LAYER 1 BLOCKCHAIN EXPLAINED

A Layer 1 blockchain refers to the underlying main blockchain architecture and protocol that forms the base layer of a cryptocurrency network. It is responsible for the core functions of the blockchain system, such as transaction processing, consensus mechanism operations, and block validation.

Prominent examples of Layer 1 blockchains include Bitcoin, Ethereum, Solana, and Cardano. These networks have their own native cryptocurrencies and are often considered foundational infrastructure for decentralised applications (dApps), smart contracts, and asset transfers.

Layer 1 blockchains typically feature characteristics such as:

• Native Consensus Algorithm: For example, Bitcoin uses Proof of Work (PoW) and Ethereum 2.0 has transitioned to Proof of Stake (PoS).
• Security Models: These chains carry their own security via decentralised validators or miners.
• Scalability Constraints: Due to decentralisation and security priorities, scalability on Layer 1 chains can be limited without further solutions.
• Programmability: Ethereum and others allow for programmable smart contracts directly on the base layer.

All transactions on a Layer 1 blockchain are settled on-chain, meaning they become a permanent and immutable part of the blockchain ledger. Improvements or upgrades to Layer 1 blockchains typically require hard or soft forks, which necessitate consensus among network participants. One notable example is Ethereum’s transition from PoW to PoS, known as the Merge, which marked a substantial upgrade at the base protocol level.

To cope with Layer 1 limitations—especially throughput and speed—many innovations have been explored, including Layer 2 protocols and off-chain scaling methods. However, Layer 1 remains the root of trust and final settlement for the blockchain ecosystem. Therefore, understanding this foundational layer is essential for grasping how decentralised networks function as a whole.

While Layer 1 refers to the base blockchain protocol, other layers—primarily Layer 2—are built atop this foundational layer to address specific shortcomings such as scalability, speed, and cost. Understanding the distinction between Layer 1 and Layer 2 highlights how the blockchain ecosystem is evolving to meet increased demand.

Layer 1 vs Layer 2 Overview:

• Layer 1: Includes core blockchains like Bitcoin and Ethereum. Responsible for consensus, data availability, and security.
• Layer 2: Built on top of Layer 1 to scale transaction throughput. Examples include Lightning Network (Bitcoin) and Optimism/Arbitrum (Ethereum).

Key differences include:

1. Execution Environment

Layer 1 handles transactions natively within its own blockchain environment. Layer 2 solutions process many transactions off-chain and submit final summaries to Layer 1 to benefit from its security and decentralisation.

2. Scalability Approach

Improving scalability on Layer 1 often requires fundamental protocol upgrades, such as sharding. Meanwhile, Layer 2 achieves scalability by compressing or batching transactions using techniques like rollups or state channels.

3. Security Model

The base Layer 1 blockchain maintains its own built-in security via consensus mechanisms like Proof of Work or Proof of Stake. Layer 2 relies on Layer 1 for finality and dispute resolution, thereby inheriting its security model indirectly.

4. User Experience

Layer 2 can offer lower transaction fees and faster settlements, improving user experience without compromising on decentralisation. However, additional steps (such as bridging assets) are often required, introducing complexity for end users.

Complementary Relationship:

Layer 2 does not aim to replace Layer 1 but rather to extend its capabilities. For instance, Ethereum remains the cornerstone for settlement and smart contract execution, while Layer 2 networks reduce congestion and improve usability for mass adoption. This layered architecture allows blockchain systems to remain secure and decentralised while scaling to meet market needs.

Additionally, Layer 3 protocols are emerging, focusing on application-specific logic and interoperability. However, they too are reliant on Layer 1 for security and orchestration, highlighting the foundational role of the base layer.

The blockchain ecosystem comprises several notable Layer 1 networks, each offering varied features, consensus mechanisms, and use cases. Below are some of the most prominent examples of Layer 1 blockchains as of 2024:

1. Bitcoin (BTC)

As the progenitor of all public blockchains, Bitcoin is a Layer 1 network operating on a Proof of Work (PoW) consensus mechanism. It was designed as a decentralised digital currency and focuses on security, immutability, and censorship resistance. Due to its inherent scalability limitations, the Lightning Network functions as a Layer 2 solution for Bitcoin, enabling faster and cheaper transactions.

2. Ethereum (ETH)

Ethereum is a programmable Layer 1 blockchain that pioneered smart contracts, allowing developers to build decentralised applications directly on-chain. Transitioning from PoW to PoS with Ethereum 2.0 significantly improved energy efficiency and laid the groundwork for future scaling via sharding and Layer 2 rollups such as Arbitrum and Optimism.

3. Solana (SOL)

Solana is a high-performance Layer 1 blockchain known for its impressive transaction throughput and low fees. It uses a novel hybrid consensus model called Proof of History (PoH) combined with Proof of Stake, supporting fast block times and scalability without relying on Layer 2 solutions. Solana targets use cases such as DeFi, NFTs, and decentralised gaming.

4. Cardano (ADA)

Cardano is a Layer 1 blockchain developed through peer-reviewed academic research. It employs a Proof of Stake consensus protocol called Ouroboros. Cardano emphasises formal verification and high-assurance code, making it suitable for mission-critical applications and enterprise deployments. Native asset support and smart contracts (via Plutus) are core features.

5. Avalanche (AVAX)

Avalanche is a Layer 1 blockchain that uses a unique consensus protocol called Avalanche, enabling high throughput and near-instant finality. The platform allows developers to deploy multiple interoperable subnets, offering customisable blockchain environments. It’s commonly used for DeFi, NFTs, and enterprise blockchain solutions.

6. Polkadot (DOT)

Polkadot is a Layer 1 blockchain designed to support interoperability between different specialised blockchains (parachains). Its relay chain provides foundational security and coordination while parachains execute transactions. The network employs a nominated Proof of Stake (nPoS) consensus mechanism and facilitates interoperability across chains.

7. Algorand (ALGO)

Algorand is an open-source Layer 1 protocol focused on scalability and quick transaction finality. It uses a Pure Proof of Stake (PPoS) mechanism, which randomly selects validators, thus maintaining decentralisation and security. Algorand supports a range of dApps, digital assets, and smart contracts optimised for speed and cost-efficiency.

Each of these Layer 1 blockchains plays a significant role in the broader decentralised ecosystem. Their diverse architectures and governance models offer users and developers a range of options based on speed, security, decentralisation, and ecosystem maturity. As demand grows, these foundational networks will continue to evolve to support the next generation of digital infrastructure.