There is a large number of cryptocurrencies and blockchains currently available. With these numbers, you might not know if you are using the Layer 1 or Layer 2 blockchain. Nevertheless, it is worth understanding the system you are investing in.
What Is the Difference Between Layer 1 And Layer 2 Blockchains?
Layer 1 is the main structure of the blockchain network. In other words, it is the base level of blockchain architecture. Examples of Layer 1 blockchains are Bitcoin, Avalanche, BNB Chain, Litecoin, and Ethereum.
In contrast, Layer 2 is the network built on top of other blockchains. Since Bitcoin is a Layer 1, an example of a Layer 2 is the Lightning Network that runs on top of Bitcoin. Another example of a Layer 2 is Ethereum Plasma which runs on top of the Ethereum blockchain.
Many businesses are also developing blockchain network scalability improvements which can be grouped into Layer 1 and Layer 2 scaling solutions.
Layer 1 would be the primary highway in the world of blockchain technology. It is the main network. Layer 2 solutions in contrast are the additional service roads. It is a secondary network created to improve the overall capacity of the main network.
1. Layer 1 scaling solution
In the decentralized ecosystem, a Layer 1 network is a blockchain. By supplementing the base layer of the blockchain’s protocol, Layer 1 blockchains improve scalability. The creation and implementation of several methodologies to directly improve the scalability of blockchain networks are ongoing.
Layer 1 solution works by directly changing the rules of the protocol to improve transaction speed and capacity while accommodating more data and users. To enhance complete network throughput, the Layer 1 scaling solution may include increasing the rate at which blockchains are confirmed or increasing the amount of data in each blockchain.
2. Layer 2 scaling solutions
Layer 2 improves efficiency by working on the native layer. By transferring a portion of Layer 1 blockchain’s transactional burden to the system of another architecture, Layer 2 effectively offloads transactions. Layer 2 then handles the processing load which reports to Layer 1 for finalization of the result.
Network congestion is reduced because Layer 2 handles the majority of the data processing load. This makes Layer 1 less congested and more scalable. Lightning Network is an example of a Layer 2 scaling solution because it takes the load from Bitcoin - it reports to Bitcoin still.
The outcome is an increase in the speed of the Bitcoin blockchain's processing. Additionally, the Lightning Network integrates smart contracts into the Level 1 Bitcoin blockchain.
Why is scalability important?
Blockchain technology provides many benefits, including improved recordkeeping, increased blockchain security, and hassle-free transactions. Nonetheless, scalability is still a major concern considering whether Layer 1 or Layer 2 is preferable for new blockchain networks.
To complete transactions, every blockchain network uses a decentralized system. The various steps required for each blockchain transaction often consume a significant amount of processing power and time.
Consider an instance of a blockchain network being clogged with transactions stacked on top of each other. The application in this case will not be able to fulfill the transaction requests from all users. This will result in inequity in user experience. For this reason, scalability is a vital component that is necessary for the future of blockchain networks.
In blockchain technology, the term scaling is an increase in the rate of system throughput as determined by the number of transactions performed per second. As a result of the increase in the usage of cryptocurrency and blockchain, it is now important to build blockchain layers for recordkeeping, improved network security, and other purposes.
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