Blockchain technology has revolutionized the way we think about secure and decentralized data storage. It has enabled new forms of trustless, peer-to-peer transactions that have the potential to disrupt traditional financial and governance systems. At the core of this technology is a distributed ledger maintained by a network of nodes, or computers, each of which verifies and adds new transactions to the chain. There are several layers to the blockchain technology stack, with each layer adding new features and capabilities to the system. At the base of this stack is Layer-1, the foundational layer that defines the basic rules and protocols that govern the blockchain.
Layer-1 blockchain refers to the blockchain protocol that serves as the network’s foundation. It is a distributed ledger technology (DLT) designed to securely record transactions on a public, immutable, and trustless ledger.
Layer-1 blockchains are the most fundamental type of blockchain, serving as the basis for all other blockchain layers. They are frequently referred to as the “core” or “foundation” of the blockchain network because they provide the infrastructure for all applications and protocols developed on top of the network. They are the only layer solely responsible for maintaining the distributed ledger, validating transactions, and protecting the network from threats.
Layer 1 represents the fundamental network foundation of a blockchain platform. It executes all on-chain transactions and therefore serves as the source of truth for a public ledger. For the majority of networks, processing a transaction involves recording a user’s cryptocurrency wallet via asymmetric key pairs and the corresponding coin or token balances. A consensus mechanism, which will be unique to each platform, is utilized to verify and finalize the trade or sale. In addition, layer 1 blockchains feature their own native token, which is used to pay transaction fees or gas fees.
Consensus Mechanism: Layer-1 blockchains employ various consensus mechanisms to validate transactions and achieve agreement among network participants. Popular consensus algorithms used in Layer-1 blockchains include Proof-of-Work (PoW), Proof-of-Stake (PoS), and Delegated Proof-of-Stake (DPoS), among others.
Security: Layer-1 blockchains prioritize security by utilizing cryptographic algorithms and decentralized network structures. The immutability of the blockchain, achieved through cryptographic hashing, ensures the integrity and tamper-resistance of transactions recorded on the network.
Scalability: Layer-1 blockchains face the challenge of scalability, as they need to accommodate a large number of transactions without compromising efficiency. Several Layer-1 protocols employ innovative techniques such as sharding, sidechains, and state channels to enhance scalability and throughput.
Smart Contracts: Many Layer-1 blockchains support the execution of smart contracts, which are self-executing contracts with the terms of the agreement directly written into the code. Smart contracts enable the automation of contractual agreements, reducing the need for intermediaries and enhancing transparency.
Layer 1 blockchains seek to provide the fundamental blockchain functions. Any blockchain’s primary objective is to optimize decentralization, security, and scalability. The concept of accomplishing all three is referred to as the blockchain trilemma due to the difficulty of striking a balance between them.
Early L1 chains (specifically Bitcoin and Ethereum) prioritized decentralization and security at the expense of their networks’ scalability. This has prompted L1 developers to modify their designs to prioritize scalability or to work on alternative solutions “off-chain.” There are a few ways in which L1 chains can improve scalability by modifying their native architecture. These consist of:
Increasing block size: With larger blocks, more transactions can “fit” into each block, thereby enhancing network speed. The disadvantage is that network-securing computers (nodes) must increase their hardware requirements, which increases the risk of centralization.
Changing the consensus mechanism: Proof of Stake (PoS) consensus mechanisms are typically quicker and less resource-intensive than Proof of Work (PoW) consensus mechanisms. Nonetheless, some contend that this comes at the expense of inadequate security and centralization.
Sharding: Sharding enables Layer 1 chains to divide their data into a predetermined number of distinct data components (called shards), thereby assisting to decongest the network and increase transaction speeds. However, communication between sharded chains can be complicated, resulting in compromised blockchain security.
Bitcoin (BTC): Bitcoin, the first and most well-known cryptocurrency, operates on a Layer-1 blockchain. It utilizes the PoW consensus mechanism, allowing for secure peer-to-peer transactions without the need for intermediaries. Bitcoin’s Layer-1 blockchain is primarily designed for value transfer.
Ethereum (ETH): Ethereum is a Layer-1 blockchain renowned for its ability to support smart contracts and decentralized applications. It introduced the concept of programmable money, revolutionizing the blockchain landscape. Ethereum’s Layer-1 blockchain employs the PoW consensus algorithm, although it is transitioning to a PoS-based mechanism with the introduction of Ethereum 2.0.
Polkadot (DOT): Polkadot is a Layer-1 blockchain protocol that focuses on interoperability between different blockchains. It enables the seamless transfer of assets and data across multiple chains. Polkadot utilizes a unique shared security model and the Nominated Proof of Stake (NPoS) consensus algorithm.
Solana: Solana, a blockchain of the third generation, aims to resolve the scalability issues of L1 blockchains. Solana employs proof of History (PoH) consensus to achieve transaction speeds of up to 65,000 per second, unlike Bitcoin and Ethereum.
Layer-1 protocols represent the foundational layer of the blockchain revolution, providing the necessary infrastructure for secure and scalable decentralized systems. By leveraging consensus mechanisms, scalability solutions, and programmability, Layer-1 blockchains offer unparalleled opportunities for industries and individuals alike. As scalability challenges are overcome and interoperability becomes the norm, we can expect a proliferation of innovative use cases and widespread adoption. As this technology continues to evolve, there is a possibility that in the near future, Layer-1 protocols might underpin a multitude of transformative applications, reshaping the global economic and social landscape.
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