Layer 1 vs Layer 2 blockchains - what's the difference and why is it important?
If you spend any time researching Web3, it won’t be long until you see something that looks like ”Polygon is an L2 scaling solution…”.
But what is an L1 blockchain, and how does an L2 blockchain differ or help it?
It’s something many people don’t understand, so here’s a quick explanation of the key differences.
What is a Layer 1 blockchain?
Layer 1 blockchains (often referred to as L1 chains) are the foundational level of many blockchains. They’re the core, base level.
Examples of L1 chains include…
- BNB chain
- Ethereum
- Bitcoin
The key thing with Layer 1 blockchains is that they settle every single transaction within the base level.
That core level uses a decentralised distributed consensus model.
Basically, any transaction has to be verified by multiple nodes before it can be confirmed on the blockchain.
The basic flow is…
- You request a transaction
- A block is created to represent the transaction
- Multiple nodes validate and verify that transaction
- If it passes, the validators are paid and your block is added to the blockchain making it permanent.
This system is excellent for securing data as every new block has to reference the prior block on the blockchain.
However, having to get multiple nodes to validate each transaction is time-consuming, and very costly.
The result is a very slow process.
What is a layer 2 blockchain?
A layer 2 blockchain sits on top of the base level of a layer 1 blockchain.
The primary goal of a layer 2 blockchain is to help with the scalability and speed issues of Layer 1 chains.
A couple of popular L2 chains include…
- Polygon
- Lightning network
- Ethereum Plasma
There are multiple kinds of L2 solutions (which we’ll explain shortly). However, they all have one primary goal. To increase the speed and scalability of L1 chains.
In short, L2 chains handle a lot of transactions off the L1 chain. They then bundle that information into a single “report” which is given to the L1 chain for verification.
This maintains the security of the L1 chain for transactions, but also reduces the number of transactions the L1 chain needs to verify. Which increases throughput.
The other benefit of using an L2 solution is that you don’t need to make any changes to the base chain, something that’s both costly and complex.
Problems with layer 1 blockchain scalability
Really the problem of relying on layer 1 blockchains is scalability.
Because each transaction has to be individually verified and validated by multiple nodes, the throughput is extremely slow.
Throughput is the amount of data that can be processed, which in this case is transactions per second.
In fact, L1s are so slow that the transactions per second are, sadly, quite laughable.
While Visa averages around 1,700 transactions per second, Bitcoin can does around 7.
Blockchain - for crypto or anything else - will struggle to achieve mainstream adoption if it can’t up those numbers.
These low transaction numbers result in slow processing times which make using this for something like mass banking unviable.
But that’s not all.
If there’s a high load on the blockchain in question, transactions will further slow and the gas fees to process your transactions will increase.
And often, sadly, if the load hits a critical mass it can bring down the blockchain and halt all transactions.
We’ve seen this several times, specifically with Solana.
In January of 2022, around 20 hours of “downtime” due to overloads causing the blockchain to crash were reported for Solana.
That’s simply not going to be good enough for scalability.
Basically, relying on layer 1 blockchains as they are now simply isn’t feasible to grow blockchain tech to mass adoption.
Layer 2 blockchain solutions are aiming to help solve these issues. However, they’re not exactly foolproof either.
Problems with layer 2 blockchain scalability
The layer 2 solutions definitely help with scaling.
In fact, some are so effective that they can increase the throughput for layer 1 chains to rival, and even outperform, that of existing transactional systems.
Take for example Polygon.
Polygon is built on the Solana layer 1 chain.
And, according to reports it has already achieved transfers per second of up to 10,000.
This is a great effort to increase the TPS for slow layer 1 blockchains.
However, is it enough? The concern here is that yes, layer 2 solutions can bundle multiple requests into a single on-chain transaction, but what are the upper limits?
Even with effective roll-ups like those on Polygon, there will come a time when the load exceeds what the L1 chain can handle.
At the minute, L2 solutions are kind of like putting a Ferrari engine on a bicycle.
Sure, it increases the speed, but it can only really do so much before base level tops out.
Ethereum seems to understand this and are taking steps to overcome it with Ethereum 2.0.
Layer 1s need to become far more effective for blockchain to have a chance at going mainstream.
Layer 1 scaling solutions
There’s really only one method to improve layer 1 scaling - and that’s to increase throughput.
The problem here is that due to the nature of layer 1 solutions, that’s not at all easy.
You’d have to change the base layer of the blockchain, which, as we’ve mentioned is costly and complex.
Take Ethereum as an example.
Right now, Ethereum runs on a proof of work (PoW) validation system - which is also the cause of the long transaction times and high gas fees.
What is proof of work?
PoW is a process that requires the collaboration of those within a network. Those people are referred to as miners.
When a change is requested on the blockchain, a puzzle is delivered to these miners.
Whoever solves the puzzle first gets to update the blockchain, they’re then rewarded by the network with a small amount of crypto.
Because of the incentive, more miners join the network which increases security.
However, this method is very energy intensive and, because these puzzles have to be solved for every amendment and transaction, not particularly scalable.
One of the primary options is to move away from proof of work and embrace proof of stake.
What is proof of stake?
The Ethereum blockchain is currently working on Ethereum 2.0. Their effort to make the blockchain more scalable while being more energy efficient and cost-effective.
In Ethereum 2.0 they’re trying to move to a Proof of Stake (PoS) validation method.
PoS reduces the amount of computational data needed to add a transaction to the blockchain.
In short, validators don’t need to solve a complex math puzzle to validate blockchain transactions. They do have to put some of their own cryptocurrency up as collateral.
This currency is locked into a smart contract.
All new blocks then have to be validated by multiple validators. Once a set number of validators agree and validate the block, it’s added to the blockchain.
Each validator who participated in this is then offered crypto as a reward.
If a validator validates bad or fraudulent data, they can lose some or all of the currency they locked as collateral.
Because there is no math puzzle to solve, and it’\s not a competition to be the first to solve it, there’s far less energy used in PoS.
It’s also a more scalable system in terms of transactions per second.
According to Eth developers, Eth2 will…
- Reduce power usage by 99.95%
- Scale transactions per second up to 100,000
If true, this coud be huge for the future of all dApps and services built on Ethereum.
Layer 2 scaling solutions
Layer 2 is one of the more efficient methods of scaling throughput on layer 1 blockchains.
As mentioned earlier, Layer 2 solutions basically are additions to the base layer. They handle a lot of the computational elements before confirming and validating on the base layer 1.
What you need to know is that there are several different methods of layer 2 scaling solutions.
Zero Knowledge Roll-Ups
Zero-knowledge rollups are the most common off-chain layer 2 solution.
This is the example in the above image. The protocol bundles together multiple transactions and submits them ot the layer 1 base chain for validation.
Zero-knowledge rollups are ideal for applications and protocols where security is paramount as they refer back to the lawyer 1 chain for validation.
Nested blockchains
Nested blockchains are a secondary set of blockchains that sit on top of the base chain, and as such, they inherit the rules of the base chain.
These nested “child” chains handle the day-to-day transaction processes which they then return to the base chain. The primary base chain only gets involved in the case of any disputes.
Sidechains
Sidechains are independent blockchain networks that have their own set of validators.
The sidechains consensus mechanism is independent of the base chain’s.
As a result, there has to be a bridge between the main chain and the side chain. This also means that it’s not secured by the main chain.
If using a side chain, you have to ensure that it is working as intended. If not, it could cause issues as the bridge gives it control of assets on the main chain.
State Channels
State channels are 2-way communications environments between parties - those parties being the main chain and the off-chain transactional channel.
This method does not require validation by nodes on the base chain.
The parties seal a part of the base chain and link it to this off-chain transactional channel. The parties use a smart contract or a multi-sig wallet to accomplish this.
The off-chain transactions are then completed in bulk. Once all of the transactions are complete, it’s reported back to the base layer chain as the final state of the transactions for validation.
Because so many transactions can be handled in one location, it’s not ideal in terms of decentralisation.
Layer 1 vs Layer 2 blockchains
So that’s the quick and dirty guide to Layer 1 vs Layer 2 blockchains.
To sum it up, Layer 1 chains have huge scalability issues if they’re using a proof of work system. Layer 2 chains are a great way to increase the scalability of Layer 1’s throughput.
However, if we really want blockchain to go mainstream, then we have to improve the base layer for higher throughput.
Eth2 will be the first major test of whether or not a high-volume chain can move from PoW to PoS and maintain great service.
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