Being the main structure of the blockchain, Layer 1 determines the scalability of projects. Among the well-known examples of this layer are Bitcoin, Ethereum, Solana, and BNB Chain.

Below we will find out how these Layer 1 blockchain solutions affect the scalability of higher-tier crypto projects (and how they can help you to improve your decentralized project).

How Does Scalability of Blockchain Projects Work?

So what is at the heart of scalability in blockchains?

First of all, it means their higher performance and higher transaction processing speed. Considering the huge potential and business goals of new decentralized solutions and applications, ensuring this feature is a crucial and pressing issue for all participants in this market.

Due to block size limitations and the inability to create multiple blocks at the same time, providing scalability is the key to speeding up the entire network, as it allows projects to process new digital records faster. Thanks to this, you can increase the number of new users in your project without worrying that some of them will have to wait too long to confirm the addition of a new record.

Layer 1 Blockchain: How to Explain This Concept?

So what exactly do tech experts mean under the Level 1 term? Let’s figure it out.

What is a Layer 1 Blockchain?

Layer 1 blockchain refers to a base network, providing scalability within the network. Thus, the use of solutions of this level allows the developers of the project to achieve its higher performance and increase the number of computing operations for a certain period of time.

We already mentioned the most popular representatives of this level at the very beginning of the article — these are Bitcoin and Ethereum. They are completely autonomous and can verify and complete transactions without the involvement of other networks. As for the reliability of transactions carried out within these networks, these blockchains require the confirmation of miners or validators.

If we talk about the solutions built on the basis of Bitcoin and Ethereum, usually, they need some changes in internal protocols to provide the appropriate performance and increase the number of transactions per second (TPS).

However, it’s also important to understand that the actual scalability of Layer 1 depends on some physical and economic factors. The first factor is, in particular, the need to increase the size of data blocks, the time of their generation, as well as change the consensus mechanism and some other properties. At the same time, the above Layer 1 solutions cannot endlessly cope with the ever-growing number of project users.

Ultimately, optimizing the scalability of Layer 1 networks is quite difficult and expensive in practice. This is why blockchain developers often resort to Layer 2 scaling based on security protocols and consensus in Layer 1 networks. As a result, developers get the desired scaling without burdening the entire system.

What Is a Layer 2 Blockchain?

So, what is the peculiarity of Layer 2?

Basically, this solution is able to solve the performance problem by scaling out of the main chain. This is an add-on on top of Layer 1, which doesn’t change the basic protocols and fundamental rules, but at the same time transfers some of the transactional workloads to neighboring systems.

As an example, we can take Bitcoin, the Layer 1 blockchain, and the Lightning Network, a Layer 2 payment protocol.

What is the difference between Layer 1 and Layer 2 Blockchain Solutions?

Although Layer 1 and Layer 2 blockchains share the same goal of increasing the scalability of the projects where they are used, the first option achieves this through changes to the underlying network protocol or the implementation of new consensus mechanisms, while the second option involves third-party integrations that may also include Layer 1 solutions.

Thus, Layer 2 solutions refer to the services outside the main network and may include, for example, sharing transaction orders and reducing workload. Also, they use third-party protocols for Layer 1 blockchain integration and increasing transactional throughput. Note that developers can build several network levels upon the main chain at once. These solutions are called nested blockchains which in practice are interconnected webs that reduce the processing burden and boost scalability.

Main Peculiarities of Layer One Blockchain Solutions

As we noted above, Layer 1 solutions are placed on the base level of blockchain for increasing transaction capacity and speed. Thus, while comparing crypto Layer 1 vs Layer 2, we can state that Layer one blockchain protocols process and complete transactions within the solution they refer to, without the need to engage other networks. This means that to provide scaling, developers have to change the underlying network protocol and, in particular, the size of blocks, the consensus mechanism, and sharding.

Consensus Protocol

Blockchain networks, due to their decentralization, require transaction validation for every node. At the same time, the consensus algorithm has to check the accuracy of operations and verify whether the transaction is correct and the protocol is kept. As for the main consensus algorithms, we can highlight PoW (Proof-of-Work) and PoS (Proof-of-Stake).

The first one is Bitcoin-based. To complete a transaction, network members need to solve an arbitrary mathematical problem to find the hash and publicly prove the operation to avoid system cheating. The first one who finds the right solution gets an opportunity to add a block to the chain and receive a reward (usually, in crypto).

The second one, Proof-of-Stake, was created as an alternative to the PoW algorithm to overcome its shortcomings, such as high power consumption. In particular, it reduces the amount of computational load required to validate the blocks and transactions that keep the project secured. Computing power is replaced by staking, whereby a person’s mining ability is randomized by the network.

Sharding

Sharding is a method for data distribution which is aimed to increase transaction throughput. It eliminates the need for nodes to save a complete copy of the entire blockchain. Instead of this, each node reports to the main chain by sharing the state of local data, including address balance and other key metrics. Also, transactions split into small and manageable chunks. Thus, the workload is distributed evenly across the network which helps crypto projects to consume the computing power of many nodes at once.

Benefits of Layer One Blockchain Solutions

Layer 1 solutions speed up processing time and increase TPS. Such solutions as changing block sizes over the base protocol, modifying the consensus mechanism, and sharding, can help the decentralized projects process significantly more transactions in one specific block.

The Best Layer 1 Blockchains: Our Top-3

Typically, a Layer 1 is a base for a crypto ecosystem or a smart contract platform. Each Layer 1 solution is designed and optimized for its own purposes. When it comes to the blockchain comparison, we can take into account the three key features: scalability, decentralization, and security. Let’s consider the best Layer 1 blockchain list of three platforms that have proven themselves as reliable ecosystems.

Velas

Velas (VLX), started in 2019, is probably the best Layer 1 blockchain in its niche and the fastest EVM with a hybrid consensus algorithm based on Delegated Proof-of-Stake and Proof-of-History. This solution provides high-level scalability, advanced performance, and top-notch security mechanisms. This platform was built to host the nextGen decentralized applications. It can be used for a variety of purposes, including transactions, smart contract operations, and various services. On this platform, developers can write smart contracts in C, Rust, and Solidity, as well as integrate Ethereum projects with minimal rework.

Key features:

• Capacity — 50,000+ TPS;

• Transaction finality — 1.2 seconds;

• Transaction fee > $ 0.00001.

Avalanche

This project is also called AVAX. It was created in 2020 and was introduced as the fastest smart contract platform in the blockchain industry. The main goal of this platform was to increase scalability without sacrificing speed or decentralization. The platform is based on three digital solutions: exchange chain (X-Chain), contract chain (C-Chain), and the platform chain (P-Chain). Also note that Avalanche uses scale-out subnets to create custom interoperable blockchains. The number of possible subnets is not limited. Also, it requires minimal hardware to run a node, making it more decentralized than other Layer 1 platforms.

Key features:

• Capacity — up to 4500+ TPS;

• EVM compatible;

• A large number of validators (more than 1300).

Polkadot

Polkadot (DOT), launched in 2017, was presented as a scalable and interoperable ecosystem with multi-chain architecture. It allows new blockchain projects to interact and integrate securely while allowing them to have completely arbitrary state transition functions. Polkadot unites multiple blockchains into a unified network and consists of three different components: relay chain, parachains, and bridges. Multiple decentralized projects were built on top of the Polkadot to exchange data and information securely and fast.

Key features:

• The system can process more than 1,000 TPS;

• Each parachain is a full-fledged blockchain;

• 900 million tokens (DOT).

Bottom Line

The main benefit of Layer 1 solutions is that they eliminate the need to add third-party integrations to the existing architecture and require only some changes in the base protocols. As for Layer 2 ones, they don’t affect the underlying protocols but imply the use of additional solutions. At the same time, these solutions allow developers to reduce the cost of transaction fees and the time needed for verification. Thus, both layers work together successfully to increase the performance of the blockchain network.

• What are the key aspects of layer 1 and 2 blockchain projects we should analyze before deciding whether or not to invest in them?

• And what are the L1 and L2 blockchain projects in the first place?

• Today we are going to be going through a checklist together to helps us determine which/what L1 and L2 blockchain projects are about so we better understand their use-cases.

First thing first:

• First let’s bring it all back, and discuss what blockchain in crypto?

• We can split the word into block and chain.

• Block=is a list of records, where chain=is the linked relationship between these list of record.

• So imagine there is a list of records linked to another list of records, that’s the turn blockchain describes=linked sets of records.

Que the guys

Layer 1

• is a term to describe projects that have build their very own blockchain-based foundation and ecosystem that allows developers to build software applications on top of the layers.

• so L1 describe the base layer of blockchain network.

• Imagine a L1 as the Apple app store, where developers can use Apple’s framework in order to build and launch apps that people can use.

• qusestion: What is the most well-known l1 blockchain project that most projects have been built on is (ETHEREUM).

• What is the most well-known l1 blockchain project that most projects have been built on is (ETHEREUM).

  • Decentralized exchanges like Uniswap were built on top of Ethereum’s L1 base eth

  • AXIE is game that built on eth

  • Opensea as the NFT marketplace that built on eth

  • AAVE the DEFI project for people to borrow lend is built on eth

In conclusion: So you can see how L1 just describes projects with their own unique blockchain-based foundation that allows others to build all kind of

• products

• services

• software applications on.

Questions: Examples of other L1 blockchains are? Solana, Cardano, Avalance, Algorand, Elrond, Tron, Sui, Aptos, and mani mani mo.

(Que difi llama, if time is available)

(Let’s go on and rise up to Layer 2)

Layer 2

• Layer 2s are third-party integrations used in conjunction with layer ones to increase scalability and transactions per second (system throughput/ TPS)

• When you hear zero-knowledge rollups (zk rollups), side chains, or anything to do with speeding up transaction throughput, it’s likely layer 2.

• Furthermore, they are designed to decrease transaction costs like gas fees, and help the L1 blockchain ecosystem scale.

• So instead of developers choosing to build applications directly on L1=the base foundation. They could directly choose the build on L2 solutions to decrease their transaction costs, increase their transaction speed and overall develop an faster, more efficient application for less cost.

Examples are: 

Ecosystems (research based on Tascha Che)

• Now that we know what the terms layers mean in the crypto world, let’s explore the best way we can evaluate them as potential investment opportunities.

• Similar to stocks, where each crypto represents a company, however, unlike stocks, cryptocurrencies can have vast and varied types of use-cases.

• What conditions do L1 and 2 blockchain networks need to be met in order to foster secure maintain and grow an ecosystem successfully?

Eg:

• ETH and ADA can be used to process transactions and pay for network space on their corresponding L1 platform, like Ethereum and Cardano. （check）

• The same goes on to L2 platforms like $Matic Token for Polygon network. Other use-cases of different cryptocurrencies include stores of value like $Bitcoin, stablecoins like $USDC whose value is pegged one-to one to the US dollar, voting rights or governance a project like UNI tokens for the Uniswap defi exchange, and eventually there will be crypto currencies that represent ownership of physical assets like property, or that repersent identification like passports.

• So when evaluating L1 and L2 cryptocurrency projects, instead of thinking of them as companies, we need to think of them as ecosystems similar to different countries’ economies.

eg: We need to consider Ethereum vs. Cardano vs. Solana each as their own seperate blockchain based countries and nations. (like US, CHINA, GERMANY, JAPAN) And in the end of the day, what matters are who is:

THE MOST EFFICIENT THE MOST GREEN THE MOST HIGH-END TECH THE MOST DECENTRALIZED THE BEST ALL-AROUND THE MOST LOGICAL AND TECHNOLOGICAL

The value of each platform will be based on simple variables

• the size and productivity or output of the software applications built on it

• The security system

• and the amount of users, growth of new users, and stickiness of users within the ecosystem.

conclusion: The L1 and L2 projects that become winners in this space will be the ones that cultivate the greatest amount of innovation that secures and maintains traction on their platforms.

key to a thriving economic ecosystem key to a thriving economic ecosystem key to a thriving economic ecosystem

4 variables. Efficiency and value creation （human capital, financial capital, infrastructure） Direct competition on chain Supporting Synergetic Industries Strong user demand

• Economic growth is all about converting production inputs like money, raw materials, labor, expertise into valuable goods and services.

• We can even think about our analogy of assessing L1 and L2 projects like countries.

• Imagine a country that makes it very easy for people to access capital through taking out loans

• Imagine this country makes it very easy for people to go to college and become doctors, architects, and engineers.

• Imagine a country that has a lot of natural resources like trees, oil, and land that can be converted to building materials, fuel, or farm for food.

• So the country in this example, has an efficient way for people to convert money, raw materials, labor, and expertise into valuable goods and services. Like starting business with low interest loans, there’s raw materials for building infrastructure, access to education for people that become engineers that design technology or doctors that provide healthcare and etc.

So how they apply?

Efficiency and value creation （human capital, financial capital, infrastructure）

• We need to consider how much effort the Ethereum community vs. The Solana community vs. Avalanche community is making to onboard and retain talent in order to create a strong, resilient, and innovative armada of developers to faster growth.

• Another question to analyze is how easy it is for current software developers that code C++, java, move to convert to blockchain developers. In fat Solana’s language rust was based on the C++ and java, so software developers that have coded in those languages can easily learn rust in about a month. And with Avalanche, there are multiple languages developers can code in.

• Another important aspect is how much financial capital the L1 or 2 project can secure to support the network and increase productivity and value creation.

• Securing funds from retail investors from token sales is great, but it’s not nearly enough capital to grow the 1000s of decentralized applications to gain economy.

• So acceptance of venture capital and other funding sources will be crucial for whichever L1 and 2 survive and ultimately succeed long term.

Conclusion:

So if we are analyzing potential L1 and 2 investments, if they aren’t backed by a legion of reputable venture capital, then is not an ideal long term bet. Because building an entire country from scratch, which is what these L1’s in particular are doing, takes a massive, massive, massive amount of money, support, and continued funding and support to get to a healthy, sustainable size and ideally keep growing into the future.

Infrastructure

• Countries that has better infrastructure like roads, power grids, and telecommunication networks have more efficient value=creation

• In blockchain, infrastructure consists of the actual underlying blockchain technology, as well as everything built on top of it to support the network like developers tools, connections to wallets, browser extensions, all play rules.

• So looking at things like where the L1 or 2 is currently at from a developmental standpoint and where it plans to go in the future based on their roadmaps is another key aspect to consider before investing.

Direct competition on chain Direct competition on chain Direct competition on chain

direct competition on chain refers to multiple apps with the same exact use-case competing with other apps on the same blockchain. This is important because competition fosters innovation.

UniSwap on Ethereum PancakeSwap on Binance Quickswap on Polygon

Uniswap is the most popular decentralized exchange on Ethereum, and sure it competes with other decentralized exchanges on other layer' 1’s like PancakeSwap on Binance smartchain. Or there’s QuickSwap the defi exchange built on layer2 Polygon blockchain.

So you will look for e platforms that have multiple Uniswap’s of sorts providing decentralized exchanges services on Ethereum, or multiple NFT marketplaces on the same platform, etc. Because in the end that competition will absolutely cultivate incredible innovation, fairly quickly. And on-chain direct competition, will ultimately make the blockchain platform more globally cross-chain competitive.

Supporting Synergetic Industries Supporting Synergetic Industries Supporting Synergetic Industries

Is a fancy term for: different types of applications built on the blockchain that compliment and support each other, hence the term supporting synergetic industries. eg: within a blockchain ecosystem, an industry could be defi, a platform where users could swap tokens, and borrowing and lending crypto, there are stable coins that provide liquidity, there are derivative protocols that vive investors price exposure to things. Like a defi community, strong vibrant NFT support system, or a diverse game-fi in the making.

Strong user demand Strong user demand Strong user demand

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