‘Layers’ are a term thrown around a lot when we discuss blockchains. This article will give you an introduction into blockchains and discuss the purpose of Layer 1 and 2 protocols.
Layer 1 protocols allow decentralized applications (DApps) to be built on them. Common Layer 1 blockchains include Ethereum, Binance Smart Chain and Avalanche.
Layer 2 protocols sit on top of layer 1 protocols. They are often designed to improve the native layer, whether to make the blockchain more efficient or provide a better user experience.
Layer 1 Protocols
Before we talk about Layer 1, you should note that there is a base protocol for every blockchain - Layer 0.
Think of Layer 0 as the underlying blockchain architecture. They allow Layer 1 protocols - often designed to improve the base protocol - to be built on them. In turn, Layer 1 protocols allow DApps to be built on them.
If you’ve read our recent article on Moonbeam (GLMR): First EVM-Compatible Parachain on Polkadot, you would know that Polkadot is an example of a Layer 0 base protocol while Moonbeam is a Layer 1 parachain that supports a variety of DApps.
Another example of a Layer 1 blockchain is Ethereum, which you probably know and use. Many DApps are built on Ethereum e.g. Decentralized exchange Uniswap, NFT marketplace OpenSea, decentralized wallet Metamusk etc.
DApps built on Layer 1 blockchains are under the governance of the protocol and have to compete for resources. As more DApps are built, resources become limited and this leads to slower transaction speeds and higher gas fees.
The Case for Layer 2
The Blockchain Trilemma
The Blockchain Trilemma is a concept coined by Vitalik Buterin, the creator of Ethereum. As its name suggests, Buterin proposed that developers are often unable to build blockchains that fulfill all three components of the trilemma. Instead, developers usually sacrifice one out of the three.
- Decentralization: The blockchain should distribute control over the network equally to all participants, instead of being managed by a single entity.
- Security: Blockchain networks should have ironclad defences that prevent malicious entities from taking over.
- Scalability: Blockchains should support an enormous number of transactions and users without faltering by increasing fees and transaction times.
In this case, developers may choose to improve the protocol via an ‘add-on’, rather than create a whole new blockchain altogether. This is where Layer 2 solutions come in.
Blockchain Scalability & Layer 2 Solutions
Let’s focus on scalability for the purposes of this article. Coincidentally, scalability is also a major problem for many Layer 1 blockchains.
Take Ethereum for example - its sky-high gas fees are a result of high activity and congestion on the blockchain. When there is more demand to process transactions but little supply of blockchain space, miners are incentivized to accept transactions with higher gas fees.
A blockchain unable to scale cannot quickly process transactions and offer competitive gas fee rates. Such blockchains risk becoming obsolete as newer, more efficient blockchains are created.
To solve this problem, Layer 2 scaling solutions are often introduced.
Layer 2 Example: Bitcoin Lightning Network
Layer 2 protocols sit on top of Layer 1 networks. They are networks or technologies designed to solve a Layer 1 issue and can be used in conjunction with the native layer.
For example, the Bitcoin network has a scalability issue and is unable to handle large amounts of transaction data in a short span of time. A Layer 2 protocol called the Bitcoin Lightning Network helps solve this.
Bitcoin Lightning Network is a payment protocol layered on top of the Bitcoin network. It employs a peer-to-peer system with participating nodes to facilitate speedy transactions of Bitcoin.
What Bitcoin Lightning Network does is to process transaction data on behalf of the base network, thus taking away most of the base network’s transactional burden and reducing congestion.
In conclusion, Layer 1 and 2 protocols strategically work together to improve blockchain networks and accommodate a growing user base. As blockchain technology evolves further, we should expect to see more innovative layering solutions.
The views expressed in this article are the author's alone and do not necessarily represent the views of ApolloX.
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