In the cryptocurrency industry, the term “Layer 1” refers to the base blockchains, which act as the main infrastructure for transactions and smart contracts. Popular examples include Bitcoin, Ethereum, Solana, Cardano, and more. Below, I explain what they do and where the profit lies in this context.
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What does Layer 1 do?
1. Data Registration and Security
Layer 1 blockchains store all transactions and information on a public ledger, ensuring security and immutability through decentralized consensus (such as Proof of Work or Proof of Stake).
2. Execution of Smart Contracts
Blockchains like Ethereum provide a foundation for executing smart contracts, enabling the creation of decentralized applications (DeFi, NFTs, games, etc.).
3. Scalability and Interoperability
Some Layer 1 networks are developing solutions to support large transaction volumes (e.g. Solana) or facilitate communication between different blockchains.
4. Governance and Sustainability
Many blockchains have governance systems where participants decide on updates and changes to the protocol.
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Where is the profit in Tier 1?
Profit can come in many forms, depending on your role in the ecosystem:
1. Investment in Tokens
Buy and hold native Layer 1 tokens such as BTC, ETH or SOL.
Profit occurs when these tokens increase in value due to increased adoption, scarcity, or network improvements.
2. Staking
On blockchains that use Proof of Stake, such as Ethereum (currently), Cardano or Solana, you can participate in staking.
By delegating your tokens, you receive rewards (in the form of more tokens) for helping to secure the network.
3. Participation in Validations
Running a validator node (with technical requirements) can earn transaction fees and token rewards.
4. Adoption and Usage on the Web
With the growth of DeFi and NFTs, Layer 1 networks receive more transaction volume, generating fees (which can be lucrative if you are a validator or miner).
5. Application Development
Building projects on a Layer 1 blockchain (dApps, DeFi protocols, marketplaces) can generate direct profit, especially on widely adopted platforms.
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Where is the biggest profit really?
1. Early Adoption:
The biggest gains often come when you identify a promising blockchain before mass adoption. For example, those who invested in Ethereum in 2015 or Solana in 2020 saw exponential returns.
2. Application Ecosystem:
Beyond Layer 1 infrastructure, the real explosive growth has come from Layer 2 applications or DeFi/NFT projects built on top of these blockchains.
3. Mining or Validation Infrastructure:
On networks like Bitcoin or Ethereum (Proof of Stake), validating transactions can be a stable source of profit.
4. Well Designed Tokenomics:
Networks with a limited supply (like Bitcoin) or token burning mechanisms (like Ethereum after EIP-1559) offer greater potential for asset appreciation.
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If you're looking for profit, it's important to understand that layer 1 is a fundamental piece of the ecosystem, but the real revolution often comes from layer 2 (scalability) and the applications they enable.
