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Scalability is a major concern as blockchain enters the mainstream. Blockchains will need to support significantly more users and transactions. That’s a complex task!
The good news is that researchers everywhere are working on creating new ways to scale. This facilitates the expansion of blockchain networks without bottlenecks.
The two most common methods are the first and second layers.
The first layer of a blockchain is the protocol itself. You can think of it as the basement of a blockchain. Whenever you upgrade to Layer 1, you upgrade the underlying software and architecture. This requires collaboration but ultimately increases productivity at the source.
The second layer expands upon the first. Layer 2 solutions are additions to the original blockchain structure. The likes of additional spaces and above stories! The scalability of Layer 2 is increased without altering the underlying layer.
Layer 2 is often a more difficult option to pick than Layer 1. Layer 1 is consensus-based yet still maintains decentralization. Layer 2 is simpler to create but is secure with Layer 1.
The good news is that the two scaling approaches are compatible. While Layer 1 matures into scalability, Layer 2 can provide speedy enhancements. In this way, blockchain networks may sustainably expand their user bases.
Consequently, there is a need for both Layer 1 and Layer 2. Blockchain can eventually attain mainstream adoption if these two methods are combined.
When it comes to scaling blockchain networks, there is much discussion around the differences between Blockchain Layer 1 vs. Layer 2 solutions and their respective benefits for transaction throughput. Find out what separates layer two cryptos from layer one in this in-depth article.
What Is Blockchain Scalability?
Scalability in blockchain, which mostly means transaction speed, is both the crypto business’s ultimate goal and bottleneck. Compared to traditional payment methods, cryptocurrency transactions take more time to process. The crypto community is working on several theories to overcome this challenge, and there is hope that these innovations will one day allow instantaneous transactions.
Why Is Blockchain Scalability Important?
A blockchain’s scalability is measured by its capacity to process a high volume of transactions and users without slowing down or becoming overloaded. Blockchain scalability is essential for keeping a network running quickly and efficiently as the number of users and transactions grows. There can be delays in transaction confirmations and general network inefficiency if the blockchain cannot scale as needed. Because of this, the user experience may suffer, slowing the spread of blockchain technology.
Blockchains are distributed ledgers that rely on a network of computers, or nodes, to manage and process data. By using Proof of Work (PoW), Proof of Stake (PoS), and other consensus processes, validator nodes verify transactions and keep the network safe. The scalability of these core blockchain operations is crucial to the long-term success of any decentralized system.
PoW is the first consensus technique on the blockchain, and it was later used as the basis for the Ethereum network. The Proof-of-Work (PoW) consensus algorithm ensures the integrity of the network and its decentralized nature. It is extremely costly for hackers to interfere with the consensus mechanism or to change data within blocks carrying a linear history of the entire network. Therefore, these inherent scaling restrictions of PoW directly contribute to network security. Thanks to the PoW consensus mechanism, Bitcoin is seen as a safe way to keep money because of the blockchain’s well-known security and the world’s trust in the network’s ‘decentralization’ value proposition, which is resistant to censorship.
The high processing requirements of the PoW consensus mechanism make scaling Ethereum’s popular programmable blockchain difficult, even though this method benefits the “store of value “—minded bitcoin investors. DeFi advocates and the creators of decentralized applications quickly adopted the network’s smart contract architecture. Ethereum was motivated to develop a new consensus mechanism apart from PoW due to scalability issues. Developers of Ethereum are looking at a variety of layer one and layer two scaling solutions to deal with the increased traffic on the network.
Blockchain’s Scalability Issue
The next topic to be covered in “What is blockchain scalability?” is the related challenges.
So, why does blockchain have problems with scalability? Consider Bitcoin to find the best answer.
The phrase “Bitcoin is not scalable” refers to the fact that the cryptocurrency can only handle seven transactions per second, making it much too slow for practical usage compared to VISA’s rumored capacity of 24,000 tips. Individuals will not wait an hour to verify the legitimacy of their purchase of a cup of coffee, which is another issue with blockchain scalability. In this way, the adoption of blockchain and its practical applications face obstacles due to the unresolved concerns of scalability on an architectural level.
Layer-1 Scaling Solutions
Layer-1 networks, like blockchains, are the foundation of the decentralized ecosystem, whereas Layer-2 protocols are additional layers of functionality that may be added on top of existing networks. Layer-1 blockchains include well-known digital currencies like Bitcoin, Litecoin, and Ethereum. To increase scalability, layer-1 scaling solutions build upon the foundational layer of the blockchain protocol. To address the issue of blockchain networks’ inability to grow with demand, researchers and practitioners have developed and implemented several methods to increase their scalability.
Additional blockchain infrastructure upgrades that allow for Layer-1 network growth include:
Consensus protocol enhancements: There are more effective consensus procedures than others. Popular blockchain networks, such as Bitcoin, now use a consensus technique known as Proof of Work (PoW). Proof-of-work is secure yet slow. This is why the Proof-of-Stake (PoS) consensus mechanism is so popular among the newest blockchain networks. In PoS systems, participants stake collateral in the network to process and validate fresh blocks of transaction data instead of miners solving cryptographic algorithms using large amounts of computing power.
The move to a Proof-of-Stake (PoS) consensus method in Ethereum 2.0 is meant to significantly and fundamentally boost the network’s capacity while bolstering decentralization and ensuring the network’s continued security.
Sharding: One of the most widely adopted Layer-1 scaling techniques, despite its still-experimental status in the blockchain industry, is sharding, a mechanism taken from distributed databases. The term “sharding” refers to dividing the state of a blockchain network into smaller, more manageable pieces called “shards.” The network processes these shards in parallel, allowing many transactions to be worked on sequentially.
Furthermore, each node in the network is responsible for a specific shard rather than the entire blockchain. Each shard contributes proofs to the mainchain and can communicate with other shards via cross-shard communication protocols to exchange information such as account balances and transaction histories. Notable blockchain protocols investigating shards include Ethereum 2.0, Zilliqa, Tezos, and Qtum.
Layer-2 Scaling Solutions
Despite layer-1 blockchains’ limitations in scalability and speed, their increasing popularity and the resulting abundance of liquidity have prompted the development of layer-2 blockchain solutions such as the Ethereum-based Polygon blockchain and the Bitcoin-based Lightning Network.
These layer-2 (L2) blockchain systems allow thousands of low-value transactions to be validated on parallel blockchains before transferring their records to the main blockchain (mainnet) for permanent storage.
The phrase “layer-2 solutions” was developed to represent a group of Ethereum scaling solutions designed to meet demand over the blockchain’s 1 million daily transaction limit.
With increased throughput, decreased petrol costs, and the knowledge that all transactions are permanently recorded on the mainnet, secondary blockchains are already being used to improve the user experience.
By shifting the transactional load to their parallel network, L2 blockchain solutions help relieve mainnet congestion while guaranteeing key features like decentralization, data availability, and security.
This addresses the scalability issues that have plagued layer-1 blockchains like Bitcoin and Ethereum and makes the highest level of decentralized security available to the growing number of DApps in use today.
Blockchain Layer 1 vs. Layer 2 Comparison
Layer-1 blockchains focus on decentralization and security at the expense of scalability, while Layer-2 solutions prioritize transaction speeds and cost reduction while benefiting from Layer-1 security.
Layer-2s increase throughput and user experience by managing transactions off-chain, aggregating and batching transactions, and employing fraud proofs. However, compared to Layer-1s, they need to improve in some areas of decentralization and security.
|Definition||Layer 1 refers to the main blockchain network that records and verifies transactions. Bitcoin and Ethereum are examples of Layer-1 blockchains.||Layer-2s are solutions built on top of Layer-1 blockchains to improve scalability and transaction speeds while still benefitting from the decentralized security of the underlying Layer-1.|
|How transactions are processed||Every transaction is processed and recorded directly on the Layer-1 blockchain. This allows full decentralization and security but limits transaction speeds and throughput.||Transaction data is processed off-chain on the Layer-2 before being batched and settled on the Layer-1. This improves scalability while still leveraging the security of the underlying blockchain.|
|Consensus mechanism||Typically uses energy-intensive proof-of-work consensus to validate transactions and add new blocks. This provides security but could be faster and more efficient.||It Leverages the consensus mechanism of the underlying Layer-1 blockchain. This avoids duplication of work and wasted resources.|
|Transaction speed||Designed for security rather than speed. On average, Bitcoin handles 3-7 transactions per second, Ethereum does 10-15 TPS.||Can achieve 100s or 1000s of TPS by handling transactions off-chain before batching. Optimized for speed and scalability.|
|Fees per transaction||Tends to have higher fees due to limited transaction throughput. Bitcoin avg fee is $1.99, Ethereum is $1.40.||Much lower fees since transactions are batched. Some L2s even allow free transactions.|
|Cost||$50 and $125 on average||Roughly $0.05|
|Limitations||Developers rarely make changes to the underlying framework.||Users can make small transactions without paying huge transtion fees.|
The two methods have their drawbacks. While layer-1 protocols are currently more decentralized and safe, they must deal with congestion and expensive costs. Layer-2 protocols allow faster and cheaper transactions but are vulnerable to fragmentation and must rely on the underlying blockchain’s security.
Layer-2 solutions complement Layer-1 solutions, which preserve censorship resistance, trust reduction, and permissionless innovation, respectively, while scaling blockchain technology for widespread use. Both Layer-1 and Layer-2 chains will be crucial in developing the future decentralized web, suggesting a multi-chain future.
Using Ethereum as an example, the comparison shows how Layer-2 solutions can increase scalability without sacrificing the security or decentralization of a Layer-1 blockchain. Layer-1 and Layer-2 perform complementary functions that allow blockchain technology to scale and encourage adoption across use cases like DeFi and NFTs. Their costs and benefits can be weighed with care and ethics to arrive at a complex action plan.
The Future of Scaling Blockchains
There are many potential opportunities to scale blockchain technology across all stack layers. At Layer 0, projects can focus on optimizing network infrastructure and integration with new technologies. Layer 1 solutions like sharding and new consensus models can improve on-chain transaction throughput. Layer 2 techniques like payment channels and rollups can reduce main chain loads.
Research into off-chain solutions, sidechains, hybrid designs, and integrations like AI can provide additional scaling and interoperability. Real-world use cases, improved user experiences, regulation changes, and driving mainstream adoption are also important. Overall, a comprehensive strategy across layers 0, 1, and 2, collaborations across industries, and addressing real user needs could enable blockchain technology to scale to meet future demands. The key is to combine protocol optimizations, new architectures, and user-focused solutions to unlock the full potential of blockchain in a secure and decentralized way.
Layers 1 and 2 represent two different perspectives on the same scaling solution. In light of the blockchain’s rapidly expanding user base, they’ve developed a strategy to improve its performance.
Many blockchain networks are experimenting with combinations that combine layer-1 and layer-2 scaling on blockchains to boost scalability without sacrificing security or the necessary degree of decentralization.