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Blockchain Layers Explained ✍️

Exploring the Features of L1 and L2 Platforms

If you’ve been active in the industry long enough, you’ve likely come across the terms “L1 and L2” which stand for Layer-1 and Layer-2. What’s more, you’ve probably even invested or participated in them without even knowing what they are.

No worries, we’ll help you out!

It’s easy to distinguish platforms by their classification — but to have a much deeper understanding of how to recognize L1 and L2 blockchains by their functions and features, keep reading 👇

Blockchain technology has grown over the years, with benefits such as transparency, improved borderless transactions, and excellent security. However, blockchain still faces the unique challenges of overcoming the blockchain trilemma — decentralization, scalability, and security.

IBY is deployed on — Moonriver, Polygon, Avalanche, and BSC — both L1 and L2 blockchains, and we’ll educate you about why layers were developed in the first place, how they helped us build, and how they can help you.

Let’s jump right in 🤙

What is a Blockchain Layer?

Blockchain technology consists of a unique combination of several technologies that operate in tandem to keep systems working smoothly. Layers in blockchain come in as a series of evolved methods of supporting the overall ecosystem. As forestated, blockchain’s underlying architecture faces the unique challenge of balancing decentralization, security, and scalability.

Decentralization and security are essentials for a blockchain to function and are non-negotiable in a network. Decentralization is the meaningful distribution of computing power and consensus throughout a network, while security protects a blockchain protocol’s defenses against malicious attacks.

Scalability is the last but by no means the least. It is equally as essential to secure significant growth in the global economy. The scalability of a blockchain is the network’s capacity to support high transactional throughput ( a measure of how many actions are completed within a given time frame) and how it affects future growth.

With blockchain, scalability is the name of the game, so let’s examine what role it plays before we get a deeper look into layers 1 and 2.

What Is Blockchain Scalability?

Blockchain technology has proven itself to be a major player in the global economy, but it is not without its challenges. The only way blockchain networks can compete with centralized entities is through scalability.

Centralized systems have rapid settlement times, and to prove this is a comparison showing the margin between Bitcoin and Visa. Bitcoin processes between 4–7 transactions per second (TPS). Visa, on the other hand, processes thousands of TPS.

To compete with these existing systems, blockchain technology must match or exceed these high levels of scalability. Luckily, there are entire sub-sectors of the blockchain industry that are working towards achieving this.

We can rest easy knowing that daily, high-potential blockchains and scaling solutions are developed specifically to solve this transaction-capacity problem and exponentially increase the scaling limits of blockchains.

Down to brass tacks, let’s examine these blockchain layers, their features, and their functionality.

Layer 1 Blockchains

Layer 1 blockchains are made up of the platforms everyone is familiar with: Bitcoin, Ethereum, Binance Smart Chain, and the NEAR Protocol. These serve as the underlying networks that maintain the operational structure of the blockchain. Features such as consensus mechanisms, smart contracts, and other components serve as pillars of day-to-day operations.

Originally, the L1 blockchain raised many scalability concerns with the number of transactions executed, the increase in nodes, and the high amount of power required for computation. But over time, these made processing slower and created the need for fees bigger than usual.

Despite the challenges above, L1 blockchains still serve a critical function. They augment the base layer of the blockchain protocol itself to improve scalability. Several L1 blockchains are currently being developed with new methodologies that improve the scalability of blockchain networks directly.

Here are two Layer-1 blockchain network scaling solutions:

Consensus protocol improvements: Proof of Work (PoW) and Proof of Stake (PoS) are the two most popular consensus mechanisms, but PoS is considered more beneficial and scalable than its counterpart.

Instead of requiring miners to solve cryptographic algorithms using substantial computing power detrimental to the atmosphere, PoS systems use a much more green option to validate new blocks of transaction data based on participants staking collateral in the network.

Ethereum 2.0, or the Merge as it is called, sees Ethereum transition to a PoS consensus algorithm, which is expected to dramatically and fundamentally increase the capacity of the Ethereum network while increasing decentralization and preserving network security.

Sharding: This is an experimental mechanism in the blockchain sector, with success attributed to projects like the NEAR Protocol. Sharding is adapted from distributed databases, and it entails breaking the state of the entire blockchain network into distinct datasets called “shards.” This way, they become more manageable than requiring all nodes to maintain the entire network. Also, these network shards are processed simultaneously by the network, allowing for organized and sequential work on numerous transactions.

Layer-2 Blockchains

Layer 2 refers to networks created on top of Layer-1 blockchains to help extend their capacity, boost efficiency, and enable them to cater to many more users. L2 platforms take the brunt of the transactional burden shifted on them by adjacent L1 system architecture, and they only subsequently report back to the main blockchain to finalize its results. By doing this, the base layer blockchain becomes less congested and ultimately more scalable.

Polygon is an L2 solution for Ethereum, as it helps carry the bulk of the workload and transactions meant for Ethereum. During IBY’s early stages with Ethereum, users found that placing bets and the gas fees that followed were almost the same price, if not more. With this problem, Polygon emerged as an L2 solution that allows users to place bets with almost nothing in gas fees.

You could say that L2 is a new type of network that enhances L1 blockchains, constantly interacting with them, validating transactions, and more. Polygon is a famous L2 blockchain deployed on Ethereum, and Lightning Network ⚡ is an example of a layer 2 blockchain built on Bitcoin.

Layer-2 scaling solutions include:

State channels: A state channel establishes two-way communication between an off-chain and a blockchain transactional channel. This improves the overall transaction capacity and processing speed.

Fortunately, a state channel does not require validation by nodes of the Layer-1 network. Instead, it is a network-adjacent resource that is sealed off by using a multi-signature or smart contract mechanism.

Sidechains: A sidechain is a separate and discrete blockchain network that’s linked to another blockchain called a parent blockchain or mainnet via a two-way peg. Sidechains can have separate block parameters and consensus algorithms, which are often designed for the efficient processing of transactions.

They’re typically used for handling large batch transactions and can be optimized for speed and scalability. With a sidechain architecture, the primary role of the parent chain is to maintain overall security, resolve disputes, and confirm batch transaction records.

State channels and sidechains differ in integral ways. Firstly, sidechain transactions aren’t private between participants because they are publicly recorded in the ledger. Also, when the security of a sidechain is breached, it does not impact the mainchain or other sidechains.

Improving Blockchain Network Scalability

Layer-1 and Layer-2 work in tandem with each other. They’re designed to make blockchain networks seamless, faster, and more accommodating to the expanding user base. Many blockchain networks are breaking barriers by exploring combinations of both Layer-1 and Layer-2 scaling solutions to achieve increased scalability without sacrificing adequate security or decentralization. With blockchain still being young and complex, It might take some time to achieve a fully scalable blockchain, but with the strides seen taken by the brightest minds in the galaxy, I bet you, we’ll get there in no time 😉

Experience the best of both worlds on the IBY platform 👉 IBY is deployed on advanced L1 and L2 platforms, so you can make bets knowing that your stakes are protected by the best of the best in blockchain technology scalability.

Placing a bet on ibetyou.xyz is fast, efficient, transparent, and secure — nothing feels better than winning a bet and besting an opponent, so give it a try.

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