The Crypto market is booming, attracting the attention of many individuals and organizations. This boom is driven by many factors, including the development of Blockchain technology and the emergence of diverse decentralized applications (DApps). Located at the center of the blockchain ecosystem, Layer 1 plays an important foundational role, the main driving force for the development of the Crypto market. This article Unich Analyst will help you better understand Layer 1, its role in the blockchain ecosystem, and its development potential in the Crypto market.
What is Layer 1?
Layer 1, also known as the foundation blockchain, plays the role of the main network of the blockchain ecosystem. It is the basis for processing, completing, and confirming transactions, ensuring security and reliability for activities on the network. Layer 1 usually has its own native token to pay transaction fees.
Development history of Layer 1
The beginning: Bitcoin (2008)
Bitcoin, the first cryptocurrency, was created in 2008 by an anonymous individual or group of individuals under the pseudonym Satoshi Nakamoto. Bitcoin uses a Proof of Work (PoW) consensus mechanism, allowing nodes (miners) to validate transactions and create new blocks by solving complex mathematical problems. Bitcoin ushered in a new era for blockchain technology and laid the foundation for the development of the Crypto market.
Ethereum: The origin of smart contracts (2015)
Ethereum, launched in 2015, is an open-source smart contract platform that allows developers to build and deploy decentralized applications (DApps) on the blockchain. Ethereum uses the Solidity programming language and the original Proof of Work (PoW) consensus mechanism. Ethereum has ushered in a new era of blockchain applications, enabling the creation of diverse DApps such as DeFi, NFTs, blockchain games, and many more.
The explosion of new Layer 1 projects (2017-2020)
- Since 2017, the Crypto market has witnessed an explosion of new Layer 1 projects, focusing on solving the problems of scalability, transaction speed, and cost. Some prominent Layer 1 projects during this period include:
- Solana (2017): Solana is designed to achieve high scalability, using the Proof of History consensus mechanism and sharding.
- Cardano (2017): Cardano focuses on security and sustainability, using the Haskell programming language and a systematic approach to blockchain development.
- Polkadot (2019): Polkadot allows connecting different blockchains together, forming a federated blockchain network.
- Cosmos (2019): Cosmos focuses on creating an interconnected blockchain network, allowing communication and value exchange between blockchains.
- Avalanche (2020): Avalanche uses Proof of Stake consensus and sharding to achieve high scalability.
Competition and evolution (2021-present)
- Currently, the Layer 1 market is very competitive. Layer 1 projects are working hard to improve performance, increase scalability, and attract users and developers. Some of the trends in Layer 1 development during this period include:
- Moving to Proof of Stake (PoS): Many Layer 1 projects are moving from Proof of Work (PoW) to Proof of Stake (PoS) to reduce energy consumption and increase transaction speeds.
- Enhancing scalability: Layer 1 projects use a variety of techniques to increase scalability, such as sharding, rollups, state channels, and Plasma.
- Enhancing interoperability: Layer 1 projects are working to increase interoperability between blockchains, allowing for easy exchange of value and data.
- Ecosystem development: Layer 1 projects are investing in developing their ecosystems, attracting developers, and creating diverse decentralized applications (DApps).
Key features of Layer 1
- Consensus mechanism: The consensus mechanism is a key factor in determining the performance of Layer 1. Each Layer 1 uses a different consensus mechanism, resulting in differences in speed, security, and transaction throughput. Some popular consensus mechanisms include:
- Proof of Work (PoW): This mechanism requires nodes (miners) to solve complex mathematical problems to confirm transactions and create new blocks. Examples: Bitcoin, Ethereum (before switching to Proof of Stake).
- Proof of Stake (PoS): This mechanism requires nodes to stake their tokens to participate in confirming transactions. The more tokens a node stakes, the higher its chance of being selected to confirm a transaction. Examples: Ethereum, Cardano, Solana.
- Proof of Authority (PoA): This mechanism uses a list of pre-verified nodes to confirm transactions. This mechanism is suitable for systems with a small number of verified nodes. Examples: Hyperledger Fabric.
- Proof of History (PoH): This mechanism uses an algorithm to create a verified time history, which speeds up transactions. Examples: Solana.
- Decentralization: Layer 1 Blockchain is a decentralized system, meaning that no single party controls the entire network. This helps ensure transparency, security, and censorship resistance.
- Scalability: The ability to handle a large number of transactions at the same time is one of the major challenges of Layer 1. Layer 1 projects are working to solve this problem using various methods.
- Security: Layer 1 must protect the network from attacks and fraud, ensuring the integrity of data and transactions on the network.
- Programmability: Some Layer 1 projects allow developers to build decentralized applications (DApps) on their platform, expanding the application capabilities of the blockchain.
Why expand Layer 1?
- Growing demand: The Crypto market is growing rapidly, with an increasing number of users and transactions, requiring Layer 1 to be able to handle larger throughput.
- Improving user experience: Increasing transaction speeds and reducing transaction fees will help users have a better experience, attracting more people to participate in the blockchain ecosystem.
- Ecosystem development: Scalability is a prerequisite for developing decentralized applications (DApps) on Layer 1. DApps can provide financial services, entertainment, games, e-commerce, and many other fields, benefiting users and promoting the development of the blockchain industry.
Blockchain Trilemma
- Decentralization: Decentralized systems provide security and censorship resistance.
- Scalability: The ability to handle a large number of transactions.
- Security: Protecting the network from attacks and fraud.
This tricky trifecta shows how difficult it is to optimize all three at once. Layer 1 projects often have to choose between two of these three priorities.
- Examples: Bitcoin and Ethereum have chosen decentralization and high security, but their scalability is still limited. Solana and Avalanche have prioritized scalability and transaction speed, but their decentralization may suffer.
Layer 1 scaling methods
- Increasing block size: This allows more transactions to be processed in each block, increasing throughput. However, it can also increase transaction confirmation times.
- Changing consensus mechanisms: Moving from Proof of Work to Proof of Stake, or other more efficient consensus mechanisms, can help speed up transactions and reduce energy consumption.
- Sharding: This method divides the network into smaller shards, each of which handles a portion of the workload. Sharding increases throughput and scalability but also introduces security and data synchronization challenges.
- Rollups: Rollups are a technique used to increase scalability for Layer 1 projects by processing transactions off-chain and only writing the results to the main chain.
- Optimistic rollups: These rollups assume that all transactions are valid and only process disputed transactions.
- Zero-knowledge rollups (zk-rollups): These rollups use cryptographic proofs to verify transactions without sharing all the data, making them more secure and efficient.
- Optimizations: Layer 1 projects are also researching and applying other optimization techniques to improve network performance, such as using more efficient programming languages, optimizing algorithms, and improving network architecture.
Notable Layer 1 projects
- Bitcoin (BTC): Bitcoin is the first and most popular Layer 1 cryptocurrency. Bitcoin uses a Proof of Work consensus mechanism, which is highly secure but slow in processing transactions.
- Ethereum (ETH): Ethereum is the most popular smart contract platform, allowing for the construction of decentralized applications. Ethereum has transitioned to Proof of Stake for scalability and is currently undergoing a major upgrade to improve the performance and scalability of the network.
- Solana (SOL): Solana is a Layer 1 known for its high throughput and fast transaction processing speed. Solana uses Proof of History consensus and sharding to achieve high scalability.
- Cosmos (ATOM): Cosmos is a Layer 1 focused on creating an interconnected blockchain network, allowing communication and value exchange between blockchains. Cosmos uses Proof of Stake consensus and sharding to achieve high scalability.
- Avalanche (AVAX): Avalanche is a Layer 1 that uses Proof of Stake consensus and sharding to achieve high scalability. Avalanche provides a powerful decentralized application development platform, attracting many DeFi and NFT projects.
- Aptos (APT): Aptos is a Layer 1 that uses the Move programming language and is designed to be highly scalable. Aptos focuses on providing a fast and efficient platform, suitable for high-speed applications such as DeFi and NFTs.
Personal opinion about Layer 1
Layer 1 Blockchain is the core foundation of the blockchain ecosystem, playing an important role in promoting the development of the Crypto market. Despite its many outstanding advantages, Layer 1 also has some disadvantages that need to be addressed.
Advantages
- High security: Layer 1 often uses strong consensus mechanisms such as Proof of Work or Proof of Stake, which help protect the network from attacks and fraud.
- Decentralization: Layer 1 is a decentralized system, ensuring transparency and censorship resistance. No single party controls the entire network, helping to protect the interests of users.
- Scalability: Layer 1 is often designed to handle a large number of transactions, but scalability is still a big challenge for many projects. Layer 1 developers are trying to solve this problem with many different methods.
- Programmability: Some Layer 1 projects allow developers to build decentralized applications (DApps) on their platform, expanding the application capabilities of the blockchain.
- Innovation: Layer 1 is the driving force behind innovation in the blockchain industry. Layer 1 developers are often focused on creating solutions that are more efficient, faster, and easier to use.
Disadvantages
- Limited scalability: The ability to process large volumes of transactions at once remains a major challenge for many Layer 1 projects. Limited scalability can lead to network congestion, high transaction fees, and slow transaction confirmation times.
- High transaction costs: Transaction fees on some Layer 1 projects can be very high, especially during times of network congestion. High transaction costs can reduce the appeal of blockchains to users, especially for small transactions.
- Complexity: The structure of Layer 1 Blockchain can be complex and confusing for new users, which can be a barrier to widespread blockchain adoption.
- Lack of interoperability: Some Layer 1 projects are incompatible with each other, making it difficult to exchange value between blockchains.
- Fierce competition: The Layer 1 market is very competitive, which can lead to projects facing many challenges in attracting users and developers.
- Liquidity fragmentation: The more blockchains develop, the greater the liquidity fragmentation. This increases the risk of DeFi.
Conclusion
Scalability is one of the major issues facing Layer 1 blockchains. As the demand for cryptocurrencies increases, the pressure for blockchain protocols to scale will also increase. Since both Layers have certain limitations, the future solution will be to build a protocol that can solve the scalability problem while still ensuring security. Above is all the information about Layer1 that Unich Analyst has compiled, thank you for reading.
