to process transactions faster. The proof-of-work (PoW) consensus mechanism used by Bitcoin requires a lot of computing resources.  

PoW takes into account both decentralization and security, but during peak transaction periods, the network speed will still decrease, resulting in longer transaction confirmation times and higher fees.

Blockchain developers have been researching scalability solutions for years, but have yet to agree on the optimal alternative. Optional options for Layer 1 expansion include:

1. Expand the block size so that each block can handle more transactions.

2. Change the consensus mechanism. The upcoming Ethereum 2.0 version adopts this solution.

3. Implement sharding and split the database.

Improving Layer 1 requires a lot of effort. In many cases, not all Internet users will agree to such changes. Doing so could lead to a split in the community or even a hard fork. The split of Bitcoin into Bitcoin Cash in 2017 was the result of the hard fork.

Segregated Witness (SegWit)

Bitcoin’s SegWit (Segregated Witness) is an example of a Layer 1 scaling solution. Segwit increases Bitcoin’s throughput by changing the way block data is organized (removing digital signatures from transaction data). Doing so frees up block space so that more transactions can be processed per block without compromising the security of the network. Segwit is implemented via a reverse-compatible soft fork. This means that Bitcoin nodes that have not been updated to include Segregated Witness (SegWit) can still process transactions.

What is Layer 1 sharding?

Sharding is a common Layer 1 scaling solution that can be used to increase transaction throughput. This is a database partitioning technology that can be applied to the distributed ledger of a blockchain. The network, along with the nodes on it, is split into different shards to spread the workload evenly and increase transaction speed. Each shard handles a portion of the activity of the entire network, i.e. each shard has its own transactions, its own nodes, and its own independent blocks.

After sharding, there is no need to keep a complete copy of the blockchain on each node. Each node will write the completed work to the main chain, sharing local data in real time, including address balance and other key parameters.

Comparison between Layer 1 and Layer 2

Layer 1 has some bottlenecks that cannot be broken through. Due to technical limitations, it is difficult or almost impossible to implement certain changes on the blockchain mainnet. For example, Ethereum is in the process of transitioning to a proof-of-stake (PoS) system, but the entire process has taken several years.

Layer 1 itself is not suitable for some use cases due to scalability issues. The transaction process on the Bitcoin network takes so long that it is practically impossible to run any blockchain game on the network. However, developers of games may still want to take advantage of Layer 1’s security and decentralized properties. Then, the best way is to build a Layer 2 solution on this network.

Lightning Network

Layer 2 solutions are built on Layer 1 and rely on Layer 1 to complete transactions. The Lightning Network is a famous example. During peak traffic periods it can take hours to complete a transaction on the Bitcoin network. The Lightning Network allows users to use Bitcoin for quick payments under the main chain, and then submit the balance to the main chain later. This saves time and resources by aggregating everyone's transactions into one final record.  

Layer 1 blockchain example

We have already understood what Layer 1 is, now let Let's look at some examples. There are many types of Layer 1 blockchains. Many blockchains support unique use cases. Not all blockchains are like Bitcoin or Ethereum. In order to solve the blockchain triangular problem and achieve a good balance between security, decentralization and scalability, each network has its own set of solutions.

Elrond

Elrond is a Layer 1 network created in 2018. The network uses sharding technology to improve performance and scalability. The Elrond blockchain can handle over 100,000 transactions per second. The Security Proof of Stake (SPoS) consensus protocol and adaptive state sharding are its two unique features.

Adaptive state sharding refers to splitting or merging shards as network users increase or decrease. The entire architecture of the network, including its state and transactions, will be fragmented. Validators will also be assigned to different shards to reduce the risk of a malicious takeover of the shards.

Elrond’s native token EGLD is used to settle transaction fees, deploy DApps, and reward users who participate in the network verification mechanism. At the same time, the Elrond network has obtained negative carbon dioxide emission certification, and the amount of carbon dioxide it offsets exceeds the emissions of the PoS mechanism.

Harmony

Harmony is a Layer 1 network using Effective Proof of Stake (EPoS) and sharding technology. There are four shards on the blockchain mainnet, and new blocks are created and verified simultaneously. Each shard runs at its own speed, with varying block heights.

Currently, Harmony implements a "cross-chain finance" strategy to attract developers and users. The trustless cross-chain bridge connecting Ethereum and Bitcoin allows users to redeem tokens without the custody risks common to bridges, playing an important role in Harmony's strategy. Harmony relies on Decentralized Autonomous Organizations (DAOs) and zero-knowledge proofs to achieve its core vision of scaling Web3.

Multi-chain and cross-chain seem to be the future development direction of DeFi (decentralized finance), which makes Harmony’s bridging service more attractive to users. Non-fungible token infrastructure, DAO tools and bridging between protocols are areas of focus for Harmony.

Its native token ONE is used to pay network transaction fees. Users can also pledge tokens to participate in Harmony’s consensus mechanism and governance. Validators who successfully participate will receive block rewards and transaction fees.

Celo

Celo is a Layer 1 network resulting from the Go Ethereum fork in 2017. After the fork, the network has undergone some major changes, including implementing PoS and enabling a unique address system. The Celo Web3 ecosystem includes decentralized finance, non-fungible tokens, and payment solutions. The network has confirmed more than 100 million transactions. On Celo, anyone can use a phone number or email address as a public key. No special hardware is required to run a blockchain, and standard computers can handle it with ease.

Celo’s main token, CELO, is a standard utility token used for security, transactions, and rewards. The network also uses cUSD, cEUR, and cREAL as stablecoins. These tokens are generated by users and have a stable peg similar to MakerDAO’s DAI token. Additionally, transactions made using the Celo stablecoin can be paid using any other Celo asset.

The volatility and difficulty of entry into the cryptocurrency market will deter many people, and Celo’s purpose of adopting the address system and stablecoins is to improve convenience and thereby promote cryptocurrency.

THORChain

THORChain is a cross-chain permission-free decentralized trading platform (DEX). This Layer 1 network is built using the Cosmos SDK and verifies transactions through the Tendermint consensus mechanism. The main goal of THORChain is to achieve decentralized cross-chain liquidity, eliminating the process of asset pegging or packaging, so that cross-chain investors do not need to bear the additional risks brought by both.

During the operation process, THORChain plays the role of a vault administrator, creating decentralized liquidity and removing centralized intermediaries by supervising access and withdrawal. RUNE is the native token of THORChain and is used to pay transaction fees, participate in governance, verify transactions, and protect network security.  

THORChain’s Automated Market Maker (AMM) model uses RUNE as the base currency, and users can use RUNE to exchange for any other supported assets. To a certain extent, the operation of the project is similar to cross-chain Uniswap. RUNE serves as the settlement asset and safe asset of the liquidity pool in the project.

Kava

Kava, a Layer 1 blockchain, combines the speed and interoperability of Cosmos with the developer support of Ethereum. The Kava network uses a "common chain" architecture, which is characterized by providing different chains for the EVM and Cosmos SDK development environments. With IBC support on the Cosmos common chain, decentralized applications deployed by developers can run seamlessly between the Cosmos and Ethereum ecosystems.  

Kava uses the Tendermint PoS consensus mechanism to provide strong scalability for applications on the EVM common chain. The Kava Network is funded by KavaDAO, and the network's public on-chain developer incentive mechanism rewards the top 100 projects on each common chain based on project usage.  

Kava supports two tokens, the original utility token and governance token KAVA, and the stablecoin USDX pegged to the U.S. dollar. KAVA is used to pay transaction fees, and validators can stake tokens to generate network consensus. Users can entrust their pledged KAVA tokens to validators and earn a portion of the issued KAVA tokens. Stakeholders and validators can also vote on governance proposals and determine the parameters of the network.  

IoTeX

Founded in 2017, IoTeX is a Layer 1 network focused on integrating blockchain and the Internet of Things. IoTeX users can control the data generated by the device and let the machine provide support for DApps, assets and services. Users' personal information has a certain value, and managing information through blockchain can ensure the security of the information.

IoTeX combines software and hardware to provide a new solution for controlling privacy and data without sacrificing user experience. Users can earn digital assets using real-world data using a system called MachineFi.

IoTeX has launched two hardware products worthy of attention, namely Ucam and Pebble Tracker. Ucam is an advanced home security camera that gives users visibility into their home from anywhere and complete data privacy. Pebble Tracker is a smart global positioning system that supports 4G and has tracking functions. It can not only track GPS data, but also real-time environmental data, including temperature, humidity and air quality.

As far as blockchain architecture is concerned, there are many Layer 2 protocols based on it on IoTeX. Blockchain will provide tools to create custom networks using IoTeX for final confirmation. These chains can also interact and share information through IoTeX. Developers can easily create new sub-chains to meet the specific needs of their own IoT devices. IoTeX’s token IOTX is used to pay for transaction fees, staking, governance, and network validation.

Summary

Today’s blockchain ecosystem There are multiple Layer 1 networks and Layer 2 protocols in . Although it is easy to get confused, once you master the basic concepts, you can easily understand the overall architecture. When working on new blockchain projects, especially those focused on network interoperability and cross-chain solutions, it’s useful to master the underlying concepts.