Layer-1 blockchains, or base layer blockchains, are fundamental protocols on which decentralized ecosystems are built. This is the core level of technology that provides key functions: security, scalability, decentralization, and execution of smart contracts. Layer-1s serve as the backbone of the crypto industry and Web3, defining the growth directions of the entire ecosystem.
What are Layer-1 blockchains?
Layer-1s are independent blockchain networks with their own architecture and consensus mechanism. Unlike Layer-2 solutions, which are built on top of base blockchains, Layer-1s operate autonomously, providing:
Execution of smart contracts. Protocols like Ethereum allow developers to create decentralized applications (dApps).
Support for tokens. Most Layer-1s have their own cryptocurrencies used for transaction fees and network governance.
Scalability and performance. Layer-1s are constantly evolving to provide millions of transactions per second.
Key players in the Layer-1 sector
1. Ethereum (#ETH )
Description: Ethereum is the largest Layer-1 blockchain on which thousands of smart contracts and decentralized applications operate.
Analytics:
TVL (total value locked) on Ethereum exceeds $20 billion, accounting for more than 60% of the entire DeFi market.
After switching to Proof-of-Stake (PoS) in 2022, the network reduced energy consumption by 99.9%.
Recent updates, such as the Shanghai Upgrade, have improved staking withdrawal capabilities, attracting new investors.
Prospects:Ethereum remains a leading player in the market due to its ecosystem, integrations, and active development.
2. Binance Smart Chain (BSC)
Description: BSC is a high-performance Layer-1 blockchain from Binance, optimized for cheap and fast transactions.
Analytics:
BSC supports millions of daily transactions, competing with Ethereum in terms of active users.
Low fees and integration with Binance Exchange make BSC attractive to the mass market.
Projects like PancakeSwap demonstrate the success of the DeFi ecosystem on BSC.
Prospects:BSC continues to evolve thanks to the support of the largest centralized exchange, Binance, and a high level of compatibility.
3. Solana (#SOL )
Description: Solana positions itself as a high-performance blockchain capable of processing thousands of transactions per second with low fees.
Analytics:
Solana is actively used in the NFT industry and Web3 games.
Solana's TVL is around $1.2 billion, and the network is restoring trust after the FTX-related crisis.
Recent network updates have increased its resilience and security.
Prospects:Solana continues to attract developers due to its speed and scalability, but competition with other Layer-1s remains a significant challenge.
Issues and challenges of Layer-1 blockchains
The blockchain trilemma: Balancing decentralization, security, and scalability remains a key issue for all Layer-1s.
Regulation: Increased regulatory attention to cryptocurrencies may impact the development of independent networks.
Competition: The growing number of Layer-1 solutions, including Avalanche, Cardano, Polkadot, and #NEAR , create a tough battle for the market.
Infrastructure risks: Attacks on blockchains or their decentralized applications (dApps) remain one of the main threats.
Trends and prospects of the sector
1. Improving scalability
Layer-1s are actively working on solutions to increase throughput. For example, Ethereum is implementing sharding, while Avalanche uses Subnets.
2. Merging with Web3
The integration of Layer-1 with Web3 applications such as games, social networks, and metaverses will be a growth driver for ecosystems.
3. Interoperability
Protocols like Polkadot and Cosmos focus on building bridges between blockchains, which will enhance their compatibility.
4. Growth of institutional interest
Large companies such as Google, JPMorgan, and Microsoft are already using Layer-1 for blockchain innovations, indicating a growing institutional adoption.
Three key Layer-1s to watch in 2024
1. Avalanche (#AVAX )
Provides high speed and low latency due to the unique architecture of Subnets.
Actively used for institutional and corporate solutions.
2. Cardano (#ADA )
Focuses on sustainable development and formal code verification.
Recent updates to Hydra have improved the network's scalability and speed.
3. Polkadot (DOT)
Provides a platform for building parachains that can interact with each other.
The DeFi and Web3 ecosystem is actively developing.
Layer-1 blockchains remain the cornerstone of the cryptocurrency industry, providing the foundational infrastructure for the growth of DeFi, NFTs, DAOs, and other segments. Despite challenges such as competition and regulatory risks, the Layer-1 sector demonstrates immense potential for scaling and integration into real business processes.
Projects like Ethereum, Solana, and Binance Smart Chain are defining the future of the crypto market, attracting millions of users and developers. In the coming years, Layer-1 blockchains will continue to set the direction for the entire crypto industry, opening new horizons for Web3 solutions and the digital economy.