Layer 1 Solutions

Summary:

• As the blockchain space expands at an extremely fast pace, the issue of scalability gets worse.
• In order to address the scalability issue, Layer 1 solutions are employed. These solutions must be decentralized, secure, and scalable.
• Layer 1 solutions can be implemented in three different ways – using PoS, PoW, and sharding.
• Popular Layer 1 tokens can easily be purchased

Various blockchain networks are constantly launching new solutions and applications, but most of them are experiencing scaling issues. The blockchain trilemma includes scalability as one of the three challenges for blockchain networks, with the other two being security and decentralization. We will discuss scalability in this post along with the proposed solutions.

The Scalability Trilemma #

In the words of Vitalik Buterin, the founder of Ethereum, the scalability trilemma refers to the blockchain’s ability to balance three organic properties that constitute its fundamental principles – security, scalability, and decentralization.

In accordance with the trilemma, blockchain technology can only have two properties at a time, never all three. Thus, a fundamental property of the current blockchain technology will always be compromised. Take Bitcoin, for instance. While its blockchain has managed to maximize decentralization and security, it has had to sacrifice scalability – through no fault of its own.

How Do Layer 1 Blockchains Work? #

Blockchain scalability entails increasing the capacity of a network in digital space in order to support the addition of new applications and the increase in user operations. By offering higher processing capacities and greater capabilities, blockchain networks will be able to compete successfully with centralized networks for transaction volumes, application buildup, and user engagement. “Scaling” refers to an increase in the number of transactions per second, measured as a throughput rate.

Introduced Layer 1 solutions are one of the foremost solutions to deal with the scalability problem. A Layer 1 blockchain is a set of solutions that enhance the base protocol itself to make the overall network more scalable. The consensus protocol and sharding are two approaches proposed for implementing Layer 1 solutions.

Bitcoin, Ethereum, Binance Smart Chain (BSC), Litecoin, and Avalanche are examples of Layer 1 blockchains. Despite this, Bitcoin remains the most affected by scalability issues, as the underlying network relies on an increased number of miners to guarantee a higher transaction throughput and volume.

Types of Layer 1 Blockchain Solutions #

Protocols for layer 1 blockchains must be decentralized, secure, and scalable. In order to increase overall scalability, networks have resorted to different methodologies. 

The following approaches are often used in foundational Layer 1 solutions:

Consensus Protocol #

Traditional consensus mechanisms for Bitcoin and ETH are Proof-of-Work (PoW) and Proof-of-Stake (PoS). By using miners to decode complex cryptographic algorithms, it is intended to achieve both consensus and security. Although PoW is relatively fast, it is also resource-intensive.

The Proof-of-Stake, or PoS, mechanism provides a distributed consensus over the blockchain network. Each stake allows a user to validate block transactions. The PoS protocol outperforms the PoW protocol in terms of transaction speed, but falls short in terms of security.  The Ethereum blockchain wishes to transition from PoW to PoS through Ethereum 2.0. These upgrades make the Ethereum blockchain more scalable and sustainable.

Sharding #

Sharding is another method adapted from the distributed database sector for Layer 1 solutions. Sharding is an experimental approach in blockchain technology, since it involves splitting a network into multiple, distinct blocks of data known as “shards” – hence the term “sharding” – which makes the blockchain more manageable. Since all “shards” are processed in parallel sequence, this approach also reduces current requirements for all nodes to process or handle transactions in order to maintain the network, which allows for more processing capacity to be freed up.

Popular Layer 1 Tokens #

The most popular Layer 1 tokens since their launch have been:

1. Ethereum (ETH)
2. Binance Smart Chain (BNB)
3. Solana (SOL)
4. Cardano (ADA)
5. Polkadot (DOT)
6. Terra (LUNA)
7. Avalanche (AVAX)
8. Polygon (MATIC)
9. Algorand (ALGO)
10. TRON (TRX)

* This list is ranked according to market cap and does not constitute a recommendation or endorsement

Conclusion #

Global crypto adoption is hindered by scalability. Blockchain protocols will also need to scale as demand for cryptocurrencies increases. The scalability dilemma will be solved in the future by developing a protocol that can address both blockchain layers’ limitations. Two options are available for bottleneck solutions – either mitigate the scaling problem or look for viable alternatives.

This is a good time to mention that there are Layer 2 Solutions that help solve this gap in Layer One Scalability. You can check it out here.

Reference

Layer 1 Blockchain Tokens: Everything You Need to Know. (2021, December 13). Binance Blog. https://www.binance.com/en/blog/fiat/layer-1-blockchain-tokens-everything-you-need-to-know-421499824684903155