Layer 1 Blockchains: An Overview & Analysis of the Most Active Layer 1's
By Pierce Brachmann
Layer 1.0 describes the native infrastructure of a blockchain responsible for maintaining the protocol. Layer 1.0 can be referred to as the main chain that is primarily responsible for three things — scalability, security, and decentralization.
This is most famously referred to as the blockchain trilemma as it was first termed by Ethereum founder Vitalik Buterin.
The goal of a Layer 1 should be to encompass all three properties.
Scalability - refers to a blockchain's ability to handle increasing TPS (transactions per second) over time.
Security - how vulnerable the blockchain is to attacks or misfunction.
Decentralization - How decentralized the ownership is of the blockchain. Are there some parties that can make fundamental changes on their own to the blockchain? We often see an inverse trade-off between decentralization and scalability.
Currently, developers are striving to make a blockchain fulfilling all three conditions above. There is no fully functioning blockchain Layer 1 ecosystem that has solved the trilemma. yet.
The blockchain trilemma is real and can be seen on the infrastructures most used today — such as Ethereum — the most popular Layer 1 for hosting Dapps (Decentralized Applications). Currently, Ethereum is still operating under a proof of work (PoW) protocol to secure the network. Historically, this has led to Ethereum’s network being well secured. Ethereum is infamous for the platform's largest problem, scalability. The current conditions of Ethereum’s blockchain involve high transaction fees with network congestion due to the TPS capability. Currently, Ethereum is operating at roughly 10 TPS.
The Solana blockchain, on the other hand, is highly scalable. It is arguably the most active scalable blockchain. The network processes roughly 2,000 TPS. But it is not the perfect blockchain. Solana has been criticized regarding the security of the network. Just last week the network suffered an outage where users could not queue transactions to the network. This meant some leveraged positions on DEFI protocols were liquidated for some as a result of not being able to transact and add more capital to prevent loans from defaulting.
The decentralization of Solana is also partly in question. The tokenomics of are problematic to many as insiders including the team and VC’s own a large share of supply.
Bitcoin, unlike Solana and Ethereum, which are primarily Dapp based, Bitcoin is a payment blockchain. Bitcoin handles roughly 7 transactions per second on its Layer 1 chain which is secured and decentralized by the array of PoW miners that are securing the network.
From those real block-based examples, one can see that the perfect Layer 1.0 blockchain has yet to be adopted.
Market cap of the previous mentioned Layer 1’s:
***The market cap of a project is the total value of all the circulating tokens — circulating supply* price of the asset. Data was taken from coingecko.com on 2/2/22:
Ethereum — $ETH — $322.2 Billion Market Cap
Solana — $SOL — $34.4 Billion Market Cap
Bitcoin — $BTC — $712.4 Billion Market Cap
Bitcoin is the largest crypto asset by market cap. So we can see that Bitcoin has a much higher market dominance than other Layer 1’s. You could attribute this difference in market share to the unique nature of Bitcoin as a store-of-value.
Some other Layer-1 blockchains…
AVALANCHE — $AVAX — $18.7 Billion Market Cap
Fully EVM compatible chain. EVM (Ethereum Virtual Machine) is the type of software that developers use to make Dapps for Ethereum. The fact that Avalanche is EVM compatible makes it appealing to developers since former Ethereum Layer 1.0 Dapps could potentially run on the Avalanche blockchain with reduced gas cost. It is also worth noting that Ava Labs, a major builder on Avalanche, announced a $200M “Blizzard” fund with VCs to go toward developers and to incentivize liquidity on the blockchain. This money will be invested in early-stage DEFI and NFT projects on the Avalanche blockchain.
Binance Smart Chain — $BNB — $63.2 Billion Market Cap
The native token of the blockchain is $BNB. This is what is used to pay gas on the chain. Home to the famous Pancake Swap. Average swaps cost around $1 and transactions involving sending tokens are a fraction of that. Binance token is also the native token of the most popular centralized crypto exchange in the world, Binance.
Terra Ecosystem — $Luna — $20.1 Billion Market Cap
The Terra Ecosystem is fueled by the native token $LUNA. It operates on a Proof-of-Stake consensus. It is home to a variety of Dapps such as decentralized exchanges (TerraSwap) and lending platforms such as Anchor which are currently providing yields as high as 19% APY (Average Percent Yearly) on stable coins deposits. $UST is the native stable coin of the Terra Ecosystem which is pegged to $1 and has continued to expand its presence in other chains and on centralized exchanges.
Wait, but what about ETH 2.0? Good question. The vision for Ethereum’s future which has been dubbed as Ethereum 2.0 is a switch of blockchain consensus mechanisms from PoW to proof of stake (PoS). If users want to stake their own ETH directly on the network they will need 32 ETH to become a full validator. People can also join a staking pool if they want to participate in staking.
The timeline for ETH 2.0 finish is still a couple of years into the future. The next major phase of ETH 2.0 is estimated for 2023 which will include sharding on the blockchain. Sharding will contribute directly to increased scaling by inserting additional chains where transactions can be funneled to.
With the growth of Layer 1’s overtime, it will be interesting to see which chains gain dominance and continue to grow. I don’t think there will be one clear winner, but instead an ecosystem of blockchains that can communicate with each other and interact, benefiting one another.