Since Bitcoin launched in the early part of 2009, significant technological advancements have taken place. Other Layer-1 blockchains have added features like smart contracts to improve their capability for communication between various parties. This was not the end of the development of decentralized ledger technology; Layer-2s that address these concerns head-on have been developed to improve scalability, privacy, and security. What do these Layer-1 and Layer-2 signify, though?

Check out the key differences between Layer-1 and Layer-2 blockchain scaling solutions in this article.

Before we move forward, let’s understand what blockchain scalability is.

What is Blockchain Scalability?

The ability of a network to accommodate both an increase in the volume of transactions occurring and a rise in the number of nodes inside the network is referred to as blockchain scalability. Since then, despite the technological advances that have been made, the Blockchain Trilemma has been a concern for the industry. This includes the challenges of the blockchain infrastructure’s increased scalability, decentralization, and security.

Finding a balance between decentralization, security, and scalability is crucial to solving the scalability issue, known as the ‘blockchain trilemma.’ According to this trilemma, a blockchain network can only simultaneously optimize two of these crucial characteristics, necessitating trade-offs to increase scalability.

Types of Blockchain Layers

Blockchain operates on multiple layers, each playing a crucial role in its functionality and scalability.

Layer-0: Network Foundation

Layer-0 serves as the foundational network architecture of blockchain, encompassing hardware, protocols, and connections. Also known as the “network of blockchains,” it provides the base for the entire blockchain ecosystem. Facilitating Inter-chain operability, Layer-0 enables communication between blockchains and addresses scalability challenges. Native tokens are often employed to foster participation and development within this layer.

Layer-1: Fundamental Operations

Essential to a blockchain network, Layer-1 executes fundamental operations such as dispute resolution, consensus mechanisms, and protocol implementation. It represents the actual blockchain, but scalability concerns arise as the network grows. Improved consensus techniques, like proof-of-stake and sharding, aim to enhance scalability. Layer-1, however, faces challenges in managing increased computational power requirements, leading to higher fees and processing times.

Layer-2: Scalability Solutions

Blockchain needs more processing power to boost productivity, but adding nodes can congest the network. Layer-2, placed atop Layer-1, addresses scalability issues by managing transactional validations. Through third-party solutions integrated with Layer-1, Layer-2 revolutionizes the blockchain, handling block creation while Layer-1 manages block addition.

Layer-3: User Interaction Interface

Visible to users, Layer-3 is where participants interact with user interfaces (UI). It offers visibility and utility, including intra- and inter-chain operability for decentralized exchanges, liquidity provisioning, and staking apps. Decentralized apps (dApps) are a form of Layer-3 interface, allowing real-world applications based on blockchain technology. Layer-3 bridges the gap between blockchain technology and user engagement.

Key Differences Between Layer-1 and Layer-2

Definition

Blockchain Layer-1 serves as the core layer, responsible for establishing the foundation of the entire network. This includes managing consensus, validating transactions, and handling data storage. Layer-1 acts as the backbone, enabling the infrastructure and operations of the blockchain. Prominent examples of Layer-1 blockchains include Ethereum, Bitcoin, and Dogecoin.

Layer-2 in blockchain technology is a supplementary layer constructed atop a Layer-1 blockchain. This secondary layer enhances the capabilities of the base layer by addressing scalability concerns, increasing transaction speed, and reducing fees. Various forms of Layer-2 solutions exist, such as sidechains and rollups. Notable examples of Layer-2 blockchain solutions are the Lightning Network on Bitcoin and Polygon on Ethereum.

Security and Decentralization

Layer-1 blockchains establish the framework for security and decentralization, employing consensus mechanisms, cryptographic methods, and a network of nodes.

In contrast, Layer-2 builds upon these features to improve speed and scalability. However, Layer-2 solutions do not introduce their security features, and decentralization might be comparatively lower due to a reduced number of nodes.

Transaction Speed and Cost

Layer-1 blockchains typically incur high costs and exhibit low transaction speeds, as each transaction must undergo validation on every node in the network. Layer-2 blockchains were conceived to overcome these challenges by processing certain transaction elements away from the main blockchain. This significantly accelerates transaction validation and concurrently reduces transaction costs.

Interoperability and Adoption: Layer-2’s Edge

Interoperability remains a significant hurdle in blockchain, with networks often operating independently. Layer-2 solutions play a pivotal role by enabling different blockchains to communicate and collaborate, fostering a more interconnected and integrated blockchain ecosystem. This, in turn, facilitates the emergence of new use cases and applications for blockchain technology.

Layer-2 solutions contribute to the enhanced adoption of blockchain technology by enhancing accessibility and user-friendliness. Through reductions in transaction costs and improvements in speed, Layer-2 solutions make blockchain transactions more affordable and convenient, thereby attracting a broader user base and driving increased adoption of the technology.

Conclusion

The two sides of the same coin, Layer-1 and Layer-2 scaling solutions, are strategies to speed up blockchain networks and accommodate an ever-expanding user base. These strategies are also not mutually exclusive. Several blockchain networks are investigating combinations of Layer-1 and Layer-2 scaling solutions to achieve greater scalability without compromising increased security or decentralization.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.