Layer 1
Layer 1 blockchain is the foundational level of blockchain architecture, operating as the primary and autonomous chain on which transactions are directly executed and confirmed, as well as providing the essential infrastructure for decentralized applications and smart contracts.[2]
Overview
Layer-1 blockchains are often referred to as the “core” or “foundation” of the blockchain network, as they provide the infrastructure for all other applications and protocols that are built on top of the network. They are the only layer directly responsible for maintaining the distributed ledger, validating transactions, and securing the network from malicious actors.[1][2]
The main difference between Layer 0 and Layer 1 in blockchain technology is that Layer 0 is the foundational layer that provides the infrastructure, while Layer 1 is the core architecture that maintains protocols for secure transactions.[1]
At the core of a layer-1 blockchain is a consensus mechanism responsible for validating and recording transactions to the ledger. It ensures that the ledger is immutable and can be trusted by all participants in the network. Common consensus mechanisms used on layer-1 blockchain networks include proof-of-work (PoW), proof-of-stake (PoS) and delegated proof-of-stake (DPoS).[1]
Layer-1 blockchain technology is the foundation for many of the leading public blockchain networks, such as Bitcoin and Ethereum. It is also the underlying technology for many decentralized applications (DApps), smart contracts and protocols.[1]
Unlike secondary layers or "Layer-2" solutions, which are built on top of a Layer-1 Blockchain to enhance scalability and speed, a Layer-1 Blockchain operates independently and is not reliant on another blockchain for its functionality. This system ensures that the blockchain remains secure, transparent, and immutable. Once a transaction is recorded on a Layer-1 Blockchain, altering it would require a massive amount of computational effort, making it practically impossible for single entities to manipulate the data.[2]
Key Features of Layer 1 Blockchain
Consensus Mechanism
Layer-1 blockchains employ various consensus mechanisms to validate transactions and achieve agreement among network participants. Popular consensus algorithms used in Layer-1 blockchains include Proof-of-Work (PoW), Proof-of-Stake (PoS), and Delegated Proof-of-Stake (DPoS), among others.[2][3]
Security
Layer-1 blockchains prioritize security by utilizing cryptographic algorithms and decentralized network structures. The immutability of the blockchain, achieved through cryptographic hashing, ensures the integrity and tamper-resistance of transactions recorded on the network.[3]
Scalability
Layer-1 blockchains face the challenge of scalability, as they need to accommodate a large number of transactions without compromising efficiency. Several Layer-1 protocols employ innovative techniques such as sharding, sidechains, and state channels to enhance scalability and throughput.[3]
Smart Contracts
One of the critical functions of a Layer-1 Blockchain is the capability to execute smart contracts. Many Layer-1 blockchains support the execution of smart contracts which are self-executing contracts with the terms of the agreement written into lines of code. This feature allows for trustless, automated transactions, making the blockchain a versatile platform for various applications beyond simple financial transactions reducing the need for intermediaries and enhancing transparency. [2][3]
Another important consideration when discussing Layer-1 Blockchains is their role in the broader blockchain ecosystem. Being the foundational layer, they set the stage for Layer-2 solutions and decentralized applications. Layer-1 Blockchains usually have their own native cryptocurrency, like Bitcoin for the Bitcoin blockchain or Ether for the Ethereum blockchain, which is used to facilitate transactions and incentivize network participation[2][3]
Limitations and Challenges of Layer 1
Layer 1 blockchains seek to provide the fundamental blockchain functions. Any blockchain’s primary objective is to optimize decentralization, security, and scalability. The concept of accomplishing all three is referred to as the blockchain trilemma due to the difficulty of striking a balance between them.
Layer-1 Blockchains often face challenges related to scalability and transaction speed. As the number of users and transactions grows, the capacity of the Layer-1 Blockchain can become a bottleneck. To address this, some newer Layer-1 Blockchains use different consensus algorithms and architectural designs aimed at increasing throughput and lowering transaction fees. Despite these advancements, many popular Layer-1 Blockchains like Bitcoin and Ethereum are working on or already have Layer-2 solutions that work in conjunction with the base layer to improve performance.
Early Layer 1(L1) chains (specifically Bitcoin and Ethereum) prioritized decentralization and security at the expense of their networks’ scalability. This has prompted L1 developers to modify their designs to prioritize scalability or to work on alternative solutions “off-chain.” There are a few ways in which L1 chains can improve scalability by modifying their native architecture.[3] These consist of:
Increasing block size
With larger blocks, more transactions can “fit” into each block, thereby enhancing network speed. The disadvantage is that network-securing computers (nodes) must increase their hardware requirements, which increases the risk of centralization.
Changing the consensus mechanism
Proof of Stake (PoS) consensus mechanisms are typically quicker and less resource-intensive than Proof of Work (PoW) consensus mechanisms. Nonetheless, some contend that this comes at the expense of inadequate security and centralization.
Sharding
Sharding enables Layer 1 chains to divide their data into a predetermined number of distinct data components (called shards), thereby assisting to decongest the network and increase transaction speeds. However, communication between sharded chains can be complicated, resulting in compromised blockchain security.
Differences Between Layer 1(L1) and Layer 2(L2)
Layer 2 blockchains exist on top of a base blockchain, Layer 1. The L2 depends on the L1 blockchain for security and data availability. L2’s main purpose is almost always to increase the scalability of the L1 network. Following are the main differences between L1 and L2 blockchains:[4]
| Property | Layer 1 | Layer 2 |
|---|---|---|
| Gas fees payment | Gas fees paid in native L1 tokens | Some use ETH to pay gas fees, and others, such as Polygon, use their governance tokens for fees |
| Gas fee cost | Almost always higher than L2 | Typically lower than L1 |
| Scalability | Limited scalability due to focus on security and decentralization | Enhanced scalability |
| Security | Higher level of security and decentralization | Can be more centralized, which increases security risks |
Use Cases of Layer 1 Blockchain
following are only a handful of the numerous applications of Layer 1 blockchains.[5]
- Digital currency: One of the key applications of Layer 1 blockchains is as a digital currency, where users may transfer funds without the need for intermediaries and in a secure manner.
- Decentralized finance (DeFi): Layer 1 blockchains are utilized for the development of decentralized financial applications, such as lending and borrowing platforms, stablecoins, and decentralized exchanges.
- Supply chain management: Layer 1 blockchains can be used to increase supply chain management’s transparency and traceability, hence preventing fraud and counterfeiting.
- Identity management: Layer 1 blockchains can be used to securely store and manage personal data, allowing users to exercise control over their data and consent to its usage.
- Voting systems: Layer 1 blockchains can be used to build safe and transparent voting systems, hence preventing fraud and boosting voter confidence.
- Gaming: Layer 1 blockchains can be used to build decentralized gaming platforms, where users can trade virtual assets and play games without the need for a centralized authority.
