Welcome to our in-depth exploration of Layer 1 blockchains, the fundamental building blocks of the blockchain ecosystem.
In this blog, we’ll delve into the core concepts of Layer 1 blockchains, their security and consensus mechanisms, and the scalability challenges they face, and showcase some prominent examples from the world of cryptocurrency and blockchain technology.
What is Layer 1 Blockchain?
Layer 1 blockchain is defined as the layer that serves as the network’s foundation. It’s the core of the blockchain, and it is considered the basis for all other blockchain layers. Layer 1 provides the infrastructure for all applications that are developed on the blockchain. It’s the layer responsible for maintaining the distributed ledger and validating transactions. The full potential of Layer 1 blockchains could be unlocked through the expertise of blockchain development services.
As with all blockchain networks, Layer 1 is decentralized and peer-to-peer (P2P). It doesn’t rely on any other blockchains, and some of its key features are the ability to process transactions, maintain security, and support smart contracts.
Security and Consensus Mechanisms at Layer 1 Blockchain
Any transaction gets broadcasted to the network participants, and Consensus Mechanisms are how transactions are verified in the blockchain and how new blocks are added. There are many consensus algorithms used in Layer 1 blockchains, such as Proof-of-Work (PoW) and Proof-of-Stake (PoS).
PoW is the method used by Bitcoin to validate transactions. In this mechanism, the new transaction is broadcasted, and “miners” work out a puzzle to be able to verify the transaction first. He who solves the problem wins crypto. PoW requires a lot of electricity and computing power, which means that mining companies, for example, could have an advantage over individual miners.
The PoS mechanism is different and doesn’t require high computing power. Instead of competing to solve the puzzle first, like in PoW, the owners offer to “stake” their coins for the chance to validate the new transaction. Validators are chosen randomly, and they earn rewards after solving the puzzle. Ethereum (ETH) is one of the most popular blockchains that uses this method.
Scalability Challenges and Solutions for Layer 1 Blockchain
Layer 1 main features are decentralization and security, but it has other problems. Layer 1 blockchains have scalability challenges due to block size limitations and the inability to create multiple blocks at the same time. In cases of increased demand, it could be difficult to process transactions; for example, currently, Bitcoin can only process 7 transactions per second.
To improve Layer 1 blockchain’s scalability, there are many ways, some of which are as follows:
Increasing Block Size
A finite number of transactions can fit into a single block in the chain. By increasing the block size, blocks can fit more transactions, which would increase the network speed. This method comes with the concern that it might need higher hardware requirements, which can increase the risk of centralization.
Sharding is a method that Layer 1 blockchains can use to divide their data into several distinct data components, also known as shards, to increase transaction speed. It’s a partitioning technique that would distribute the computational effort across a P2P network. Sharding spreads the workload as each “shard” has its own transactions, nodes, and separate blocks. Each node won’t handle the transactional load for the whole network, only its shard.
Examples of Layer 1 Blockchains
Bitcoin (BTC) is the first and most famous cryptocurrency. It was launched in 2009 by a pseudonymous Satoshi Nakamoto, whose true identity was never revealed. The crypto operates on a Layer 1 blockchain and uses PoW to verify its transactions. Bitcoin’s blockchain is used mainly for transferring money.
Bitcoin transactions are confirmed by “miners”. Mining is the process of verifying transactions by making computer hardware solve a cryptographic puzzle. Miners compete over who gets to solve the puzzle first, as whoever solves it gets rewarded with Bitcoin and receives the transaction fees.
Ethereum (ETH) is one of the most popular Layer 1 blockchains, and it’s renowned for its ability to support smart contracts and decentralized applications (dApps). Ethereum used PoW as a consensus mechanism but switched to PoS in its blockchain application development, Ethereum 2.0 was launched in 2022.
Ether, or ETH, is the native cryptocurrency of the platform. Validators stake their ETH crypto to verify the transactions, and if they try to defraud the blockchain, some or all of their staked crypto can be gone.
Individuals need to trust each other in the case of traditional contracts. An individual must trust that if they do their part of the contract, the other will follow through with the outcome. But smart contracts work differently.
They are computer programs or codes that follow “if this, then that logic,” which means if predefined conditions are met, an outcome happens instantly and automatically.
A smart contract’s main benefit is that it removes the need for intermediaries; it’s also useful for audits and tracking. Since smart contracts are on the Ethereum blockchain, they are public, and anyone can access them to track asset transactions or related information.
Solana (SOL) is a Layer 1 blockchain that aims to resolve the scalability issues of Layer 1 blockchains. Solana uses a mixture of Proof of History (PoH) and Delegated-Proof-of-Stake (DPoS) consensus to achieve transaction speeds of up to 65,000 per second, unlike Bitcoin and Ethereum.
PoH uses cryptography to prove the timeline of transactions and relies on the creation of timestamps to prove when the block was created on the blockchain, much like how a picture has a timestamp that could help in knowing when the picture was taken.
The mixture between the two consensus mechanisms gives Solana the ability to solve Ethereum’s scalability problems, as DPoS is only a variation of Ethereum’s PoS algorithm.
DPoS uses the same principle as PoS, participants need to stake their coins to solve the cryptographic puzzle. But in a DPoS, participants or stakeholders aren’t responsible for solving the puzzle; they outsource the work to a delegate. Delegates are people who are responsible for reaching consensus.
Binance Smart Chain:
Binance, the crypto exchange platform, developed its own blockchain, the Binance Smart Chain (BSC). This network is built for running smart contracts and dApps.
The Layer 1 blockchain uses Proof-of-Staked-Authority (PoSA), which combines the features of DPoS and Proof-of-Authority (PoA)
PoA leverages the value of identities. Validators stake their reputation instead of just their coins. To become a validator in PoA, a user must be trustworthy, and their identity must be validated on the blockchain, which means that validators’ real identities are confirmed and revealed. One of the drawbacks of this mechanism is that it can make the blockchain less decentralized.
Binance Smart Chain uses PoSA, where validators are pre-approved based on their relevance to the blockchain and their holdings of crypto. Validators stake some crypto just like PoS, but instead, they all stake the same amount, so the voting power isn’t based on who stakes the most crypto.
In conclusion, Layer 1 blockchains are the main core on which other blockchain ecosystems and layers live. They provide the critical infrastructure for secure transactions, smart contracts, and P2P interactions.
The world of blockchain technology is dynamic and ever-expanding, and understanding the significance of Layer 1 blockchains is crucial for anyone interested in the technology.