Layer 1 vs Layer 2 Blockchain Scaling Solutions: A Basic Guide

Layer 1 and Layer 2 blockchain technology are scaling solutions to provide higher processing speeds and seamless operations on any crypto blockchain network. These protocols or added network solutions provide enhanced support for transactions. 

Layer 1 updates usually include upgrades to the consensus mechanism or block size, or dividing the database into multiple segments called the sharding. Layer 2 includes parallel blockchains (called side chains), rollups known as (bundling transactions) and off-chain transaction handling (called state channels).

A blockchain operates as a decentralised network of nodes that processes crypto transactions freely and operates on set standards or consensus mechanisms to verify the accuracy of their transactions. The transactions are then secured in a sequence, making a chain of data called blocks which are immutable. 

Lamentably as the blockchain gets more famous over time, higher processing power is required to manage its increasing number of transactions. Crypto blockchain protocols might also restrict the calculations of transactions, raising a bottleneck within the network. 

Why Layer 1 and Layer 2 Blockchain Scaling Solutions Are Needed?

Such reasons make the famous blockchains prone to sluggish performance, and even taking nearly more than 10 minutes or higher to process a transaction. To resolve this issue, scaling solutions come into play to give a better and quicker way of handling the huge number of transactions. 

There are multiple ways to scale a network and multiple scaling solutions have been created for different blockchains. The purpose of these solutions is to take the load off the blockchain and divert the transaction processing power towards other networks or enhance the base-layer network through an upgrade to the code.

As the demand for networks increases, blockchain networks take help from scaling solutions like Layer 1 and Layer 2, to maintain efficient and stable transaction processing.

What Is a Layer 1 Blockchain?

Layer 1 blockchain works at the base of a network for a decentralised crypto structure. Layer 1 blockchains include Cardano, Ethereum and Bitcoin. Such blockchains manage the security and operations of crypto networks using the same consensus mechanism like proof of steak (PoS) or proof of work (PoW).

What Is a Layer 2 Blockchain?

A Layer 2 blockchain operates as a network protocol on top of a Layer 1 solution. Layer 2 protocols make use of Layer 1 blockchain for security and network architecture but are quite efficient when it comes to scale transaction processing and the overall capacity of the network. Some examples are Polygon (which is built on Ethereum) and the lightning network of Bitcoin. Meanwhile, Coinbase released Base, its Ethereum Layer 2 network in August 2023. 

There are multiple ways to scale layer 1 blockchains, like: 

Enhanced Block Size

Some Layer 1 crypto blockchains have upgraded their code, to add to the block size, which allows for more transactions to be validated at the same time; this increases the overall capacity of the network.
 

Updated Consensus Mechanism

The consensus mechanism of a blockchain is the process it uses to validate the transaction to make sure the network stays accurate and secure. In the Proof-of-Work (consensus mechanism), large amounts of processing power are needed to equate complex equations for securing the next block in blockchain. 

Ethereum used to be a PoW network then it got upgraded to a Proof of Stake network. The PoS utilize node operators to store Ether deposits to process transactions. Instead of using computing power for mining the next block in a blockchain, PoS operates on a lottery system to give block rewards to stakers. In return, it enhances the processing power of the blockchain. 

Sharding

Sharding is just like database segmentations, which allow blockchain data to be divided into smaller parts so that transactions can be processed at the same time. This enhances the overall efficiency of the Layer 1 blockchain network. 

There are multiple types of Layer 2 blockchain scaling solutions: 

Rollups

In place of processing transactions individually, transaction bundles can be rolled up in a single transaction, which drastically increases the number of transactions processed at one time. These transactions are recorded off-chain, then bundled together and added together to the blockchain as one entry. 

Side Chains

Side chains are blockchain networks that are independent having validators that allow transactions to be processed in parallel. This greatly enhances the blockchain’s transaction processing power. However it is crucial to trust the side chain network integrity, and also the bridge network that connects it to the main blockchain network.

State Channels

State channels are just like side chains because they are also recorded off-chain. However, these transactions are recorded in bulk off-chain, and then the channel’s state is set as complete. The transactions are then recorded in bulk on the blockchain network which is broadcasted as a “completed state” on the main network, this is how the Lightning Network of Bitcoin works. 

Although scaling is a good solution to blockchain it is a great way to enhance transaction handling and complete adoption of the network. However, it does come with a few drawbacks of its own:

Blockchain Forks: Blockchains are made up of data blocks that keep all the transactions in a sequential order. Upgrading a blockchain might need a fork of that blockchain which might divide the supporters of blockchain. Meanwhile, forking the code allows for updates on the blockchain, but creates two networks operating at the same time like Bitcoin Cash and Bitcoin. This can create confusion among users and decrease the overall value of cryptocurrency.

Difficult To Verify: A lot of scaling solutions shift transactions to an off-chain network, which means verification doesn’t take place publicly. This lack of transparency might put blockchain at risk of getting exposed to malicious actors, tweaking the transaction data to their means. 

What Is Scalability in Crypto?

Cryptos work on the decentralised network called the blockchain. These networks come with a few limitations of their own and are unable to perform without changing the code or providing added solutions. The scalability to be exact is the network’s ability to update itself, or Layer 2 solutions which give higher transaction speed. 

The Layer 1 scaling solutions make alterations to the base protocol of the blockchain network which enhances scalability. Layer 2 scaling solutions, on the other hand, provide off-chain networks or services enhancing the scalability.
 

What is The Key Difference?
 

Usually, it is a time-consuming process for many crypto-blockchain networks to upgrade their scalability. Meanwhile, Layer 1 focuses on security, and Layer 2 networks are used for tailored use cases. 

Currently, one of the best layer 1 blockchains is BlockDAG. This network not only provides high-end security but ensures smooth and swift transactions. The BDAG coin on the other hand has been predicted to scale the top layer 1 blockchain and boost tremendously in the upcoming crypto bull run. Currently in presale the coin has gained monumental popularity and is looking to take over as the fastest layer 1 blockchain technology while evolving into a holistic ecosystem. 

Scaling over a blockchain network is necessary to increase the overall adoption of the network while increasing its capacity to handle the load. Both Layer 1 and Layer 2 scaling solutions keep the integrity of the underlying blockchain, which improves the ability to handle more transactions. Yet, there are a few drawbacks to the scaling solutions which might compromise the overall security of specific or even compromise the integrity of the overall project.