An Introduction to Layer 1 and Layer 2 Blockchain Protocols
Layer 1 vs. Layer 2
In the ever-growing world of blockchain, the term “scaling” refers to an incremental change in a system’s throughput rate, as measured by the number of transactions performed per second. With the increasing use of digital assets, it has now become necessary to create blockchain layers for better network security, recordkeeping, and dozens more utility features. Layer 1 in a decentralized ecosystem is the blockchain itself, while layer 2 is a third-party integration combined with Layer 1 to increase the number of nodes, and subsequently, system throughput. A number of Layer 2 blockchain solutions have been implemented. These solutions leverage smart contracts to automate transactions. As the number of users increases, so does the workload on the Layer 1 blockchain. Therefore, the processing speed and capacity gradually decrease. Blockchain layer 2 works on top of the original layer to improve efficiency.
The Mechanics of Layer 2
By outsourcing transactions, Layer 2 takes on part of the load of the Layer 1 blockchain and inserts transactions into a different system architecture. Blockchain layer 2 processes the transaction and reports to layer 1 to complete the results. Since the majority of the data processing load falls on this coherent back-end architecture, network congestion is minimized.
Layer 2 blockchain operates on the native layer to improve its efficiency. Effectively offloading transactions, Layer 2 takes a portion of Layer 1 blockchain’s transactional burden and gives it to another system architecture. The Layer 2 blockchain then handles the processing load and reports to Layer 1 for result finalization. Since most of the data processing load is given to this adjacent auxiliary architecture, the network runs more efficiently. Not only does the Layer 1 blockchain become less congested, but also it becomes more scalable.
Current Uses of Layer 2
An example of Layer 1 blockchain is Bitcoin’s Lightning Network, a Layer 2 scaling solution that simultaneously takes on functions traditionally performed by the bitcoin blockchain and reports the results quickly and efficiently. As a result, the Lighting Network increases the processing speed on the Bitcoin blockchain. In addition, the Lightning Network brings smart contracts to the Level 1 Bitcoin blockchain incorporating a key component to the evolution of Bitcoin.
Sidechains also represent a scaling solution for layer 2 blockchain technology. Similar to government channels such as Lightning Network and Smart Contracts, a sidechain is a tradable chain that enables a large number of transactions. It has a consensus mechanism that is independent of the original layer. The mechanism is optimized to improve scalability and processing speed. In this situation, the main chain needs to confirm transaction records, maintain security, and handle disputes.
Although Layer 2 protocols are still in their early stages of development and have been slow to implement, they promise to provide game changing benefits and value to the blockchains they operate on in the near future.
