Blockchain technology uses various other technologies like cryptography, game theory, and computation, all under one umbrella to power the operations. Blockchain needs to be highly secured as there is no centralized authority to govern the transactions and the data must be stored in a distributed ledger.
The blockchain architecture is divided into layers with different functions for evenly distributing the data and to be highly secured and efficient naming hardware, data, network, consensus, and application layers that make up the system. Other than the blockchain components layers, the blockchain also has layers that provide scaling solutions which are named layer 0, 1, 2, and 3.
Introduction to Blockchain Layers
The scope and usage of blockchain have increased in recent years and the need to upscale the transaction speed, scalability, and efficiency also increased.
Blockchain technology is divided into five layers; hardware layer, data layer, network layer, consensus layer, and application layer that consists of the computers or nodes that contribute to the blockchain, the data stored, the communication between the nodes, the validation of blocks, and the apps that provides the services.
Layers 0, 1, 2, and 3 provide scaling options to the blockchain infrastructure to enable security, transparency, and more in a decentralized system. Each of these layers upgrades the depth, structure, and complexity of the blockchain layers. The two major solutions are layers 1 and 2. Let us get to know these layers better.
What are Layer 1 Solutions?
Layer 1 is called the primary blockchain as it is the base protocol for a blockchain and provides essential services like security and recording transactions. It is an updated version of Layer 0 and any new changes or implementation on Layer 0 will affect Layer 1.
It governs the protocols that ensure security across the blockchain network and includes consensus mechanisms, coding languages, and the rules recorded in the code. Layer 1 is sometimes called the implementation layer. However, it has limited scaling capabilities.
Examples of Layer 1 Blockchains and Their Approaches
The most popular Layer 1 blockchain is Bitcoin. Other Layer 1 blockchains include Ethereum, Cardano, Avalanche, Solano, and Polkadot. Layer 1 blockchains are responsible for the foundation of the network. Their major functions include transaction processing, network security, and decentralization.
Layer 1 blockchains are able to process transactions without the support of other networks, establish the protocol rules, and ensure a peer-to-peer system. These blockchains use consensus mechanisms like proof of work (PoW) or proof of stake (PoS) to validate and add new blocks to the blockchain.
The transactions registered cannot be changed once registered in the blockchain. The following table shows some of the Layer 1 blockchain and their approaches.
| Blockchain | Approach |
| Bitcoin | Transactions are computationally intensive as it use the Proof of Work (PoW) consensus mechanism. |
| Ethereum | This blockchain serves as a base for other projects. |
| Solana | It addresses the issues with Ethereum and is easier to use. |
| Avalanche | Designed to enable more users to work efficiently on the network. |
| Algorand | It aims to compete with Ethereum by overcoming technical barriers to decentralization, scale, and security. |
What are Layer 2 Solutions?
Layer 2 solution is also called the execution layer and is made up of overlapping networks that sit on top of the network stack. These are off-chain technologies that are built on top of a blockchain to improve its scalability, cost efficiency, and transcription throughput.
Layer 2 blockchains send the final state back to the main blockchain after working on it parallelly or off-chain. It eradicates the limitations of Layer 1 and solves the scaling issues associated with proof of work (PoW). Layer 2 works on third-party integration.
One of the major approaches of Layer 2 blockchains is to increase the number of transactions and data transfers.
Examples of Layer 2 Solutions
Layer 2 blockchains are built on top of Layer 1 blockchains like Bitcoin and Ethereum. Here is a table that shows some examples of the Layer 2 solutions.
| Blockchain | Approach |
| Arbitrum | A solution for Ethereum that allows developers to run the transactions on a second layer without changing the code. |
| Rollups | These work outside the main blockchain to improve efficiency. |
| Eclipse | A network that lets users transfer value between blockchains. |
| Sidechains | An independent blockchain that runs parallel to the main blockchain with its own consensus mechanism. |
| Polygon | Built to bring mass adoption to the Ethereum platform. |
Comparison: Layer 1 vs. Layer 2
Layer 1 and Layer 2 solutions increase the throughput of the blockchain network. Throughput is the processing speed or transactions handled by a system per second, and scaling is the process of increasing the throughput rate. Here is a comparison table of both Layer 1 and 2 blockchains.
| Definition | Approach | Pros | Cons | Example | |
| Layer 1 | It is a base blockchain protocol that establishes the foundation of the network. | Manages consensus, transactions, and data storage. | Security and decentralization. | Less scalability and lower speed. | Bitcoin, Ethereum |
| Layer 2 | It is a third-party protocol that integrates with the base blockchain. | Enhances the capabilities of Layer 1 by increasing scalability and transaction speed. | Increased speed, better cost, and interoperability. | Security risks and some are centralized. | Polygon, Eclipse |
Current and Future Challenges
One of the major challenges addressed by Layer 1 and 2 blockchains are the compromised security. To increase the speed of transactions, blockchain solutions compromise security as well as its decentralized nature.
The issue of scalability was eradicated by Layer 2 as well as the transaction speed. Blockchain technology already is known for its latency issues, and still looking for newer innovations to eradicate this. The future concern is mainly of its compromised security and decentralization.
Conclusion: When to Use Layer 1 vs. Layer 2
Layer 1 and 2 solutions are beneficial to upscale the speed and throughput rate of blockchain technology. Layer 1 does the primary functions of achieving consensus and validating transactions, whereas Layer 2 eradicates the limitations of Layer 1 improving scalability and reducing transaction costs.
Layer 1 blockchains are used when high security and transaction settlement are the priority. Layer 1 blockchains like Bitcoin and Ethereum are secure and decentralized but are slow and expensive. Layer 2 solutions are used when cheaper and faster transactions are needed. They can offload transaction processes from Layer 1 and increase transaction throughput.
Layer 1 and Layer 2 blockchains work together to make blockchain technology efficient and accessible for its increasing usage, keeping in mind its future scopes.