Martin Slaney
“If crypto succeeds, it's not because it empowers better people. It's because it empowers better institutions."
Vitalik Buterin, Founder, Ethereum
Please note: this report contains information regarding cryptocurrency-related platforms. In now way is this meant to constitute investment advice.
A Layer 1 is the base infrastructure of a blockchain network. Different layer-1 protocols have distinct functionalities such as processing and finalising transactions on their own chains. As the main network within their ecosystem, they define the rules. Choosing your protocol is one of the first main tasks of a web3 project; it is (for now) a laborious and potentially risky process to set up a new wallet and send (or bridge) funds to a new chain.
Address a mistrust of centralised organisations
Prevent identity theft
Make transactions secure
Record a public, permanent ledger of activity
Blockchain technology is solving the biggest problems which were not possible by any other technology before, and the Layer-1s are at the very foundation of this.
You can look at a blockchain as a "digital ledger" that records information about transactions and who owns what, and this digital ledger is stored online in a decentralized manner. This means that the "the ledger" is stored over a network of participants.
This means that the "the ledger" is stored over a network of participants. Instead of having one copy stored in a central place, all participants have a copy of the same ledger, and it is only when they agree that the content is correct that the information there will be valid.
So - it addresses all the related Jobs To Be Done better than any other technology.
Many Layer 1 blockchains have carved out their own space in the rapidly expanding Web3 ecosystem. Some of the most popular are:
Bitcoin - biggest and most secure "Proof of Work" blockchain; token is most widely used cryptocurrency
Ethereum - very first, and biggest, smart contract platform
Solana - blockchain platform with smart contract functionality
Cosmos - blockchain ecosystem of separate chains
BNB Smart Chain (aka BSC and Binance Smart Chain) - EVM (Ethereum Virtual Machine) compatible - i.e. apps built for Ethereum are also supported; part of the Binance ecosystem
Polkadot - enables cross-blockchain transfers of any type of data or asset, not just tokens.
Avalanche - smart contract blockchain; "blazingly fast, low cost, and eco-friendly".
Near - a blockchain built to be simple, secure and scalable; code in Javascript or Rust
Algorand - smart asset blockchain, simple smart contracts
Zcash - privacy-focused blockchain
Fantom - EVM-compatible chain, smart contract layer 1
Cardano - aims to be an Ethereum competitor; focus on scalability and ease of use
SUI - a Layer 1 which maintains security in a different way, and has a new consensus model. Sui doesn’t waste block space for simple transactions. Instead, it validates individual transactions. So, transactions are not batched together in a block. This saves space, and time, and leaves fewer security risks on the chain.
SUI is also super dev-friendly, which is no doubt a big reason behind its growth:
It promises to help developers build:
On-chain DeFi and traditional finance (TradFi) primitives.
Reward and loyalty programs.
Complex games and business logic.
Decentralized social media networks.
Asset tokenization services.
More valuable and upgradable NFTs.
SUI is the brainchild of Mysten Labs. They closed a $300 million Series B funding round in September 2022, valuing them at more than $2 billion.
Developer Experience (DX) is becoming an increasingly important factor in blockchain choice.
Kaleido’s Marketplace: within a few clicks you can add a token swap service, store data on IPFS, or pin a state proof to a public network.
Niche-specific blockchains are emerging:
Some of the newer blockchains are working on different consensus algorithms. Besides proof of stake and proof of work, there's proof of spacetime, proof of location, proof of history and more.
Interchain operability is becoming increasingly important. Most dApps only work on a single blockchain, leading to a need for interoperability between different chains. Interoperability solutions like bridges and protocols like Cosmos and Thorchain enable dApps (the apps built on a decentralized network that combines a smart contract and a frontend UI) to interact with multiple blockchain networks.
some companies have attempted to solve this issue through the use of bridges (which “bridge” tokens from one chain to another). Sadly, bridges are highly vulnerable to security exploits, with hackers stealing more than $1 billion from them in 2021 alone.
On the flip side, protocols like Cosmos and Thorchain - and the dApps built on top of them - are engineered from the ground up to interact with multiple chains.
Layer 1 blockchains aren’t big on scalability. Why? The ‘Blockchain Trilemma’ is the theory that says a blockchain can only provide two out of the following three benefits – security, decentralisation, and scalability – but not all three. Layer-1 focuses on solving this problem at the blockchain or infrastructure level.
Blockchains need to access the system’s entire database to verify a transaction and add a new block. The process is computationally intensive, limiting processing speeds to just a few transactions per second.
The cost of storing smart contract data on-chain can be exorbitantly high, so most dApps (decentralised Apps) typically rely on centralised servers and cloud providers such as AWS, Google Cloud, Microsoft Azure, and Alibaba Cloud.
A Beginner’s Guide To Understanding The Layers Of Blockchain Technology - from Blockchain Council
A framework for evaluating Layer 1s - from Bankless
Modular vs Monolithic: a beginner's guide from Celestia
Blockchain Developer Count - a reasonable guide to developer sentiment
The Blockchain Trilemma - a detailed explanation from Alchemy