In recent years we have seen rapid growth in cryptocurrencies and blockchain technology. However, this growth has also brought to attention some challenges that need to be dealt with before the whole world move to blockchain.

Of all the challenges facing blockchain technology, scalability is perhaps the most important one. Scalability is the ability of a blockchain to increase the number of transactions processed in the shortest period of time.

Blockchain layers are the proposed techniques to solve the scalability problem of blockchains. There are two types of scalability solutions being implemented right now – Layer 1 and Layer 2.

Blockchain Layer 1

This is the base layer in a blockchain on which the whole network is built. This layer gives the immutability property to the blockchain through the peer-to-peer network. For instance, Ripple’s layer 1 is the XRP Ledger and Bitcoin’s layer 1 is the Bitcoin network.

Popular scaling solutions for layer 1 are:

• Increase the block size.
• Enhance the block creation rate.
• Changing the way the network uses to form a consensus among all the nodes. These are also called Consensus protocol changes.
• Reducing transaction blocks to small shards and then processing several transactions simultaneously. This mechanism is called sharding.

Blockchain Layer 2

Layer 2 is the network that functions separately on top of the layer 1 network or main blockchain. Bitcoin’s Lightning Network and Ethereum’s Plasma are the two examples of layer 2 networks.

In layer 2 scalability solutions, the transactional load on the main blockchain is shifted to a separate layer that processes the transactions on its architecture and only sends the final result to the layer 1 network (main network). This makes the foundation layer more robust and scalable.

There are two types of popular layer 2 solutions:

• Nested Blockchains or Networks

In this type of solution main blockchain (mainchain) only acts as a dispute resolver among the other blockchains that perform all of the work. Nested networks allow various levels of blockchains that could be built on top of one another where the mainchain only distributes the tasks and receives results.

• State Channels

State channels are less decentralized than nested networks. They create two-way communication channels between the blockchain and off-chain channel for transactions. State channels do not need to verify node activity on layer 1 (mainchain). When a transaction is completed on a state channel, the result is sent to the main blockchain for record-keeping. State channels function through smart contracts. 

In short, layer 1 and layer 2 scalability protocols are the solutions intended to make blockchain networks quicker while also absorbing the rapid growth of the users.

Interested in learning more? Check out our article about what is a dApp.

Crypto Current Staff

Crypto Current will be guiding all of you who are new to the cryptocurrency world to becoming a cryptocurrency and blockchain expert. Crypto Current was founded to give access to information to everyone on current events occurring in cryptocurrency and blockchain in a digestible way. Since its creation, we have created content that impacted thousands of people through its podcast, blog, and social media.