Innovation Dynamics of Ethereum’s Layer 1 & Layer 2

This blog is a part of the series around Naval Ravikanth’s podcast episode that featured Ethereum’s co-founder, Vitalik Buterin. You can access the links to all the blog posts written around the podcast episode here. In this blog, we discuss the innovation culture of Ethereum, and how changes unfold in Layer 1 & Layer 2.

In one of the blogs that is a part of this podcast series, we wrote about the staking culture and how Ethereum’s community and ecosystem at large is pro-decentralization. Although Bitcoin has a similar set of ardent supporters and a strong community, their approach to innovation is quite different from that of Ethereum.

After Bitcoin grew in popularity and started being perceived as “digital gold,” the innovation on the chain at large stopped. Ever since it became the reserve currency, the Bitcoin community chose the path of minimal changes (fixes here and there). Vitalik calls this a maximalist argument where blockchains are all created with an end function or usability. In Ethereum, the goal is to make the blockchain general-purpose with several possibilities for use cases to be built on top. As a result, there has been more innovation in the Ethereum chain than Bitcoin, or several other chains for that matter. Now let’s move on to the innovation dynamics of Layer 1 & Layer 2. (Don’t know what layer 1 and 2 are? Check this out.)

Layer 1

Innovation is slowest at layer 1

Naval points out that the developments in Layer 1 have been the ones to move quite slowly in comparison to the innovations happening in Layer 2. There are of course several reasons why this is so.

Primarily, the technicalities involved in innovating at Layer 1 of Ethereum are more intricate than that of Layer 2. Moreover, Layer 1 is the same place where sharding has to take place and Ethereum 2.0 needs to be built. Sharing is the process of scaling a blockchain network after reducing the computing power requirements of each individual node. In essence, sharding allows blockchains to expand their computing power horizontally. Read more here.

Layer 2

Layer 2 moves fast because it’s permissionless

Working with Layer 1 is meddling with the core Ethereum protocol. It requires significant time, resources, and computing power. Layer 2, on the other hand, is completely permissionless. This is because Layer 2 is a separate blockchain that is an extension of Ethereum’s Layer 1. This Layer 2 keeps communicating with Layer 1 and offers the same decentralization and security as that of Ethereum. And it does so, without having to make any changes to the Layer 1’s protocol. Innovating in Layer 2, therefore, is permissionless and offers scope for rapid development when compared to Layer 1.


Ethereum’s staking culture and its emphasis on innovation is what led to the evolution of Layer 1 and the genesis of Layer 2. While changes made to the former take longer and require consensus, developments in Layer 2 are permissionless and can be executed much faster.

About Arcana Network

Built for Ethereum and EVM-based chains, Arcana is the web3 infrastructure to easily onboard dApp users and enable user data privacy and ownership. Web3 developers use Arcana’s SDKs for a seamless, familiar user onboarding experience via social authentication and passwordless login. All user data is encrypted, secured with data access fully controlled by the users, and powered by blockchain.

Arcana has raised 2.7Mn USD from some of the leading investors and founders in the ecosystem such as Balaji Srinivasan, Founders of Polygon, Woodstock, Republic Crypto, and Digital Currency Group.

Watch out for Arcana’s upcoming Testnet and Mainnet in 2022.

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