- Nodes: Blockchain computer network or validators.
Blockchain technology is a growing innovation and many factors uphold the transparency and authenticity of the blockchain.
Scalability is a major factor in the blockchains of today and it is of great concern to everyone in the blockchain space.
As a beginner or not, you might have heard of the terms “layer-1” and “layer-2.”
These terms help to define a blockchain, its offerings, and its limitations.
Whether you are familiar with them or not, this article will help you understand them and how they operate.
But before jumping to it, let’s understand what blockchain scalability entails.
What is Blockchain Scalability?
One of the problems with data usage protocols is how they handle loads. These loads might come from an increase in users, an increase in users’ data, etc.
The blockchain is not exempted from loading.
As users tumble into a blockchain network, many transactions are executed resulting in an increase in transaction load.
As a result of loading, many scalable blockchains can survive by increasing their nodes while some fail to carry loading resulting to delay in transaction approvals.
Scalability is the ability of a blockchain to withstand an increase in loads and nodes.
Blockchain scalability is the ability of a blockchain network to allow increased transaction loads, as well as an increase in the number of nodes in the network.
This means that the network could withstand an increased number of transaction loading.
Scalability happens to be a key factor in blockchain standards. This is because the daily increasing number of users and the adoption of blockchain technology can affect blockchain performance completely.
Therefore, any blockchain that lacks scalability can suffer degradation in the future.
An easy illustration for Scalability, nodes, and loading
To understand the above items accurately, let’s see this short illustration.
Let’s assume you know a supermarket that has only one clerk(one who attends to customers) and you went to the shop the day when few customers were around.
In the blockchain space, the clerk is seen as the node, the customers are seen as the loads, and the ease of transactions in the store determines the scalability of the shop.
In reality, when there are fewer customers(fewer loads), the clerk will be able to process transactions faster for that day. But when there are many customers(full loading), transactions will be drastically delayed for that day.
This will make customers less satisfied and protest for an increase of clerks(nodes) to help increase transaction throughput(Scalability).
Now moving over to blockchain scalability, a well-scalable blockchain will allow for an increase in nodes and withstand high loading while a poorly scalable blockchain can’t withstand an increase in loads, thus there will be delays in transaction approvals.
What is a Layer One Blockchain?
Layer one blockchains are also called the foundation or base blockchains. Why is that?
This is because it is the main network for the particular cryptocurrency(ecosystem).
These Layer-1 scaling solutions are normally referred to as on-chain networking and they need no customizations.
They are the main network on which other blockchain offerings (NFTs and Defi) can be built.
For instance, Ethereum is a Layer one crypto because it has its base blockchain(Ethereum blockchain).
For a cryptocurrency to be Layer 1, it must be able to process and complete transactions on its blockchain. Layer one blockchains also have their native tokens, which are used for transaction fees.
So, we can say that a layer one blockchain can operate on its own without third parties.
However, Layer one blockchains have some shortcomings.
Shortcomings of Layer one Blockchains
The major shortcoming of layer one blockchain is scalability.
Layer one cryptocurrencies like Bitcoin have a low transaction throughput and often lead to delays in transaction approvals, as it doesn’t support an increase in the number of nodes.
This is the reason why layer 2 blockchains emerged – to solve the scalability issues of layer 1 blockchains without compromising decentralization.
Examples of Layer 1 cryptocurrencies
The following are layer 1 cryptocurrencies – that have their blockchains.
- Bitcoin (BTC)
- Ethereum (ETH)
- Solana (SOL)
- Avalanche (AVAX)
- Cosmos (ATOM)
- Polkadot (DOT)
- Cronos (CRO)
- Cardano (ADA)
- Binance Smart Chain (BNB)
- Near Protocol (NEAR)
- Fantom (FTM)
- Algorand (ALGO)
- Harmony (ONE)
- Elrond eGold (EGLD)
- Hedera (HBAR)
- Monero (XMR)
- Ripple (XRP)
- Aptos (APT)
What is Layer 2 Scaling solution?
Unlike the Layer 1 blockchain, layer 2 scaling solutions are made on top of layer one blockchains to improve their scalability, efficiency, and functionality.
Layer 2 scaling is the network or technology that operates on top of the underlying blockchain protocol (Layer 1).
Layer 2 scaling is achieved by transferring some of the transactional load of the Layer 1 blockchain to adjust the system architecture by reducing the workload on the main chain.
By extracting most of the data processing into additional architectures, the layer 1 blockchain becomes less congested, functional, and more scalable.
After the transfer, it then handles the network processing load and simply reports back to the main chain for finalized results.
Finally, we can say that layer 2 scaling solutions handle transactions off the base blockchain to achieve better scalability.
The shortcoming of Layer 2 scaling
Since this process involves a third-party network(for transfer or extraction of transaction load), its security may be prone to risk.
Example of layer-2 Cryptocurrencies (Ethereum blockchain)
The following cryptocurrencies are used to improve the functionality of Ethereum.
- Polygon (MATIC)
- Loopring (LRC)
- Immutable X
- xDai Chain
Layer 1 vs Layer 2
To understand the difference between these two, we have to determine their roles or functions in the blockchain network.
- Layer 1 improves the blockchain architecture: They can provide advanced solutions in large-scale protocol upgrades like sharding and forking.
- Layer 2 improves the scalability of the base blockchain through different processes.
What is Blockchain Trilemma?
Blockchain trilemma is a concept that claims that a blockchain cannot be decentralized, secured, and scalable totally.
This is why we have layer 1 and layer 2 cryptocurrencies.
Bitcoin is a layer-one cryptocurrency with decentralization and security, but poor scalability.
Binance smart chain has good security and scalability, with little decentralization issues.
Therefore, the blockchain trilemma remains prevalent.
There is no ideal blockchain, as all of them have their shortcomings.
However, decentralization and security are not to be joked with, that is why the Bitcoin network remains the most valued and secured blockchain in history.