What Is Layer 1 and Layer 2 in Blockchain? What is the Difference Between Layer 1 and Layer 2?

If we playfully consider blockchain as the “it girl” of Web3, we’re curious to know — how does she do it all? The secret: layers.

Spanning two main types, layer 1 and layer 2, these interoperable networks work collectively to store, preserve and distribute data across digital decentralized databases that double as peer-to-peer, immutable public ledgers.

Here, we peel again every layer of a blockchain’s makeup for a better look at their design, purpose and utility.

What Is Layer 1 in Blockchain?

Layer 1 is the fundamental base network of a blockchain platform. It executes all on-chain transactions and due to this fact acts as a public ledger’s source of truth.

Processing a transaction, for many networks, consists of logging a user’s cryptocurrency wallet by way of uneven key pairs and its corresponding coin or token balances. The deal passes via a consensus mechanism — which can be distinct to every platform — to confirm and finalize the trade or sale. Moreover, layer 1 blockchains host their own native token, which is used to cover transaction costs, or gas fees.

Figuring out which consensus mechanism is match for a platform comes right down to a trade-off between three most important features: security, scalability and decentralization. This compromise is usually known as “the blockchain trilemma,” an idea initially recognized by Ethereum co-founder Vitalik Buterin. No matter isn’t totally coated by layer 1 protocols — typically scalability — will be compensated for within the layer 2 protocol constructed on top of it (more on that later), serving as an extension to the mainnet’s performance.

Layer 1 Blockchain Examples

The following list is composed of top layer 1 blockchain networks that energy the majority of decentralized applications, or dApps.

Bitcoin: Bitcoin’s layer 1 is the underlying structure that secures the world’s largest cryptocurrency, top ranked with a dwell market cap of $367 billion. It operates on a proof-of-work consensus mechanism, which verifies new blocks by way of an algorithm that makes use of an computationally-intensive, cryptographic puzzle. Bitcoin is extensively thought-about to be probably the most secure, decentralized platform — however processing one transaction can take 10 minutes to an hour.

Ethereum: The second largest layer 1 network in Web3 launched using smart contracts, giving it a dynamicism past simply a cryptocurrency mine and fee platform. Smart contracts are self-executing programs that confirm transactions so long as all pre-set circumstances are met. Initially, Ethereum worked off of a proof-of-work consensus mechanism, recently transitioning to a proof-of-stake verification technique in a transfer that will scale back the platform’s power consumption by about 99.95 %, in line with its website. The convergence of the mainnet and the proof-of-stake sidechain is called the Merge, which occurred on September 15.

Algorand: An alternative layer 1 blockchain possibility, Algorand operates using smart contracts. It distinguishes itself from the 2 main players, Bitcoin and Ethereum, by its use of a pure proof-of-stake consensus mechanism. This technique selects miners, or block validators, at random to immediately decentralize the verification course of.

Cardano: One of the first layer 1 blockchains to successfully implement a proof-of-stake model, Cardano is understood for its low cost gas fees, high degree of decentralization and ability to generate passive revenue of its native coin, ADA, for its users. It overwhelmingly outperforms Ethereum’s transaction velocity, validating more than 250 transactions per second to Ethereum’s 15.

What Is Layer 2 in Blockchain?

Layer 2 consists of any overlaying community constructed on top of the mainnet, the layer 1 foundation supporting a blockchain. Sometimes, layer 2 protocols are optimized for decreasing network congestion, lightening the load and rising throughput of the mainnet. They had been created to forestall overdependence or collapse of its layer 1 counterpart. As consensus mechanisms are the defining attribute to layer 1, so are scaling options to layer 2.

Whereas layer 1 chains are the first security provider inside the context of decentralization, layer 2 chains have their very own safety, however to a far lesser degree, explained software engineer Arie Trouw, who holds over a decade of expertise within the blockchain area.

“Layer 2 solutions provide sufficient security for dApp usage as a substitute for layer 1. They support some or all the dApp’s functionalities, mimicking the mainnet,” said Trouw, who can be the co-founder of XY Oracle Network, a blockchain protocol presently constructing a data marketplace-in-the-making. “This allows for bridging between the two layers.”

Layer 2 programs are often confused with sidechains, in line with Trouw, however they admittedly perform in an identical capability. Sidechains wholly depend on the security of whatever chain they're related to, whether or not or not it's at a layer 1 or layer 2 capacity, he mentioned. 

Layer 2 protocols will be considered secondary frameworks designed to optimize a blockchain’s core performance with a selected use case in mind.

“Enhancing scale at every degree is necessary,” mentioned Trouw, optimistic concerning the post-Merge landscape. “Ethereum 2.0 upgrades are an enormous acquire for blockchain overall, however the continued use and improvement of layer 2 solutions is imperative.”

Layer 2 Blockchain Examples

Beneath are some examples of layer 2 scaling solutions ancillary to Web3’s most bold tasks.

Lightning Network: Used to assist Bitcoin’s main network, this layer 2 addition helps facilitate speedy transactions throughout heavy visitors — which can take hours — on separate chains independent to the mainnet, reporting the ultimate stability on layer 1 at a calmer time. 

Polygon: An help to the Ethereum blockchain, Polygon runs a proof-of-stake blockchain concurrently alongside the bottom layer via a number of sidechains, often known as commit chains, to extend community scalability and general transaction speed. Commit chains operate adjacent to the layer 1 blockchain, bundling together batches of transactions to be confirmed en masse earlier than immutably logged into the principle chain. 

Starknet: With Ethereum as its base, Starknet is a decentralized, permissionless, and censorship-resistant, zero-knowledge rollup. Rollups are a scalability resolution that batches transactions off of the layer 1 blockchain on separate chains, to document afterward the mainnet. Its velocity and scalability is made potential by batching transactions and verifying them collectively reasonably than individually, periodically importing them to the main community’s blockchain. In distinction to Polygon’s open-source layer 2 solution, Starknet is a closed-source project.

Differences Between Layers 1 and 2 in Blockchain

Since decentralization and security are the modus operandi of layer 1 protocols, layer 2 networks can focus their sources on offering utility and optimized scalability to a blockchain. 

Witek Radomski, co-founder of Enjin, a pre-Bitcoin platform that launched a set of NFT-oriented products, provided his perception on the differentiation.

“Layer 1 blockchains include a everlasting ledger of all transactions,” Radomski mentioned. “A node in a layer 1 community will include all the historical past of the blockchain, whereas a layer 2 chain is a compressed model with only some of the transaction history. Layer 2 protocols are often optimized for decreasing load on the mainnet for widespread transactions.”

Enjin started as a group gaming platform, then pivoted to a blockchain-tech focus in 2017. In development, Radomski’s staff approached scalability by first establishing their platform’s key goal — making NFTs simple to make use of — then fitted a layer 1 protocol custom-made with only the necessary code to satisfy that goal. 

“Layer 1 blockchains include a permanent ledger of all transactions ... A node in a layer 1 community will include all the historical past of the blockchain, whereas a layer 2 chain is a compressed model with only some of the transaction history. Layer 2 protocols are often optimized for decreasing load on the mainnet for widespread transactions.”

“As a result, the protocol is super light,” he mentioned. “On prime of an optimized layer 1 protocol, we additionally conduct bulk batch operations instead of minting NFTs one-by-one. This permits us to supply at large scale with comparatively mild storage capability. Collectively, sturdy infrastructure and efficient operation programs assist scalability within the ecosystem.”

When it comes to options, layer 1 options sometimes encompass a network of nodes and block-producing miners, storage of all transaction knowledge and a consensus mechanism whereas their layer 2 counterparts can take on many shapes, however often characteristic complementary chains that implement some form of scaling resolution, as talked about.

Each blockchain requires a layer 1 mainnet. Layer 2 protocols are considered non-essential, however welcome, to function most blockchain-based systems.