The recognition of crypto and blockchain is rising exponentially, and so is the variety of customers and transactions. While it is simple to see how revolutionary blockchain is, scalability – a system’s capability to develop whereas accommodating rising demand – has all the time been a problem. Public blockchain networks which are extremely decentralized and safe typically wrestle to realize excessive throughput.
This is commonly described because the Blockchain Trilemma, which states that it’s just about unimaginable for a decentralized system to concurrently obtain equally excessive ranges of decentralization, safety, and scalability. Realistically, blockchain networks can solely have two out of three components.
Fortunately, nevertheless, hundreds of fanatics and consultants are engaged on scaling options. Some of those options are designed to tweak the structure of the primary blockchain (Layer 1), whereas others goal Layer 2 protocols that function on high of the underlying community.
With a lot of blockchains and cryptocurrencies obtainable, you won’t know in case you’re utilizing a Layer 1 or Layer 2 chain. There are advantages in hiding blockchain complexity, however it’s value getting to grasp a system you’re investing in or utilizing. With this text, you’ll perceive the variations between Layer 1 and Layer 2 blockchains and numerous scalability options.
What is a blockchain Layer 1 vs. Layer 2?
The time period Layer 1 refers back to the base stage of a blockchain structure. It’s the primary construction of a blockchain community. Bitcoin, Ethereum, and BNB Chain are examples of Layer 1 blockchains. Layer 2 refers to networks constructed on high of different blockchains. So if Bitcoin is a Layer 1, the Lightning Network that runs on high of it’s an instance of a Layer 2.
Blockchain community scalability enhancements will be categorized into Layer 1 and Layer 2 options. A Layer 1 resolution will change the foundations and mechanisms of the unique blockchain instantly. A Layer 2 resolution will use an exterior, parallel community to facilitate transactions away from the mainchain.
Why is blockchain scalability necessary?
Imagine a brand new freeway being constructed between a serious metropolis and its fast-growing suburb. As the quantity of site visitors passing via the freeway will increase and congestion turns into frequent – particularly throughout rush hours – the common time to get from A to B can enhance considerably. No marvel, provided that street infrastructure has its restricted capability and the demand is ever-growing.
Now, what can the authorities do to assist extra commuters journey by way of this route sooner? One resolution can be to enhance the freeway itself, including further lanes to every facet of the street. This, nevertheless, isn’t all the time sensible as it’s an costly resolution that will trigger appreciable bother to these already utilizing the freeway. An different is to get inventive and think about numerous approaches not related to making adjustments to the core infrastructure, similar to constructing further service roads and even launching a light-weight rail transit line alongside the freeway.
In the world of blockchain know-how, the first freeway can be a Layer 1 (the primary community), whereas the extra service roads can be Layer 2 options (secondary community to enhance the general capability).
Bitcoin, Ethereum, and Polkadot are all thought-about Layer 1 blockchains. They are the base-layer blockchains that course of and report transactions for his or her respective ecosystems, that includes a local cryptocurrency – usually used to pay charges and supply broader utility. Polygon is one instance of a Layer 2 scaling resolution for Ethereum. The Polygon community usually commits checkpoints to the Ethereum mainnet to replace it of its standing.
The throughput functionality is a crucial factor of a blockchain. It’s a measure of pace and effectivity that exhibits what number of transactions will be processed and recorded inside a particular timeframe. As the variety of customers will increase and the variety of simultaneous transactions goes up, a Layer 1 blockchain can turn into gradual and costly to make use of. This is particularly true of Layer 1 blockchains which use a Proof of Work mechanism versus Proof of Stake.
Current Layer 1 points
Bitcoin and Ethereum are good examples of Layer 1 networks with scaling points. Both safe the community via a distributed consensus mannequin. This signifies that all transactions are verified by a number of nodes earlier than being validated. The so-called mining nodes all compete to unravel a fancy computational puzzle, and the profitable miners are rewarded within the community’s native cryptocurrency.
In different phrases, all transactions require the impartial verification of a number of nodes earlier than getting confirmed. This is an environment friendly means of logging and recording appropriate, verified information to the blockchain whereas mitigating the chance of assault by unhealthy actors. However, after you have a community as well-liked as Ethereum or Bitcoin, the throughput demand turns into an ever-increasing challenge. In instances of community congestion, customers will face slower affirmation instances and better transaction charges.
How do Layer 1 scaling options work?
There are a number of choices obtainable to Layer 1 blockchains that may enhance throughput and general community capability. In the case of blockchains utilizing Proof of Work, a transition to Proof of Stake may very well be an choice to extend transactions per second (TPS) whereas decreasing processing charges. Still, there are combined views within the crypto group concerning the advantages and long-term implications of Proof of Stake.
Scaling options on Layer 1 networks are usually launched by the mission’s growth crew. Depending on the answer, the group might want to hard fork or soft fork the community. Some small adjustments are backward appropriate, similar to Bitcoin’s SegWit replace.
Larger adjustments, like rising the Bitcoin’s block measurement to 8MB, require a tough fork. This creates two variations of the blockchain, one with the replace and one with out. Another choice to extend a community’s throughput is sharding. This splits a blockchain’s operations throughout a number of smaller sections that may course of information concurrently reasonably than sequentially.
How do Layer 2 scaling options work?
As mentioned, Layer 2 options depend on secondary networks that work in parallel or impartial of the primary chain.
Zero-knowledge rollups (the commonest form) bundle off-chain Layer 2 transactions and submit them as one transaction on the primary chain. These programs use validity proofs to examine the integrity of transactions. Assets are held on the unique chain with a bridging good contract, and the smart contract confirms the rollup is functioning as meant. This supplies the safety of the unique community with the advantages of a much less resource-intensive rollup.
Sidechains are impartial blockchain networks with their very own units of validators. This means the bridging good contract on the primary chain doesn’t confirm the validity of the sidechain community. Therefore, it’s good to belief the sidechain is working accurately because it’s in a position to management property on the unique chain.
A state channel is a two-way communication setting between the transacting events. The events seal off part of the underlying blockchain and join it to an off-chain transaction channel. This is often executed by way of a pre-agreed good contract or a multi-signature. The events then execute a transaction or a batch of transactions off-chain, with out instantly submitting transaction information to the underlying distributed ledger (i.e., the primary chain). Once all transactions within the set are full, the ultimate “state” of the channel is broadcasted to the blockchain for validation. This mechanism permits to enhance transaction pace and will increase the general capability of the community. Solutions just like the Bitcoin Lightning Network and Ethereum’s Raiden function based mostly on state channels.
This resolution depends on a set of secondary chains that sit on high of the primary, “parent” blockchain. Nested blockchains function in accordance with the foundations and parameters set by the mother or father chain. The essential chain doesn’t take part in executing transactions and its position is proscribed to dispute decision when needed. The day-to-day work is delegated to “child” chains that return the processed transactions to the primary chain upon completion off the primary chain. OmiseGO’s Plasma mission is an occasion of a Layer 2 nested blockchain resolution.
Limitations of Layer 1 and Layer 2 scaling options
Both Layer 1 and Layer 2 options have distinctive benefits and downsides. Working with Layer 1 can present the best resolution for large-scale protocol enhancements. However, this additionally signifies that validators should be satisfied to simply accept adjustments via a tough fork.
One potential instance the place validators could not wish to do that is altering from Proof of Work to Proof of Stake. Miners will lose earnings by this swap to a extra environment friendly system, disincentivizing them from enhancing scalability.
Layer 2 supplies a a lot faster means to enhance scalability. However, relying on the tactic used, you possibly can lose a whole lot of the safety of the unique blockchain. Users belief networks like Ethereum and Bitcoin for his or her resilience and monitor report of safety. By taking facets off the Layer 1, you typically need to depend on the Layer 2 crew and community for effectivity and safety.
What’s subsequent after Layer 1 and Layer 2?
One key query is whether or not we’ll even want Layer 2 options as Layer 1s turn into extra scalable. Existing blockchains see enhancements, and new networks are created with good scalability already. However, it’s going to take a very long time for main programs to enhance their scalability, and it’s not assured. The most definitely choice is for Layer 1s to deal with safety, and permit Layer 2 networks to tailor their companies to particular use instances.
In the close to future, there’s an excellent likelihood giant chains like Ethereum will nonetheless dominate as a consequence of their giant consumer and developer group. However, its giant, decentralized validator set and trusted fame creates a stable base for focused Layer 2 options.
Since crypto started, the hunt for improved scalability has created a two-pronged method with Layer 1 enhancements and Layer 2 options. If you’ve bought a various crypto portfolio, there’s an excellent likelihood you have already got publicity to each Layer 1 and Layer 2 networks. Now, you perceive the variations between the 2 in addition to the totally different approaches to scaling that they provide.