What is a Layer 1 Blockchain?

Today, various blockchain protocols exist. However, not all blockchain protocols can exist independently. Some blockchain protocols need a base layer, while others do not. Those that can exist independently are layer 1 blockchains.

Layer 1 blockchains are blockchain networks that can handle all aspects of blockchain operability, such as consensus, security, and transaction processing.

Layer 1 blockchains can be likened to the foundation of a building. It provides the infrastructure or architecture upon which all other applications and protocols on the blockchain are built. In addition to serving as a foundation or building base, layer 1 blockchains define and set the rules governing how a blockchain network functions.

These rules guide how transactions are validated on the blockchain and also help maintain the distributed ledger of the blockchain. Layer 1 blockchains also have their native tokens, which are used to facilitate blockchain transactions and incentivize miners. Bitcoin, Ethereum, Cardano, and Polkadot are popular layer 1 blockchains with BTC, ETH, ADA, and DOT as their respective tokens.

History and Development of Layer 1 Blockchains

Bitcoin was first introduced on October 31, 2008, when the pseudonymous personality Satoshi Nakamoto released Bitcoin’s nine-page whitepaper titled “Bitcoin: A peer-to-peer electronic cash system.” The white paper outlined the concepts and technical details of Bitcoin.

While the concept of blockchain technology wasn’t entirely new, Bitcoin’s white paper shed more light on the technology upon which Bitcoin is built, highlighting its role in the decentralization of Bitcoin. Although Bitcoin was initially understood only by tech enthusiasts, the immutable, transparent, and secure manner of Bitcoin transactions has made it gain popularity among tech novices. All thanks to the underlying blockchain upon which it was built.

The creation and release of Bitcoin paved the way for the exploration of blockchain technology. In 2011, Charles “Charlie” Lee, a former Google engineer and MIT graduate, released the first alternative cryptocurrency (altcoin) known as Litecoin. While litecoin had features similar to Bitcoin, it had a higher transaction speed than Bitcoin. Unlike Bitcoin, which took about 10 minutes to confirm transactions, litecoin had a transaction confirmation time of 2.5 minutes.

Like Bitcoin, Litecoin uses the proof-of-work consensus mechanism where miners must work to solve a complex mathematical puzzle. Miners who could solve the mathematical puzzle were given 6.25 Litecoins as an incentive or reward for their effort. Before the creation of Litecoin, only users with specialized mining devices could participate in Bitcoin mining. However, when Litecoin was created, it used the Scrypt mining algorithm.

The advantage of the Scrypt mining algorithm was that it provided better security. It also allowed users with less specialized (non-ASIC) hardware devices to participate in its mining process. Just like with every cryptocurrency, Litecoin has witnessed significant improvements. A notable improvement can be seen in 2017 when Segregated Witness (SegWit) was implemented on the Litecoin blockchain. This implementation led to an increase in the scalability of the Litecoin blockchain.

As the blockchain industry grew, blockchain developers started creating blockchains and cryptocurrencies that would serve different use cases while seeking to improve Bitcoin’s shortcomings. In 2012, Jed McCaleb, Arthur Britto, and Chris Larsen came together to form a company named OpenCoin, later renamed Ripple Labs. Jed McCaleb and his companions created Ripple, a payment protocol with its native cryptocurrency, XRP.

XRP was primarily created to facilitate quick and cheap cross-border payments. It had a different blockchain, known as the XRP ledger. Unlike Bitcoin, which uses the proof-of-work consensus algorithm, the XRP ledger uses the Ripple Protocol Consensus Algorithm (RPCA), where nodes known as unique node lists validate and confirm transactions done on the XRP ledger. Litecoin and Ripple continued to have the second and third-largest market capitalization after Bitcoin, but this was about to change.

In 2013, Vitalik Buterin, a computer programmer, released a white paper titled “Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform.” The white paper introduced Ethereum to the world. Ethereum had a much broader use case than Bitcoin. Other than being used to facilitate cryptocurrency transactions, Ethereum is a platform that allows users to build decentralized applications.

After Vitalik Buterin published the Ethereum white paper, several other computer scientists joined in the development of the Ethereum project, including Gavin Wood, Charles Hoskinson, Amir Chetrit, Anthony Di Iorio, Jeffrey Wilcke, Joseph Lubin, among others. The founders embarked on an Initial Coin Offering (ICO) to fund the Ethereum project in 2014. Between July 22 and September 2, 2014, a whopping $18 million was raised via this ICO. Those who invested in Ethereum’s ICO traded their Bitcoin (BTC) with Ethereum’s native token, Ether (ETH), with hopes that the value of Ether would someday soar high.

Although Ether was purchasable, the project did not go live until July 30, 2015, when the first version of Ethereum, Frontier, was released. This launch finally enabled users and developers to use the Ethereum blockchain to perform various tasks ranging from carrying out cryptocurrency transactions to creating smart contracts. After the first version of Ethereum, Frontier, was released, Ethereum underwent several upgrades.

A notable upgrade can be seen on September 15, 2022, when the Ethereum network adopted the proof-of-stake consensus mechanism. This switch was due to the secure, scalable, and energy efficiency of the proof-of-stake consensus mechanism, which is not as energy-intensive and demanding as the proof-of-work consensus mechanism it originally used.

The birth of the Bitcoin and Ethereum blockchains set the stage for developing several other layer 1 blockchains that offered much-improved functionalities. For example, GateChain, developed by the Gate.io crypto exchange, enables users to overcome asset theft and loss of private keys. The Solana blockchain developed by Anatoly Yakovenko in 2020 provides improved scalability and transaction speed of about 65,000 TPS, and several other layer 1 blockchains have been developed.

Understanding the Blockchain Trilemma

The blockchain trilemma is a concept that was first introduced by Vitalik Buterin, one of Ethereum’s co-founders, in March 2017. The blockchain trilemma is that it is challenging and somewhat difficult for blockchain to achieve decentralization, security, and scalability together. It suggests blockchain networks can only achieve two of these three properties or features while sacrificing a third property.

Decentralization

Decentralization is a core feature of every public blockchain. It is a feature that allows users of a public blockchain to carry out peer-to-peer transactions without needing an intermediary or central authority. Decentralization is important because it gives users complete control over their crypto assets. A blockchain network will become more decentralized as the number of participants increases. This is because the controlling power of the blockchain is spread across all participants in a blockchain network.

Security

Security is the second important feature of a public blockchain. All public blockchains must be secure, which means they must withstand manipulation and attack from bad actors. To be secure, blockchains make use of cryptography and consensus algorithms. Cryptography helps protect user privacy and ensures data consistency.

The proof-of-work consensus algorithm prevents blockchain networks from being manipulated or tampered with by bad actors. Bad actors who want to manipulate a blockchain network using this consensus algorithm would have to gain control of over 51% of the nodes in the network, which is very difficult.

For the proof-of-stake consensus algorithm, validators or those who would take part in confirming transactions on the Ethereum blockchain would have to stake 32 ETH. Since each validator has something at stake, they must act honestly or risk losing their funds.

Scalability

Scalability refers to the ability of blockchain networks to process high volumes of transactions without experiencing any decrease in performance. The scalability of blockchain networks is important if blockchain technology is to compete with traditional financial systems. Although scalability used to be a big problem for layer 1 blockchains, research and improvements are constantly being made to bring layer 1 blockchains to scale.

Solving the Scalability Problem of Layer 1 Blockchains

Different scaling solutions have been devised to make layer 1 blockchains more scalable and improve their throughput or processing speeds. These include block size increase, changing the consensus mechanism, sharding, and utilizing SegWit.

Increasing the Block Size

A scalable blockchain is one whose block can contain and process a high number or volume of blockchain transactions. Two famous ways to scale by increasing the block size are;

1. Updating the blockchain’s code
2. Segregated Witness (SegWit)

Updating the Blockchain’s Code

Updating a blockchain code to increase the size of a block is a great way to scale and increase the throughput or transaction processing speed of blockchains. This was exactly what led to the creation of Bitcoin Cash (BCH) on the 1st of August 2017.

Due to the limited scalability of the Bitcoin blockchain, some members of the Bitcoin community thought it was necessary to increase the size of Bitcoin’s block from 1 MB to 8 MB. Although not all in the Bitcoin community agreed to this, proponents of this idea continued.

This led to the creation of Bitcoin Cash, a fork of Bitcoin. Bitcoin Cash can process more transactions than Bitcoin, namely, 100 transactions per second, instead of Bitcoin’s seven transactions per second. While Bitcoin Cash may be more scalable than Bitcoin, other issues surrounding it not being well-decentralized have come up.

Segregated Witness (SegWit)

Segregated witness aids scalability by reducing the amount of transaction information in a block. It does this by removing the digital signature and other witness data from the main block and putting them in the SegWit block. With some load off the main block, the main block will be able to contain and process more transactions. SegWit has been implemented on the Bitcoin blockchain to enable faster transactions.

A blockchain transaction is usually made up of 3 main parts:

• Input: The input refers to the source of a transaction. It is the person initiating a blockchain transaction.
• Output: The output refers to the recipient of a transaction. The output usually contains the recipient’s wallet address and the amount of cryptocurrency being sent.
• Digital signature: A digital signature is proof that shows that the cryptocurrency being spent is tied to the sender. The digital signature verifies the sender’s authenticity.

Changing the Consensus Mechanism

The consensus mechanism refers to the way network participants in a blockchain network come to an agreement. Changing the consensus mechanism is a great way to improve the scalability of blockchains. That is one of the reasons why Ethereum changed from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism.

Although the proof-of-work consensus mechanism provides more security to a blockchain network, it limits scalability. Changing the consensus mechanism is a great way to bring a blockchain network to scale. However, developing a new consensus mechanism often takes years of research and accurate planning.

Layer 1 Sharding

Sharding is a form of database partitioning where a blockchain database is broken down into smaller parts to process transactions simultaneously. What this means is that in sharding, a blockchain network is split into subsets known as shards. Each shard is made up of a collection of nodes or computers. After the split, each shard is assigned different transactions to verify.

So, let’s say a blockchain network comprises 1,000 nodes or computers. The nodes can be split into 10 shards, each with about 100 nodes. Assuming 10 transactions need to be verified. Each shard, comprised of 100 nodes, will verify one transaction until all 10 transactions are verified. This way, transactions are verified simultaneously and fast.

Examples of Layer 1 Blockchains

Bitcoin and Ethereum are the most famous examples of layer 1 blockchains. Bitcoin utilizes the proof-of-work consensus mechanism, while Ethereum currently utilizes the proof-of-stake consensus mechanism. Other examples of layer-one blockchains are Solana, Avalanche, Flow, Cardano, and Cosmos.

Solana

Solana is an open-source blockchain platform created by Anatoly Yakovenko, a former staff of Qualcomm, in 2017. Anatoly created Solana to address the scalability issue that plagued existing blockchain protocols at that time. Solana uses the combination of a proof-of-stake and a proof-of-history consensus algorithm. For every transaction that takes place in the Solana blockchain, the proof-of-history creates a timestamp, which subsequently improves Solana’s scalability.

Source:Solana.com

The increased scalability of the Solana blockchain makes it possible for it to process thousands of transactions per second. Solana’s native token, SOL, was launched in March 2020. The SOL token is used as a means of exchange on the Solana blockchain and has grown to be among the top 10 cryptocurrencies, with a market capitalization of more than $47 billion.

Avalanche

Avalanche is a layer 1 blockchain launched by Emin Gun Sirer, the CEO of Avalabs, in 2020. The avalanche blockchain uses the Snow consensus algorithm and also has its native cryptocurrency token known as AVAX, which is used to facilitate transactions on the avalanche blockchain network.

Source. avax.network

Ever since its release in 2020, Avalanche has grown to have a market capitalization of about $14 billion, with its coin, AVAX, ranking among the top 10 cryptocurrencies. The avalanche blockchain aims to improve the scalability and transaction processing speed of blockchain and other blockchain protocols.

Flow

The flow blockchain was created by Dapper Labs, the creator of the cryptokitties blockchain game, in 2009. The flow blockchain was created to offer scalable solutions for blockchain games, NFTs, and other applications on the blockchain network.

Source: Flow.com

The flow blockchain uses the proof-of-stake consensus algorithm and has its own native cryptocurrency token known as FLOW, which facilitates transactions on the flow blockchain. Flow has grown to have a market capitalization of $1.05 billion.

Cardano

Cardano is an open-source layer 1 blockchain that was created by Charles Hoskinson, one of Ethereum’s co-founders. Although it was created in 2015, it was not until 2017 that it was launched. Cardano was created to address the shortcomings of existing blockchain protocols, bordering on scalability and interoperability issues.

Source: Cardanofeed.com

Cardano allowed developers and users to build decentralized apps (DApps) and supported smart contracts. The Cardano blockchain has its native token known as ADA. With a market capitalization of about $19 billion, Cardano has gained much popularity in the blockchain industry, with its native token, ADA, ranking among the top 10 cryptocurrencies.

Cosmos

The Cosmos blockchain which was created in 2014 and launched in 2019. Cosmos is a layer-0 blockchain, meaning layer-1 blockchains can exist on it. As a layer-0 blockchain, Cosmos has an infrastructure that layer-1 blockchains can use to create their ecosystems. Currently, there are over 260 blockchains that exist in the Cosmos ecosystem, which is why people call it “an internet of blockchains.”

Source: cosmos.network

The volume of digital assets transacted on Cosmos protocol now surpasses $150 billion. Nothing is surprising about this development, considering that the relevant blockchain hosts many dApps, games, marketplaces, and projects. Cosmos enhances quick transaction finality, scalability, security, and interoperability among blockchains.

Layer 1 vs Layer 2 Blockchains

In addition to layer 1 blockchains which serve as the building block of a cryptocurrency network, there are also layer 2 blockchains. A layer 2 blockchain is built on a layer 1 blockchain. Although layer 2 blockchains depend on the security and decentralization of layer 1 blockchains, they are far more scalable than layer 1 blockchains. Hence layer 2 blockchains have a higher throughput or transaction speed than layer 1 blockchains.

Just like layer 1 blockchains, layer 2 blockchains have their own scaling solutions which enable them to transact higher volumes of transactions on their blockchain network. Some of these scaling solutions include; rollups, side chains, and state channels.

Rollups

Rollup is the process by which different transactions are rolled up into a single transaction. Instead of individually processing transactions on the blockchain network, a number of different transactions are taken off the blockchain and are processed as a single transaction off-chain, after which they are brought back and recorded on the main blockchain. Rollup is an effective scaling solution as it increases the number of transactions that can be processed per second.

Side Chains

Side chains are blockchain networks that process transactions independently. They have their own consensus mechanism and their own set of validators that enable them to process transactions independently of the main chain. With side chains, layer 2 blockchains are able to process more transactions at a given time.

State Channels

State channels are closely similar to side chains, their transactions are recorded off-chain. However, these transactions are usually recorded in bulk. When the bulk of the transactions are completely processed, this “complete” state is broadcasted to the main chain, after which the bulk transactions are recorded on the main chain. This way, layer 2 blockchains can process more transactions on their main chain or blockchain network.

Summary of Layer 1 and Layer 2 Blockchains Scaling Solutions

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Conclusion

We have seen that layer 1 blockchains are the base or foundation of all blockchain networks. They define the rules that govern the functioning of a blockchain. While they may have a high level of security and decentralization, scalability is often one of their biggest challenges.

However, as research is constantly ongoing to improve the scalability of layer 1 blockchains, we can expect remarkable improvements and blockchains that would be able to process high-volume cryptocurrency transactions.

The article is original and has been checked for accuracy. If the article is accepted, the article is copyrighted by Gate.io.