Layer-1 (L1) blockchains are the primary layer of blockchain networks, often referred to as base blockchains. They are built to provide a secure, decentralized infrastructure for digital cryptocurrency transactions, creating a base upon which additional networks and blockchain applications can be developed. Their main role is to enable safe value exchange without reliance on intermediaries, like banks. Layer-1 networks comprise vital elements, including the blockchain protocol, consensus mechanisms, and native cryptocurrencies, all of which work together to validate transactions and uphold the cryptocurrency network’s integrity.
L1 blockchains carry out key functions that ensure smooth network operations. These functions include transaction validation, network security through consensus, and decentralization to prevent centralization by any single entity. By directly validating and recording each transaction, L1 networks create a secure and transparent environment for users. Bitcoin and Ethereum are widely recognized examples of L1 blockchains, each addressing security, scalability, and decentralization in distinct ways.
Essential Features of Layer-1 Blockchains
Consensus Mechanisms
Consensus mechanisms are processes used by Layer-1 networks to validate transactions, form new blocks, and secure the network. Two common types are Proof of Work (PoW) and Proof of Stake (PoS).
Bitcoin blockchain, for example, operates on PoW, where miners compete to solve complex mathematical puzzles to verify transactions and create new blocks. Validators in PoW receive rewards for adding legitimate blocks to the blockchain, which maintains network security and consistency. Each block contains a set of verified transactions, becoming a permanent part of the blockchain once added.
Ethereum, however, has shifted to PoS, where validators stake assets to participate in transaction validation, promoting energy efficiency and scalability. Validators create new blocks by verifying transactions and safeguarding the blockchain’s integrity. Staking promotes honest behavior, as malicious actions can result in the loss of staked tokens. This, combined with Layer-2 solutions like rollups, enables Ethereum to handle more transactions with lower fees.
Scalability and Sharding
Scalability poses a major challenge for Layer-1 blockchains, as they may struggle with handling a high volume of transactions. Sharding is a technique employed to enhance scalability by dividing the network into smaller subsets called shards, which process transactions concurrently, increasing the blockchain’s throughput. This technique allows for more simultaneous transactions, reducing the congestion frequently seen in L1 blockchains such as Ethereum and Bitcoin.
Security and Decentralization
At the core of Layer-1 blockchains is security, ensuring that all recorded transactions on the blockchain remain secure and immutable. The decentralized structure of these networks prevents control by any single entity, establishing a transparent and trustworthy system. Each network node retains a copy of the blockchain, requiring consensus on transaction validity, which complicates malicious attacks.
Smart Contracts
Smart contracts are a key feature of various Layer-1 blockchains, notably Ethereum. These are self-executing contracts with terms directly embedded in code, allowing decentralized applications (dApps) to operate without intermediaries. Smart contracts enable diverse use cases, from token creation (e.g., ERC-20 tokens) to decentralized finance (DeFi) and non-fungible tokens (NFTs). The capability to develop and execute smart contracts on Layer-1 networks greatly expands blockchain applications beyond simple transactions.
Examples of L1 Blockchains
Bitcoin
Bitcoin (BTC) is the original Layer-1 blockchain and the first practical application of decentralized digital currency. Utilizing Proof of Work (PoW) consensus, Bitcoin prioritizes security and decentralization. Its main purpose is to enable peer-to-peer cryptocurrency transactions without central authority, offering a trustless method of value transfer. BTC is extensively used for digital payments, as a store of value, and as an inflation hedge.
To address scalability limitations, several Layer-2 solutions have been introduced to Bitcoin. These solutions improve transaction speeds and lower fees by processing transactions off-chain, with final settlement on the main blockchain. A notable example is the Lightning Network, which facilitates faster, lower-cost Bitcoin transactions by creating off-chain channels between users, reducing strain on the main blockchain and improving scalability.
Ethereum
Ethereum, another leading Layer-1 blockchain, pioneered smart contracts, facilitating decentralized applications (dApps) and other uses like non-fungible tokens (NFTs), ERC-20 tokens, DeFi projects, and crypto transactions. Popular tokens such as USDT (Tether) and Chainlink (LINK) are built on Ethereum, leveraging its smart contract features.
Initially using Proof of Work, Ethereum transitioned to Proof of Stake for better scalability and reduced energy consumption. Layer-2 rollups further enhance Ethereum’s scalability by processing transactions off the main chain and recording them on L1, significantly increasing transaction throughput and reducing costs. Ethereum’s Layer-1 network remains essential for executing smart contracts and supports innovations like NFTs, DeFi, and ERC-20 tokens, broadening blockchain technology's possibilities beyond basic transactions.
Solana
Solana is a high-performance Layer-1 blockchain developed to deliver fast, secure, and scalable infrastructure for decentralized applications. In contrast to Bitcoin and Ethereum, which face scalability limitations due to their consensus mechanisms, Solana combines Proof of History (PoH) with Proof of Stake (PoS) to achieve higher transaction throughput. This design allows Solana to process thousands of transactions per second, positioning it among the fastest blockchain networks.
Solana has gained popularity for hosting decentralized applications, particularly those associated with NFTs and meme coins. Its low transaction fees and high speed make it a preferred choice for developers, especially for projects requiring high transaction rates without high gas fees.
TON Blockchain
TON (The Open Network) is a rising Layer-1 blockchain focused on providing scalable and user-friendly blockchain experiences. Originally developed by Telegram, TON aims to support quick transactions and dApps, with strong user integration in mind.
TON employs Byzantine Fault Tolerant (BFT) Proof of Stake consensus to maintain network scalability and security. A unique feature of TON is its integration with Telegram, creating a seamless user experience that includes features like tap-to-earn games, making it more accessible to mainstream users. TON stands out in the crypto industry compared to traditional blockchains like Bitcoin or Ethereum.
Benefits and Challenges of Layer-1 Blockchains
Benefits
L1 blockchains offer the fundamental infrastructure for blockchain networks, providing a safe and decentralized environment for cryptocurrency transactions. They allow users to transfer value securely, deploy dApps, and create digital assets without central authorities. By removing intermediaries, L1 blockchains reduce fraud risks, ensure transparency, and improve financial transaction efficiency. They also provide a foundation for innovations like smart contracts and DeFi, making them essential to blockchain technology’s development.
Challenges
Despite their benefits, Layer-1 blockchains face significant scalability issues. As the number of users grows, processing each transaction on the base layer can result in network congestion and higher transaction fees. This is part of the "blockchain trilemma," which points to the difficulty of achieving decentralization, security, and scalability simultaneously.
To counter these challenges, many Layer-1 networks explore solutions such as Layer-2 enhancements and on-chain upgrades to boost scalability while preserving security and decentralization. Another challenge is the high energy usage in proof-of-work networks like Bitcoin, prompting the development of energy-efficient alternatives, such as Proof of Stake, to enhance blockchain sustainability.
Conclusion
Layer-1 blockchains form the basis of the blockchain ecosystem, delivering the crucial infrastructure for secure and decentralized transactions. While scalability challenges remain, innovations like sharding and the move to Proof of Stake have addressed some limitations. From Bitcoin to Ethereum and beyond, Layer-1 blockchains continue to be instrumental in the progress of blockchain technology, paving the way for decentralized finance, smart contracts, and more.
