Staking basics

Understanding Layer - 1 Blockchain in detail!

Zainab Saberi

Apr 12, 2023 • 9 min read

Layer-1 Blockchain refers to the fundamental blockchain protocol, serving as the structural bedrock for the entire network. Acting as a distributed ledger technology (DLT), this underlying protocol is purpose-built to record all network transactions securely, publicly, unalterable, and trustless.

Layer-1 blockchains represent the most elemental form of blockchain, constituting the base upon which all subsequent blockchain layers are established. These are frequently recognized as the "nucleus" or "bedrock" of any blockchain network as they furnish the core framework for all the various applications and protocols subsequently developed atop the network.

The exclusive layer that directly undertakes the task of sustaining the distributed ledger, validating transactions, and protecting the network from any malicious intruders is the layer-1 blockchain.

A consensus mechanism forms the heart of every layer-1 blockchain and is entrusted with validating and securely documenting all transactions to the ledger. It guarantees that the ledger remains unalterable and can be unreservedly trusted by all network participants. Several of the popular consensus mechanisms employed within layer-1 blockchain networks include proof-of-work (PoW), proof-of-stake (PoS), and delegated proof-of-stake (DPoS).

Several leading public blockchain networks, such as Bitcoin and Ethereum, are an example of layer-1 blockchain technology. It is the underlying technology for many decentralized applications (DApps) and protocols.

Also Read: Ethereum Gas

The Fundamental Components of Layer 1 Blockchain

Several vital elements constitute the fundamental framework of a layer 1 crypto blockchain.

Consensus Mechanism

Blockchains operate as a decentralized system devoid of any central authority to verify the authenticity of a transaction. To counteract this, blockchains incorporate a consensus mechanism such as proof of work or proof of stake. In this system, network users are involved in validating transactions. This allows them to contribute transactions to the blockchain and earn service rewards.

Data Structure

A blockchain is also commonly called a “Distributed Ledger,” signifying that the data is stored in a publicly viewable ledger that logs every transaction made on the blockchain. This ledger is duplicated on each “node” or computer backing the blockchain. The public can easily access and utilize this ledger.

Cryptographic Primitives

This is the element that addresses data security. Since data is stored and shared across thousands or even millions of systems, it's crucial to incorporate a secure system. Blockchains utilize cryptographic techniques to achieve this.

The majority of blockchains utilize asymmetric key cryptography to safeguard the network. This involves a public and private key pair that functions as your blockchain username and password. All transactions and information on a blockchain are encrypted and associated with these keys.

Prime Examples of Layer 1 Blockchain

This compilation includes premier layer 1 blockchain networks primarily responsible for the operation of most decentralized applications, also known as dApps.

Bitcoin:
Layer 1 of Bitcoin acts as the fundamental structure, securing the most dominant cryptocurrency globally, leading with a real-time market cap of $367 billion. Its functioning is based on the proof-of-work consensus model, validating new blocks via an algorithm that employs a highly computational cryptographic puzzle. Bitcoin is globally acclaimed as the most safeguarded, decentralized platform - however, it can take anywhere from 10 minutes to an hour for a single transaction to be processed.

Ethereum:
Ranking as the second prominent layer 1 network in Web3, Ethereum has pioneered the utilization of smart contracts, adding versatility beyond its basic role as a cryptocurrency mining and payment platform. Smart contracts, and self-executing programs, authenticate transactions as long as all pre-set prerequisites are satisfied.

A proof-of-work consensus model initially drove Ethereum but has recently transitioned to a proof-of-stake validation method, aiming to reduce the platform's energy usage by about 99.95 percent, as per its official website. This unification of the mainnet and the proof-of-stake sidechain is called the Ethereum Merge, which occurred on September 15 2022.

Algorand:
Algorand is another viable layer 1 blockchain choice based on smart contracts. It stands apart from the dominant players, Bitcoin and Ethereum, by employing a pure proof-of-stake consensus method. This approach randomly selects miners or block validators, directly decentralizing the verification process.

Cardano:
Cardano is one of the first layer 1 blockchain that effectively implemented a proof-of-stake model. It is recognized for its low-cost gas fees, a high level of decentralization, and the capability to yield a passive income of its native coin, ADA, for its users. It significantly surpasses Ethereum in terms of transaction speed, validating over 250 transactions per second compared to Ethereum's 15.

Hedera:

Hedera is an open-source, decentralized, proof-of-stake public ledger utilizing the leaderless, asynchronous Byzantine Fault Tolerance (aBFT) hashgraph consensus algorithm. It is governed by a decentralized council comprising leading businesses, universities, and web3 projects from across the globe, thereby making it resistant to collaboration.

Hedera's performance-optimized Ethereum Virtual Machine (EVM) smart contracts, along with its user-friendly native tokenization and consensus service APIs, allow developers to construct real-time web3 applications and ecosystems to shape the future of the internet.

Hedera differentiates itself from other blockchains through its high throughput with quick finality, low and predictable fees, fair transaction ordering with consensus timestamps, and a sturdy codebase that ensures scalability and reliability at every layer of its network infrastructure. The world's leading organizations responsibly govern Hedera to maintain the network's resistance to cooperation.

Solana:

Solana is a high-functioning blockchain that boasts some of the fastest transaction speeds of any layer 1 to achieve over 50,000 Transactions Per Second (TPS). This throughput level could accommodate decentralized applications with hundreds of millions of users. It’s secure and scalable, though not as decentralized as Ethereum.

Also Read: What is Cryptocurrency

The Functioning of Layer 1 Blockchain

Assume you want to execute a transaction with a crypto token. The initial step in this process is creating a crypto wallet. This wallet provides a secure space for storing the private key associated with your public key. All your transactions and owned crypto tokens are linked to this key.

Once the wallet is set up, you must add crypto tokens. This can be done by purchasing them on a crypto exchange and then transferring them to your wallet. Afterward, you need to get the public key of the recipient of your tokens. Input this key and the number of tokens you wish to transfer, then validate the transaction. The transaction will soon be authenticated and finalized.

After the transaction is executed, it is added to a "block" or a set of transactions. Each block is cryptographically secured and linked to the preceding block, forming a blockchain. Network validators verify the legitimacy of the block and add it to the blockchain as finalized. They then receive new crypto tokens for their invested time and effort.

Varieties of Layer 1 Blockchain Solutions

The two primary types are proof of work and proof of stake.

Also Read: How to Stake Matic

Proof of Work

This is the consensus mechanism employed by Bitcoin, the first blockchain ever to exist. It involves miners using robust computers to solve cryptographic puzzles. The first one to decipher the solution to the puzzle gets the opportunity to add a block to the chain and earn rewards in return.

Proof of Stake

This method necessitates users to "stake" or secure their tokens as collateral to act as validators of the network. Users are selected randomly to verify blocks and add them to the chain. If they fail to validate correctly, a part of their collateral may be slashed. Successful validation results in a crypto reward.

Benefits of Layer 1 Blockchain

Decentralized Authority

One of the core appeals of blockchains is their decentralization. There isn't a single entity that can single-handedly impose alterations to the system. On the contrary, every participant has a voice in the changes that occur.

Irreversibility

The finality of transactions is a key feature of blockchains. Once a transaction is validated, it's irreversible. This immutability of data makes the blockchain system exceedingly trustworthy.

Safety

Blockchains are renowned for their robust—success, courtesy of their cryptographic encryptions. This has made them an attractive asset for numerous users.

Drawbacks of Layer 2 Blockchain:

Scalability Limitations

L1 blockchains, as previously alluded to, struggle with scalability. To cater to increasing user demands, they often necessitate off-chain scaling solutions.

High Energy Consumption

Blockchains operating on proof-of-work protocols are infamous for their excessive energy utilization. They require high-powered computers running continuously, hence consuming vast amounts of electricity. This issue is primarily mitigated by blockchains operating on proof of stake protocols.

Comparison: Layer-1 vs Layer-2 Blockchains

Layer-1 blockchains constitute the primary stratum of the blockchain infrastructure. Their roles include running the consensus protocol, processing transactions, and maintaining the decentralized ledger. Layer-1 blockchains are permissionless, allowing anyone to interact with the blockchain and join the network as a node.

Layer-2 blockchains function as scalability solutions for layer-1 blockchains. They enhance scalability and efficiency and are typically more cost-effective as they utilize the foundational layer-1 blockchain.

Scaling in Layer-1

Regrettably, many layer 1 blockchains have poor scalability. Notable blockchains such as Bitcoin and Ethereum can only manage 7 and 15 transactions per second, respectively. These figures need to catch up to the high volumes required for the smooth operation of these networks.

This issue arises from the “Blockchain Trilemma,” coined by Ethereum's founder, Vitalik Buterin. All blockchains must navigate a tradeoff between decentralization, security, and scalability. The majority prioritize decentralization and security, the key ingredients for a secure network.

To address scalability, most turn to layer 1 scaling solutions. These can be layer 2 blockchains or sidechains constructed on top of L1 blockchains. They leverage the same network security measures while bundling several transactions to send to the mainnet, dramatically enhancing the blockchain's transaction capacity.

The Future Trajectory of Layer 1 Blockchains

Layer 1 blockchains are here for the long haul. They've upended the world of finance and technology and remain the most popular type of blockchain. Despite the challenges posed by high costs and scalability issues, potential solutions such as sharding, new mechanisms, or even layer 2s can help alleviate these problems. Their pivotal role in shaping the future of payment systems is irrefutable.

Also Read: ERC-20

Frequently Asked Questions [FAQs]

How Many Layer 1 Blockchains are There?

There needs to be a definitive count of Layer 1 blockchains because the number keeps increasing due to the ongoing evolution of blockchain technology. However, notable examples include Bitcoin, Ethereum, Cardano, Solana, Polkadot, Cosmos, and Tezos.

What are Layer 1 Blockchain Limitations?

Layer 1 blockchains have several limitations. The primary drawback is scalability; as these blockchains grow, the transaction processing time tends to increase, leading to slower speeds and higher transaction costs. Additionally, security can be compromised if too much power is concentrated in the hands of a few miners. Furthermore, most Layer 1 blockchains consume vast energy, raising environmental concerns.

Is Ethereum a layer 1 blockchain?

Yes, Ethereum is a Layer 1 blockchain. It's the platform where all transactions, including those from its smart contracts, occur.

Is Cardano a layer 1?

Yes, Cardano is also a Layer 1 blockchain. It is known for its research-first approach and its use of a unique proof-of-stake consensus mechanism.

What is a Layer 1 blockchain, and how does it differ from other blockchain layers?

Layer 1 blockchains form the base layer of a blockchain ecosystem, where all transactions are recorded and verified. These blockchains operate independently. On the other hand, Layer 2 solutions are built on top of Layer 1 blockchains to enhance their scalability and efficiency without requiring any changes to the base layer.

Which Layer 1 blockchain are popular, and what unique features do they offer?

Some popular Layer 1 blockchain include Ethereum, known for its smart contract capabilities; Bitcoin, renowned for its secure and decentralized peer-to-peer digital cash system; and Cardano, recognized for its scientifically-driven approach. Other notable examples are Polkadot, which allows different blockchains to interoperate, and Solana, famous for its high-speed and low-cost transactions.

How does scalability play a role in Layer 1 blockchains, and which ones are known for their scalability solutions?

Scalability refers to a blockchain's ability to handle increasing transactions without compromising speed or cost. Layer 1 blockchains, like Bitcoin and Ethereum, have faced challenges with scalability, leading to high transaction fees and slow processing times. Blockchains like Solana and Polkadot have emerged with promising scalability solutions, offering faster transaction speeds at lower costs.

What consensus mechanism is used in most Layer 1 blockchain, and how does it ensure security and decentralization?

The consensus mechanism used in most Layer 1 blockchains is either Proof-of-Work (PoW) or Proof-of-Stake (PoS). These mechanisms ensure that all transactions are verified and added to the blockchain in a decentralized and secure manner. PoW relies on miners to solve complex mathematical puzzles, while PoS depends on validators with a significant amount of the blockchain's native token.

Are Layer 1 blockchains environmentally friendly, considering the energy consumption concerns related to cryptocurrency mining?

The environmental impact of Layer 1 blockchains largely depends on their consensus mechanism. PoW blockchains like Bitcoin consume large amounts of energy, leading to substantial carbon footprints. However, PoS blockchains like Cardano are considered more environmentally friendly as they require significantly less energy to validate transactions."