The cryptocurrency industry is an immensely complex web of theories, but it doesn’t require you to understand all of it. Nevertheless, there are some core pieces of knowledge that are essential, and one of them is the concept related to Layer-1 blockchains. So, what is a Layer-1 blockchain, and how is it different from Layer-2? What are the best Layer-1 coins currently available? Let’s explore these questions in detail in the content of the article below.
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What is a Blockchain Layer 1?
Blockchain Layer-1, also known as layer 1, are platforms considered the main layer of the blockchain. They have a complete base network, such as Bitcoin, BNB Chain, or Ethereum, and their basic infrastructure. Layer 1 blockchains can validate and complete transactions without needing another network.
An easy way to identify Layer 1 protocols is whether the protocol has its coin on the network. For example, Bitcoin is a coin, Ethereum is a coin, similar to Cardano, Solana, NEAR, Avalanche, VeChain, Theta, etc. These are all Layer-1 blockchain protocols with native tokens, many of which can support smart contracts, DApps, and other tokens.
There are hundreds of different Layer-1 blockchains, too many for us to mention here. But below are the top 10 Layer-1 blockchains according to Chainalysis statistics by market capitalization:
Different Layer 1 blockchains are designed and optimized for different goals. Bitcoin was designed to become a peer-to-peer currency for simple transactions and as a store of value, while Ethereum was the first blockchain to incorporate smart contract functionality and DApps and can be used to create tokens running on its network.
Later, other Layer 1 blockchains were launched. Some run smart contracts, directly competing with Ethereum such as Solana, Cardano, Avalanche, and many other protocols. Some other Layer-1 blockchains focus on international payments, such as Ripple and Stellar, while some names focus on interoperability, such as Polkadot and Cosmos. Or like the Theta network focusing on the future of video streaming, VeChain focusing on supply chain logistics, etc. Therefore, you can see that there are different Layer-1 blockchains designed for different jobs, and there is fierce competition in the field they operate in.
What is the Blockchain Layer 1 Trilemma?
A common issue with Layer 1 blockchains is that they lack scalability. Bitcoin and other major blockchains have struggled to handle transactions during times of high demand. Bitcoin uses a Proof of Work (PoW) consensus mechanism, which requires significant computational resources.
While PoW ensures decentralization and security, PoW networks also tend to slow down when transaction volume is too high. This increases transaction confirmation time and makes fees more expensive.
Blockchain developers have been researching scalability solutions for many years, but there is still much discussion ongoing about the best alternative solutions. There are several options including:
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Increasing block size, allowing more transactions to be processed in each block.
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Changing the consensus mechanism used, such as with the recent Ethereum 2.0 update.
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Implementing Sharding. A form of database partitioning.
Improvements in Layer-1 blockchain require significant work to be carried out. In many cases, not all network users agree with the change. This can lead to community splits or even a hard fork, as happened with Bitcoin and Bitcoin Cash in 2017.
This issue is scalability and it has proven to be the most difficult problem to solve in cryptocurrency. This issue is often referred to as the Blockchain Trilemma. The Blockchain Trilemma was first posed by Ethereum co-founder Vitalik Buterin and suggests a triad of main goals in any Layer 1 protocol. According to Vitalik and most in the industry, for a cryptocurrency network to be useful, a blockchain needs to meet the following three requirements:
- Decentralization – Instead of being managed and controlled by a single authority or organization, blockchains should distribute network control among participants.
- Security – Security is paramount in blockchain, and each network must be hack-proof and prevent malicious actors from taking control of the network or altering transactions and history.
- Scalability – Blockchains need to be able to support a large volume of transactions and activity without increasing time or transaction fees.
Developers face the issue that when building a Layer-1 blockchain, one of the three things often needs to be sacrificed as a trade-off to achieve the other two.
A classic example of this is Ethereum, which is highly decentralized and extremely secure, although it cannot scale with slow confirmation times, low transactions per second, and high gas fees. Compare this to Binance’s popular BNB Chain (formerly known as Binance Smart Chain), which is safe and highly scalable. It is a high-efficiency blockchain with lightning-fast transactions and low fees, but it is strictly centralized, which goes against what many believe cryptocurrency should have.
Below is a quick comparison of some current Layer-1 blockchains:
Solutions of Layer-1 Blockchains
Having learned what Layer-1 blockchain is, you surely know it requires to offer decentralization, security, and scalability. Layer one blockchain networks can ensure better results for scalability through various methods. Here are two different types of Layer 1 blockchain examples based on the methods they follow to achieve scalability.
The first Layer 1 blockchain solution will involve the consensus mechanism. Many traditional blockchain networks use Proof of Work, a slow and resource-intensive consensus mechanism. Although Proof of Work supports decentralized consensus and security through cryptography, it poses notable obstacles to scalability.
Conversely, some other Layer-1 blockchains might leverage Proof of Stake as their consensus mechanism. Proof of Stake helps achieve decentralized consensus on the blockchain network along with validating block transactions according to stake. However, Proof of Stake loses out on security while offering better transaction speeds. Therefore, new Layer-1 blockchain improvements are necessary to address concerns about scalability while ensuring security.
Another leading feature of Layer-1 blockchains, aimed at scalability, is Sharding. This is an effective method, mainly used in database partitioning, that you can apply to distributed ledger technology in blockchain. Sharding plays a role as a reliable Layer 1 scalability solution to increase transaction throughput.
It involves dividing the network into a collection of different separate database blocks, also known as segments. Dividing the network and its nodes helps efficiently distribute the workload along with allowing improved transaction speeds. Each segment for the Layer 1 blockchain will manage a subset in the overall network’s operations. Therefore, each segment has its transactions, blocks, and nodes.
Distinguishing between Layer-1 and Layer-2 Blockchains
What is a Layer-1 blockchain and how is it different from Layer-2?
Layer 1 refers to the main chain of the blockchain, simply understood as the original blockchain architecture.
Layer 2 are protocols or platforms supporting the original blockchain, with the purpose of helping the blockchain solve issues such as scalability, processing speed, fees,…
In summary, Layer 1 is the first layer – the original blockchain, and if there are shortcomings in this layer that need to be improved, then Layer 2 – the technology layer that addresses the shortcomings of the first layer – is created.
Currently, Layer-2 solutions are mainly for Ethereum. However, despite having a common purpose, they are divided into different types, including State Channel, Plasma, and Rollups, with Rollups further divided into two types: Optimistic RollUps and Zk RollUps.
- You can read in detail: What is Layer 2? The most useful and investable Layer 2 coins
Meanwhile, for Bitcoin, its scalability solutions are currently known as SegWit and Lightning Network.
- SegWit stands for Segregated Witness, a proposed update for the Bitcoin software, introduced to fix serious issues and expand Bitcoin’s processing capabilities.
- Lightning Network is a second-layer protocol that operates on the Bitcoin network. The primary purpose of the Lightning Network is to allow for more transactions to be confirmed in a shorter period, leading to faster transactions for users.
Top Layer-1 Coins Currently Available
Bitcoin (BTC)
Bitcoin – As the leading coin dominating the current market, there is no reason it shouldn’t be on this list. Although Bitcoin’s blockchain is nearly non-scalable, with slow transaction processing and high costs, Bitcoin is currently considered a store of value and is becoming more valuable as scarcity increases. Therefore, even though it cannot deploy smart contracts on its network, it remains a good Layer-1 coin to invest in today.
Ethereum (ETH)
The next leading Layer-1 blockchain is Ethereum – the largest smart contract platform currently, with a market share in DeFi almost dominating the market. Apart from Bitcoin, most other Layer-1 coins are trying to compete to become the “Ethereum Killer.”
The most notable thing is Ethereum’s transition from POW to POS. This will make it faster, cheaper than the old consensus algorithm, and also save electricity – a problem that POW blockchains are facing.
Although there is currently much FUD about ETH, with its position as a leading smart contract platform, Ethereum will surely overcome it soon. Investing in ETH is a low-risk investment, especially in the context of its rapidly developing ecosystem.
Binance Chain (BNB)
Initially called Binance Smart Chain, it was later renamed Binance Chain. This Layer-1 blockchain was launched by the cryptocurrency exchange Binance, with BNB as its token. The BNB Chain has achieved high growth for several reasons, the main one being the ability to support new tokens and dApps without high fees like Ethereum.
BNB Chain can also attract the huge customer base of Binance, the world’s largest cryptocurrency exchange, leveraging Binance’s extensive language support to attract users globally.
Algorand (ALGO)
Launched in April 2019 by MIT computer scientist Silvio Micali, Algorand aims to support high-frequency, large-scale transactions. Currently, Algorand facilitates about 1,000 estimated transactions per second with 5 seconds for final confirmation on the blockchain. It achieves this partly thanks to its unique two-tier blockchain structure. The base layer supports basic transactions, as well as smart contracts for new tokens and atomic swaps. On the other hand, the second layer is reserved for more complex smart contracts, such as power source-level dApps. This bifurcation of the Algorand blockchain allows Algorand to process transactions efficiently.
Cardano (ADA)
It is one of the first Layer 1 blockchains to successfully implement a proof of stake model. Cardano is known for its low gas fees, high level of decentralization, and the ability of its native currency – ADA, to generate passive income for users. It completely excels in transaction speed over Ethereum, authenticating over 250 transactions per second compared to Ethereum’s 15.
Avalanche (AVAX)
Avalanche is a Layer-1 coin with a lot of potential, allowing customization to build many dApps and tokens. It also has scalability due to low fees, along with the ability to interact with other chains. For example, Avalanche is compatible with the Ethereum Virtual Machine (EVM), meaning dApps and tokens built on the Ethereum blockchain can easily move to the Avalanche blockchain.
With these three capabilities, Avalanche claims it can be the “platform of platforms” and support significant Layer 2 development. Avalanche does this with a trio of blockchains, each serving different use cases:
- C-Chain executes transactions related to native Ethereum dApps and is currently the most used among the three blockchains.
- X-Chain allows creating and exchanging new assets built on the Avalanche blockchain.
- P-Chain coordinates the validators of the Avalanche blockchain and the creation of subnets.
Solana (SOL)
Solana is a promising Layer 1 coin, created with the goal of solving Ethereum’s scalability issues. Solana does this with a unique consensus mechanism combining PoS with Proof of History (PoH). PoH seeks to address the issue of timestamping transactions occurring on the blockchain, which determines the order in which validators confirm those transactions. While other blockchains rely on external infrastructure for timestamping, Solana’s PoH mechanism allows for timestamp integration into the blockchain itself, enabling faster block validation and thus faster transaction times.
Therefore, some of the advantages of Solana include:
- Transactions per second typically range from 1,500 to 3,500, with a maximum of 65,000 depending on the complexity of the transaction.
- Block confirmation time of 400 milliseconds.
- 0.00025 USD fee per transaction.
Polkadot (DOT)
Polkadot was created by Gavin Wood, a co-founder of Ethereum, who was determined to overcome Ethereum’s issues through a new blockchain. Unlike Ethereum, which operates on a “hub and spoke” model (ETH at the center of the blockchain and its mining tools handling all smart contract transactions), Polkadot allows its smart contracts to run independently of the main chain. Polkadot’s smart contracts can run on what are called parachains, which can be secured with their tokens, not just with DOT.
Elrond (EGLD)
Elrond is a Layer 1 blockchain network established in 2018, using sharding to improve its performance and scalability. The Elrond blockchain can process over 100,000 transactions per second (TPS). Its two unique main features are the Secure Proof of Stake (SPoS) consensus protocol and Adaptive State Sharding.
Adaptive State Sharding occurs through the splitting and merging of segments as the network loses or gains users. The entire architecture of the network is broken down, including its state and transactions. Validators also move between segments, reducing the likelihood of maliciously overtaking a segment.
Harmony (ONE)
Harmony is an Effective Proof of Stake (EPoS), Layer 1 network with sharding support. Its main network has four segments, each creating and verifying new blocks in parallel. Each segment can do this at its own speed, meaning all of them can have different block heights.
Harmony is currently using a “Cross-Chain Finance” strategy to attract developers and users. A reliable bridge to Ethereum (ETH) and Bitcoin plays a crucial role, allowing users to exchange their tokens without the usual custodial risks associated with bridges. Harmony’s main vision for scaling Web3 is based on Decentralized Autonomous Organizations (DAOs) and Zero Knowledge Proofs.
THORChain (RUNE)
THORChain is not just a decentralized exchange (DEX), but also a Layer-1 blockchain developed using the Cosmos SDK. It utilizes the Tendermint consensus mechanism to validate transactions. The main objective of THORChain is to facilitate decentralized cross-chain liquidity without the need for asset locking or wrapping. In essence, THORChain acts as a custodian that oversees deposits and withdrawals, fostering decentralized liquidity and eliminating the need for centralized intermediaries. The native token of THORChain is called RUNE, which serves various purposes such as transaction fees, governance participation, security, and validation.
IoTeX (IOTX)
IoTeX is a Layer 1 network established in 2017, focusing on integrating blockchain with the Internet of Things (IoT). This allows users to control the data their devices generate, enabling “DApps, content, and services powered by machines.” Your personal information is valuable, and managing it through blockchain ensures safe ownership.
The combination of hardware and software by IoTeX provides a new solution for people to control their privacy and data without sacrificing user experience. The system allows users to earn digital assets from their real-world data, called MachineFi.
That concludes all the information about Layer-1 blockchain that we wanted to share with you. Hopefully, through this article, you have gained some understanding of what Layer-1 blockchain is, as well as the best Layer-1 coins to invest in. If you have any questions, feel free to leave a comment below for us to answer. Thank you for reading the article and we wish you successful investing.