Blockchain Layer 1
Blockchain technology is a decentralized and distributed ledger system that has revolutionized the way digital transactions and data are recorded and verified. It provides a secure and transparent way to store information, making it virtually tamper-proof. At the heart of blockchain networks like Bitcoin and Ethereum lies Layer 1.
Layer 1, often referred to as the foundational layer of blockchain, is the bedrock upon which blockchain systems are built. It's the core protocol that defines the fundamental rules and processes governing a blockchain network. Layer 1 handles crucial functions, including consensus mechanisms, transaction validation and maintaining the security of the entire network.
Blockchains such as Bitcoin (BTC) and Ethereum (ETH) owe their existence to the robust features of Layer 1. These include decentralization, which ensures that no single entity controls the network, thus promoting trust and transparency. Moreover, Layer 1 guarantees the immutability of data, making it extremely difficult to alter or erase historical transactions, enhancing the integrity of the blockchain. In essence, Layer 1 is the backbone of blockchain technology
Consensus
Consensus mechanisms are the algorithms or protocols that enable a distributed network of nodes to reach an agreement on the validity of transactions and the state of the blockchain ledger. The importance of consensus mechanisms cannot be overstated, as they are responsible for ensuring trust, security, and reliability in blockchain networks.
In the context of Layer 1, where the core protocol rules are defined, different blockchain projects employ various consensus mechanisms, each with its unique features and trade-offs. Two of the most well-known consensus mechanisms are Proof of Work (PoW) and Proof of Stake (PoS), both of which are used by prominent blockchains like Bitcoin and Ethereum, respectively.
Limitations of Layer 1
Besides the possibilities and advantages blockchain technology has introduced there are limitations to the ground Layer 1 they operate on. Without taking into account the issues such as energy consumption or storage requirements, there are fundamental problems that limit the advancement of the blockchain technology in general.
Interoperability
The probably most significant issue of currently runnig blockchains is interoperability. Though there are ledger systems which introduce interoperability functionalities within its ecosystem (eg. Polkadot), there is hardly a global solution for this issue as all current blockchains have a siloed infrastructure.
To grasp the importance of the interoperability issue in blockchain, consider the analogy of a perfectly functional email client. This email client can create addresses and send/receive emails, but there's a catch—it can only operate within its own domain. In this scenario, you can communicate only with others using the same email provider, say, @my-domain.com, and are unable to exchange messages with users of any other email providers. This is akin to a siloed infrastructure without interoperability features in the blockchain world, where each blockchain network operates independently, much like isolated email domains, limiting their ability to interact and share data with one another.
As the blockchain industry continues to evolve, interoperability will likely remain a key focus area for developers, researchers, and blockchain enthusiasts.
Scalability issues
Most Layer 1 blockchains, like Bitcoin and Ethereum, face scalability challenges. Their transaction processing capacity is limited, resulting in congestion and higher transaction fees during periods of high demand. This makes them less suitable for handling a large volume of transactions quickly.
The consensus mechanism, which often involves every node in the network verifying each transaction and smart contract execution, can become a bottleneck as the network grows and transaction volumes increase. As a result, this can lead to slower confirmation times, increased fees, and scalability challenges. One of the biggest bottlenecks is that computations (simple or complex) are implemented on Layer 1, eg. in form of smart contracts, which leads to a stacking effect when spreading a transaction accross the distributed ledger network.
There is a legitimate necessity of another layer which extracts blockchain agnostic logic from Layer 1, so it can take of what it can do best writing blocks applying a consensus mechanism and securing the blockchain. Therefore a Layer 2 (computational layer) is introduced.