What are L1 vs L2 scaling solutions?

The crypto industry, like several other industries, has its own set of shortcomings. However, most of these problems come with solutions as well. For example, scalability has been a common problem for several blockchains. The difficulty of accommodating the growing number of transactions and data on a blockchain has been raised by a number of networks. This is where Layer-1 is [L1] and team-2 [L2] solutions come in.

So what is Layer-1 [LI]?

Layer-1 usually refers to a blockchain or the base level of the blockchain. Bitcoin [BTC]Ethereum [ETH]and Litecoin [LTC] are all examples of a layer-1 blockchain. The solutions associated with it are usually implemented in the original blockchain itself. This would include changing the mechanisms or rules to spruce up the transaction capacity. Accommodating more users, as well as data, follows in L1 scaling solutions.

Prominent L1 scaling solutions include changing up consensus protocol. Crypto assets such as Bitcoin and Ethereum currently use Proof-of-Work [PoW] consensus mechanism. Although this is touted as one of the most secure algorithms, it can sometimes slow down. In addition to this, energy consumption is largely ignored. As a result, networks are shifting to Proof-of-Stake [PoS] consensus mechanism.

Ethereum for example is approaching the transition to PoS. The process eliminates the need for miners and brings validators into the blockchain to validate new blocks of transactions.

The other solution is cutting. This term is quite popular among Ethereum society. The crypto network has dealt with many scalability issues. Ethereum 2.0 has worked on the same with Tezos, Qtum as well as Zilliqa.

Despite its relatively experimental status within the blockchain industry, sharding is a method borrowed from distributed databases that has grown to become one of the most popular Layer-1 scaling options. To make monitoring the entire network more possible, sharding involves dividing the state of the entire blockchain network into separate databases known as “shards”. After this, shards are processed by the network to pave the way for several other transactions.

Team-2 [L2] Scaling solutions

Layer-2 solutions unlike L1 operate on an already existing blockchain. Here, L2 is involved to reduce the burden on a single blockchain by involving a similar architecture. The original blockchain basically relies on secondary networks that work in parallel with the main chain. Bitcoin’s Lightning Network is a prominent example of an L2.

Layer-2 scalability solutions range from state channels, sidechains, and nested blockchains.

Side chains are separate networks connected to transaction chains with their own validators. This indicates that the main chain smart bridge contract does not independently verify the legitimacy of the side chain network. As a result, since the sidechain has the ability to manage assets on the mainchain, you have to have faith that it’s going well. It should also be noted that the main chain remains unaffected despite any security breaches on the side chain.

Nested blockchains are quite different as they work from the main chain as opposed to on top of it. The nested blockchain architecture typically consists of a core blockchain that establishes the rules for a larger network, with executions taking place on an interconnected web of child chains. The main chain can serve as the foundation for multiple blockchain levels, each using a parent-child link. The parent chain assigns tasks to the child chains, which complete them and then send them back to the parent. Unless it becomes critical to resolve a dispute, the underlying base blockchain does not participate in the network operations of subsidiary chains.

The next one is state channels. It should be noted that this creates a two-way communication backdoor for the transaction entities. This usually involves blockchain and off-chain transaction channels. The crypto network’s transaction speed, as well as capacity, takes a hit in this case.

A state channel is not subject to Layer-1 network node validation. Conversely, it is a resource close to the network that is locked using a multi-signature or smart contract method. A state channel’s final “state” and any associated transitions are posted to the underlying blockchain after a transaction or group of transactions is completed.

The Bitcoin Lightning Network is a primary example of a state channel.

Over the past couple of years, the crypto industry has witnessed impeccable growth. The increased number of investors diving into the industry has forced networks to use L1 and L2 solutions to accommodate them. The chances of more solutions hitting the markets were high as the masses continue to explore the cryptoverse.