#Blockchain
#Crypto 360
A layer-1 (L1) blockchain is the foundational protocol of a blockchain network. Here is why.
➔ A layer-1 (or L1) is the foundational protocol of a blockchain network upon which other layers of a blockchain can be added.
➔ L1 maintains the distributed ledger technology (DLT) of the network, validates transactions and makes the network secure against vulnerabilities.
➔ Bitcoin, Ethereum, Cardano, Solana, and Polkadot are the most popular L1 blockchains.
Due to the craze surrounding cryptocurrency, the blockchain technology has become more and more popular over the years. From Snoop Dog to Donald Trump, everyone wants a piece of blockchain.
Once the haven of rebellious nerds, the realm of blockchain is today populated with every major organisation and individual. As a result, blockchain networks are finding it difficult to get as quick and efficient at processing more volume of data. The technology consumes a lot of data and space in the digital world. Consequently, projects are finding it hard to scale up different blockchain networks.
To address the challenge, developers are employing innovative methods so that blockchain networks can process increasing volume of data. One such method is building layers among a blockchain so that different functions get distributed among them. This way, a blockchain can manage to process a large volume of data efficiently.
Today, we will talk about layer-1 blockchain which is the foundation of the layers of a blockchain network.
A layer-1, or L1, blockchain is the foundational protocol of a blockchain network. It is the simplest kind of blockchain protocol that provides a foundation upon which other layers of a blockchain can be added.
To understand it in simple terms, let’s take the example of a house under construction. Suppose you are building a dream house for your family. You want it to be spacious, safe and secure. You also expect the building to last long. Do you know what’s the most important part of a house is?
The foundation.
As you can guess, it is the foundation which provides support to the pillars, ironwork and bricks to build the house above. A foundation therefore needs to be strong, resolute and durable. The function of an L1 protocol in the smooth running of a blockchain network is similarly crucial. Therefore, an L1 blockchain forms the underlying infrastructure for all the other applications and protocols to be built on top of the blockchain network. It consists of a distributed ledger technology (DLT) that lets all the network participants agree on a set of information and lets them keep copies of all the events.
A DLT is a ledger or a database that is distributed, decentralised, public, immutable and trustless. It is only the L1 that maintains the ledger, validates transactions and makes the network secure against vulnerabilities. Now that we are talking about transaction validation, we must talk about the consensus mechanism too. A consensus mechanism is another major component of an L1 blockchain. It is a method that has been agreed upon among the participants for validating transactions. The primary consensus mechanisms are proof of work (PoW) and proof of stake (PoS).
① PoW: Miners use computing power to solve complex cryptographic puzzles to build a blockchain. The most popular blockchain using PoW is Bitcoin (BTC).
② PoS: Validators stake their cryptocurrency to become eligible to validate their blocks. The most popular blockchain using PoS is Ethereum (ETH) though it used PoW prior to the Merge fork.
Many L1 blockchains facilitate the execution of smart contracts. A smart contract is a self-executing contract in which the terms and conditions of the agreement are already written into the contract’s code. This way, agreements are executed and run automatically which makes any intermediaries or third parties redundant and strengthens transparency.
Image: DLT technology, by CVJ
L1 blockchains also have their own native cryptocurrencies or tokens which are used to pay transaction or gas fees. Cardano (ADA), Solana (SOL) and Polkadot (DOT) are the most popular L1 blockchains. An L2 of a blockchain network exists on top of an L1. For instance, Blast is an L2 built on top of Ethereum, an L1. If L1 is the foundation of a house, L2 is the ground floor.
We already explained in the beginning why different layers of a blockchain exist. It's because different functions of a blockchain network get distributed among different layers. With the L1 taking care of the ledger, consensus mechanism and security, the L2 can focus on facilitating the smooth running of decentralised applications (dApps).
A major challenge before L1 blockchains is addressing the blockchain trilemma. The blockchain trilemma is a term that was coined by Ethereum creator Vitalik Buterin. A blockchain has three primary features, viz. scalability, security, and decentralisation.
• Security of a blockchain makes it robust and resilient against malicious actors.
• Scalability of a blockchain refers to its ability to onboard different projects by offering a large number of transactions and users without much additional fees or time.
• Decentralisation of a blockchain makes it a rather democratic network where the control is not held by any central authority and the network is equally accountable to all participants.
As per blockchain trilemma, a blockchain will have to sacrifice one of these three features if it wants to improve two of them. Most L1 blockchains have found it difficult till now to address this challenge. Any L1 that has prioritised scalability and security has abandoned the central aspect of the blockchain movement, i.e. decentralisation, and has become increasingly centralised. On the other hand, any L1 that has tried to become more scalable often had to compromise either on decentralisation or security.
Let's talk about a few leading L1s that have gained currency in the blockchain community.
► Bitcoin: Bitcoin is the first and foremost cryptocurrency that functions on an L1 blockchain. This blockchain deploys the PoW mechanism. It allows for secure peer-to-peer (P2P) transactions outside the purview of any central authority such as a central bank.
► Ethereum: Ethereum is the second largest cryptocurrency that functions on an L1 blockchain. It earlier deployed the PoW mechanism before switching to the PoS mechanism post the 2022 Merge upgrade. It has become a favourite of the blockchain developers' community due to its support for smart contracts and dApps.
► Cardano: Cardano is a prominent L1 blockchain that runs on the PoS mechanism. It supports a large number of dApps on its network, making it a popular choice for decentralised projects.
► Solana: Solana is another popular L1 bthat seeks to address the challenge of scalability, common to L1s. Solana employs the Proof of History (PoH) mechanism which has helped it execute transactions at the rate of up to 3,000 transactions per second (TPS). Did you know Solana can theoretically execute 65,000 TPS?
► Polkadot: Polkadot is an L1 blockchain and its chief feature is interoperability between different blockchains. Its interoperable nature facilitates the seamless transfer of data and digital assets across blockchains.
We list down the chief differences between L1 and L2:
⚪ An L1 is the foundation of a decentralised blockchain network.
⚫ An L2 is another blockchain that is built on top of L1.
⚪ L1 maintains the distributed ledger, handles transaction processing and network security.
⚫ On the other hand, L2 uses the L1 blockchain for network and security infrastructure to offer decentralised solutions.
⚪ Examples of L1 blockchains include Bitcoin, Ethereum, and Cardano.
⚫ Examples of L2 blockchains include Polygon and Base.
L1 has several crucial advantages to running a blockchain network:
Decentralisation is the primary benefit of an L1 blockchain. No centralised authority or third-party intermediary can make changes to the blockchain. Each participant on the network has a say in whatever happens on the blockchain.
A transaction cannot be reversed once it has been executed. Data on the blockchain is an irreversible record of transactions which cannot be changed, deleted or destroyed, given the nature of the consensus mechanism.
The cryptographic encryption of the blockchain makes L1 secure and resilient against cyber-attacks.
There are some disadvantages of L1:
L1 gets congested during peak hours as all the transactions get executed on this layer, leading to slower transactions and higher costs.
Mining on L1 blockchains can be a very energy intensive process that requires extensive application-specific integrated circuit (ASIC) machines. Due to this constraint, those with low computing power cannot participate in mining operations on L1s.
Development activity on L1 is difficult as everything such as security and consensus mechanism needs to be built from the scratch.
The only way a blockchain network can become successful is by enhancing its scalability. The primary steps an L1 protocol can take for better scalability are:
► It can increase its block size so that each block can contain a larger number of transactions. This way, transactions per second (TPS) of a blockchain network gets increased, making it lucrative for dApps.
► It can transition from one consensus mechanism to another as per its requirements. The Ethereum L1 quite famously made the transition from PoW to PoS during the Merge fork in 2022. The change of consensus mechanism made the Ethereum network faster and resourceful.
► An L1 can execute sharding, a process that divides the data into different components called shards. It clears out the space on the network, increasing the TPS.
It is recommended for BitDelta traders to stay informed about L1 blockchains as several leading cryptocurrencies are blockchain projects built on L1 protocols. L1, being the foundation of the blockchain infrastructure, is meant to support decentralised, secure and scalable solutions. The most popular cryptocurrencies built on L1s are Bitcoin, Ethereum and Polkadot.
You can now imagine how important an L1 is in the realm of blockchain technology. Keeping yourself informed about it can help you make well-informed trading decisions. Visit the BitDelta Blog to get the latest updates taking place in the blockchain and Web3 world.
A layer-1 or L1 blockchain is the foundational protocol of a blockchain network that upon which other layers of a blockchain can be added. It is L1 that maintains the ledger, validates transactions and makes the network secure against vulnerabilities.
Bitcoin, Ethereum, Cardano, Solana and Polkadot are the most popular L1 blockchains.
While L1 is the foundation of a blockchain network, L2 is the ground floor built on top of L1. While L1 takes care of the ledger, consensus mechanism and security, L2 facilitates the smooth running of dApps.
Yes, Solana is an L1 blockchain.
No, Dogecoin is an L2 blockchain built on top of Polygon.
Yes, Ripple is an L1 blockchain.
With an average rate of 3,000 TPS, Solana is the fastest L1 blockchain.
The advantages of L1 are:
• Decentralisation
• Irreversibility
• Security
The limitations of L1 are:
• Scalability
• Energy intensive process
• Development difficulty
L1 can be improved by taking the following steps:
• Increasing the block size
• Switching to an alternative consensus mechanism
• Sharding
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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