Layer 1 Blockchains: Unveiling the Core Infrastructure of Crypto

Layer 1 blockchains are an often-overlooked part of blockchain networks, yet they're absolutely essential. Layer 1s are basically the building blocks of all modern decentralized finance (DeFi), so knowing some of the details about how a Layer 1 blockchain works will help you better understand the entire crypto ecosystem. Keep reading to discover everything you need to know about Layer 1 blockchains.

Key Takeaways:

• A Layer 1 blockchain is the base system that any blockchain network relies upon. It’s made up of data and software, secured with cryptography and stored on a decentralized system of nodes.

• A Layer 1 blockchain can be used to perform transactions, store information and manage other tasks.

What Is a Layer 1 Blockchain?

A Layer 1 blockchain is the base system that any blockchain network relies upon. A Layer 1 is made up of data and software, secured with cryptography and stored on a decentralized system of nodes. People can use this architecture to perform transactions, store information and manage other tasks.

How Does a Layer 1 Blockchain Work?

Since a Layer 1 blockchain can sometimes be the only layer a blockchain network has, it requires a complex system. Layer 1s are fully able to handle every aspect of a blockchain. In order to manage all these tasks, a Layer 1 blockchain uses the following mechanics.

Block Production

Blocks are the base structure of any Layer 1 blockchain. As a matter of fact, they're so important that the entire concept of a blockchain network is named after them. Much like the cells in a spreadsheet can hold data, a block can store essential information about users, transactions, token balances and assets. 

Each block contains new information, such as the record of a crypto sale, along with a cryptographic hash (or transaction ID) that contains the previous block details. This allows the entire blockchain to function as a distributed ledger that stores a chronological and irreversible list of all past transactions.

Consensus Mechanism

A consensus mechanism is a set of rules that ensures new blocks are valid and correct. The most popular options for consensus mechanisms are proof of work (PoW) and proof of stake (PoS). These consensus protocol options require any network participant to use either computing power or digital assets as collateral if they want to become a node. These nodes can finalize new blocks, but they only receive block rewards if a majority of nodes agree with their work. Ultimately, a consensus mechanism gets users to help validate transactions while rewarding them for their efforts.

Transaction Finality

Due to the way blockchains function, there’s no way to reverse or modify previous transactions. After the transaction data is placed in a block and the blockchain's consensus protocol verifies it, it's an irreversible (or immutable) part of the distributed ledger. 

For example, if you send money accidentally, you can't ask the blockchain to delete the transaction and restore your original token balance. (You can politely ask the receiver to send the tokens back, but no one can force them to do so.) Furthermore, the blockchain itself will always maintain the record of the crypto being sent back and forth in two separate transactions. There is no way to alter or remove past transaction data.

Native Assets

For many blockchain users, the chain's native assets are its most important feature. Digital assets such as tokens are a unit of value defined by the rules of the Layer 1 blockchain. A native token has many uses. For instance, people (validators or miners) can receive them as block rewards for helping with the consensus protocol, or use them to cast votes (for governance) in a blockchain community. 

Not all blockchains need to use a native token. However, the majority of them use a token system because it's one of the easiest ways to run a large blockchain network.

Security

The final essential mechanism of a blockchain is its security system. To function properly, a blockchain needs to provide its users with data privacy, identity management and smart contract management. There is some inherent security to a blockchain simply because it has an irreversible ledger and operates on multiple decentralized nodes that must achieve consensus before making changes. However, there are still some potential issues, such as an entity creating several malicious nodes and trying to outvote true nodes. Different blockchains have various ways of addressing security concerns, such as adding encryption or using a private key system that enables users to take control of their own privacy.

Layer 1 Scaling Solutions

Layer 1s function as the primary security provider and underlying infrastructure of any blockchain. So why do some chains use multiple layers? 

Additional layers are usually meant to provide extra scaling support to the main chain so it can maintain low gas fees and high transaction speeds, no matter how many users are processing transactions. However, multiple layers aren't always necessary. There are actually some other ways for a Layer 1 blockchain to achieve linear scalability.

Protocol Changes

One popular scaling solution is to change the rules by which the Layer 1 blockchain functions. For example, increasing the data that a single block can store or allowing faster block confirmation can help to achieve linear scalability. Another option for protocol changes is to upgrade the consensus mechanism. Many chains are switching from PoW consensus to PoS. This requires less computing power, and allows nodes to achieve consensus without having to solve lengthy algorithmic puzzles.

Sharding

Sharding was originally a mechanism used in distributed databases, but people are beginning to realize it has potential as a Layer 1 scaling solution, as it breaks a blockchain into smaller datasets which are then called shards. Each network node maintains a single shard instead of holding a copy of the entire Layer 1 blockchain, and the network processes all shards in parallel. The end result is a Layer 1 blockchain that’s less intensive to run, which makes more nodes available. The increased number of nodes can improve transaction speed to handle higher levels of transaction data.

Zero-Knowledge Proofs

Zero-knowledge proofs are a popular option for scaling decentralized applications (DApps) based on a Layer 1 blockchain. This technology relies upon the idea of confirming data as correct without actually having to prove it. For example, a DApp can check to see whether a user has submitted the correct asymmetric key pairs, and then instead of entering the entire key phrase onto the Layer 1 blockchain, they simply provide the main layer with proof that the asymmetric key pairs were correct.

Benefits and Challenges of a Layer 1 Blockchain

The main benefit of a Layer 1 blockchain is its underlying infrastructure. Layer 1s are stable and reliable. They're designed to manage the entire blockchain network, so handling smart contracts and processing transactions is extremely straightforward. As the primary security provider for the system, a Layer 1 is the most secure option available to users. Furthermore, it runs on multiple nodes, so it offers all the advantages of DeFi.

However, a Layer 1 blockchain has some downsides as compared to blockchains with multiple layers. Additional layers don't have to handle security or finalize transactions, so they have much higher transaction speeds. Secondary blockchain layers also have lower transaction fees and consume less of a network's resources. This makes them an appealing spot to deploy DApps or process low-priority transactions. 

In addition to being slower and having more gas fees, the base layer of a blockchain can also be less flexible. Since new features can’t be added without affecting the entire network, other blockchain layers are often the only way to test out new ideas.

Blockchain Trilemma

The blockchain trilemma is a term coined by Vitalik Buterin, the founder of the Ethereum blockchain. It refers to a common problem that many blockchains face: Though security, decentralization and scalability are all desirable features, it's almost impossible for a single blockchain to provide all three traits. For example, both the Ethereum blockchain and the Bitcoin network are secure and decentralized, but they aren’t highly scalable.

Currently, modern blockchain technology hasn't found a way to solve the trilemma while keeping a blockchain to one layer, and most chains need at least two to address the trilemma. However, this doesn't necessarily mean it's impossible for a Layer 1 blockchain to be secure, decentralized and scalable. New upgrades may eventually solve the issue.

Best Layer 1 Projects

Of course, any blockchain is technically a Layer 1. However, some Layer 1s stand out for their commitment to improving their base layer instead of using all the network's resources to design multiple other layers. Below are some of the best Layer 1 blockchains for crypto investors.

Bitcoin

Of course, as the most popular blockchain network in the world, the Bitcoin network is one of the best examples of a Layer 1 blockchain. Known for its excellent security, thorough method for recording transactions and valuable native tokens, BItcoin retains an impressive and predominant share of the cryptocurrency market. Its highly liquid Layer 1 blockchain offers relatively more stable investment opportunities.

Ethereum

Despite also featuring a broad range of Layer 2 chains, Ethereum continues to work well as a Layer 1 blockchain whose primary advantage is its flexibility. Since Ethereum’s smart contracts are so easy to design, many people use it to create DeFi projects and deploy DApps. Its Layer 1 also stands out due to the blockchain's continual commitment to scalability, as the network has moved its consensus mechanism from proof of work to proof of stake and has plans to implement sharding in the future.

BNB Chain

This unique Layer 1 blockchain has its own base layer, but it's also compatible with the Ethereum virtual machine. This ensures it has extensive smart contract capabilities and a reliable blockchain protocol. BNB Chain uses slightly higher levels of centralization than other blockchains, but in exchange it offers users excellent security, impressive scalability and low transaction fees.

Solana

Compared to other blockchain networks, Solana uses a somewhat unique consensus protocol. Called proof of history, this consensus uses timestamps as a method for validating and recording transactions. Proof of history is uniquely scalable and can improve transaction speeds to record-high levels of 65,000 TPS. Furthermore, Solana’s smart contract capabilities allow it to easily handle all sorts of DApps.

Avalanche

This Layer 1 blockchain is popular with crypto investors because of its unique smart contract capabilities. The blockchain protocol uses a consensus method called sub-sampled voting to increase transaction throughput. People can finalize transactions very quickly on Avalanche, so it's a favorite for those who prioritize speed but don't want to sacrifice security.

The Future of Layer 1 Blockchains

Developers are constantly tinkering around with Layer 1 blockchain designs, so the future holds a lot of exciting opportunities. For example, Ethereum’s research into sharding seems likely to influence the direction of Layer 1s.

In the future, Layer 1s might also have other options for achieving consensus. Many new projects, such as Solana, have explored consensus protocols beyond PoW or PoS and demonstrated their viability. In the future, expect to see a lot more variety among Layer 1s.

The Bottom Line

With their ability to run an entire blockchain network, Layer 1 chains are a critical part of the DeFi world. Though Layer 1s don't always have the intrinsic scalability of Layer 2s, there are still many fascinating mechanisms that allow them to handle high volumes of users. Well-designed Layer 1 chains are reliable, stable projects for crypto investors to explore.

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