Like many other sectors, the crypto sector has its share of drawbacks. However, the majority of these problems also have remedies. For many blockchains, scalability has been a frequent problem. Numerous networks have raised the issue of how to handle the growing volume of transactions and data on a blockchain. Layer-1 [L1] and Layer-2 [L2] solutions may be used in this situation.
What then is Layer-1 [LI]?
A blockchain or the first level of a blockchain is often referred to as Layer-1. A layer-1 blockchain is something like Bitcoin [BTC], Ethereum [ETH], and Litecoin [LTC]. The linked solutions are often included within the original blockchain itself. To improve the transaction capacity, this would include altering the procedures or regulations. Increased user and data capacity is supported by L1 scaling solutions.
One of the most common L1 scaling strategies is to modify the consensus protocol. The Proof-of-Work [PoW] consensus technique is now used by digital assets like Bitcoin and Ethereum. Despite being one of the most secure algorithms, this one may sometimes be sluggish. It is also commonly criticized for using too much electricity. Networks switch to the Proof-of-Stake [PoS] consensus process as a consequence.
For instance, Ethereum is getting ever-closer to adopting PoS. By using validators to verify fresh blocks of transactions on the blockchain, the procedure does away with the necessity for miners.
Sharding is the alternative option. The Ethereum community uses this phrase often. Scalability problems have been a major challenge for the crypto network. Tezos, Qtum, and Zilliqa have been working on the same thing with Ethereum 2.0.
Sharding is a technique taken from distributed databases that has evolved into one of the most popular Layer-1 scaling methods, despite its still-relatively-experimental position within the blockchain industry. Sharding is the process of separating the state of the whole blockchain network into discrete databases known as “shards” in order to make monitoring the entire network more practical. The network then processes shards to open the door for a number of more transactions.
Solutions for Layer-2 [L2] Scaling
In contrast to L1 solutions, layer-2 solutions work with an existing blockchain. Through the use of a similar design, the L2 is used in this situation to minimize the load on a single blockchain. In essence, the original blockchain is supported by auxiliary networks that run concurrently with the primary chain. The Lightning Network used by Bitcoin is a well-known example of an L2.
Solutions for layer-2 scalability include sidechains, state channels, and stacked blockchains.
Sidechains are independent networks with their own validators that are located next to transactional chains. This shows that the sidechain network’s authenticity is not independently confirmed by the main chain’s bridge smart contract. You must have confidence that the sidechain is functioning properly since it has the capacity to control assets on the main chain. It should be mentioned as well that the main chain is unaffected by any security flaws on the sidechain.
Nested blockchains vary greatly from traditional ones in that they operate from inside the primary chain rather being on top of it. The nested blockchain architecture typically consists of a core blockchain that sets the rules for a broader network, with executions taking place on a network of linked subsidiary chains. A parent-child connection is used by each blockchain layer that may be built on top of the main chain. Tasks are delegated by the parent chain to the kid chains, who subsequently finish them and return them to the parent. The underlying base blockchain does not take part in the network operations of subsidiary chains until it is necessary to settle a dispute.
State channels come next. It should be emphasized that this establishes a background for two-way communication for the parties to the transaction. Blockchain technology and off-chain transactional channels are often used in this. In this scenario, the capacity and transaction speed of the crypto network both increase.
The validation of Layer-1 network nodes is not applicable to a state channel. On the other hand, a multi-signature or smart contract mechanism is used to lock down a resource that is near to the network. After a transaction or batch of transactions has been completed, the final “state” of a state channel and any related transitions are posted to the underlying blockchain.
Among state channels, Bitcoin Lightning Network stands out as a prime example.
The cryptocurrency sector has grown significantly during the last several years. Networks now have to use L1 and L2 solutions to handle the rising number of investors flooding the sector. As more people continue to explore the crypto-verse, the likelihood of new solutions entering the market is high.