A Comprehensive Guide to Layer 1 Blockchains and Their Applications

Layer 1 blockchains are the foundation of the decentralized web, and understanding their applications can seem daunting. They are designed to be self-sustaining, meaning they don't rely on external systems for validation.

These blockchains have a fixed supply of coins and are often used for transactions and smart contracts. They are also known for their high transaction speeds and low fees, making them suitable for a wide range of applications.

One of the key benefits of layer 1 blockchains is their ability to process transactions quickly and efficiently, with some blockchains capable of processing over 1,000 transactions per second. This makes them ideal for applications that require fast and secure transactions.

By leveraging layer 1 blockchains, developers can build scalable and secure applications that can handle high volumes of transactions, making them a popular choice for a variety of industries.

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Layer 1 blockchains are the foundation of the blockchain ecosystem, providing a secure and decentralized way to record transactions.

They are built directly on top of the underlying network infrastructure, meaning that they don't rely on any other layer to function. This makes them highly scalable and efficient.

Layer 1 blockchains use a consensus algorithm to validate transactions, such as proof-of-work or proof-of-stake. These algorithms ensure that the network remains secure and decentralized.

A key characteristic of layer 1 blockchains is that they can process a high volume of transactions per second, making them suitable for large-scale applications.

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Layer 1 blockchains are built on a foundation of core components that enable their functionality.

Their consensus algorithms, such as Proof of Work (PoW) and Proof of Stake (PoS), are designed to secure the network and validate transactions.

PoW requires miners to solve complex mathematical problems to validate blocks and is used in blockchains like Bitcoin.

PoS, on the other hand, allows validators to create new blocks based on the amount of tokens they hold.

The underlying data structure of a blockchain is a linked list, which stores a sequence of blocks containing transaction data.

Each block has a unique identifier, called a hash, that connects it to the previous block, forming a chain.

This chain is tamper-proof and allows for transparent and immutable record-keeping.

The blockchain's network topology is typically decentralized, with nodes distributed across the globe.

This decentralization enables the network to operate without a single point of failure and promotes a more democratic governance structure.

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Security is a critical component of a Layer-1 blockchain, defining the parameters responsible for the network's security, such as the consensus mechanism used and the rules governing validator interactions.

A Layer-1 blockchain ensures the security of the ecosystem, making it difficult for bad actors to manipulate the network. This is achieved through decentralization, which runs the chain without depending on centralized actors, and security, which can resist an attack from at least 51% of participating nodes.

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However, decentralization and security can come at the cost of scalability, which is a primary challenge faced by Layer 1 blockchains. Scalability issues arise when processing capacity becomes strained due to the need for every node to validate transactions, ensuring security and consistency.

Here are the key differences between Layer 1 and Layer 2 blockchains:

To address scalability issues, solutions like sharding and increasing the block size have been proposed. However, these solutions come with their own set of challenges, such as inferior security and centralization risks.

Security is a top priority in Layer-1 blockchains, which use consensus mechanisms like proof-of-work or proof-of-stake to ensure the integrity of the network.

These mechanisms make it difficult for bad actors to manipulate the network, as the rules governing validator interactions provide an additional layer of security.

A decentralized architecture is the hallmark of Layer-1 blockchains, which distributes control across numerous nodes to reduce the risk of single points of failure.

This makes it extremely difficult for malicious actors to compromise the system, providing a high level of security with no central authority to target.

Layer-1 blockchains are inherently robust and reliable, offering a solid foundation for the entire blockchain ecosystem.

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Scalability is a major challenge faced by Layer 1 blockchains, which can struggle to handle high transaction volumes without significant delays or increased fees.

The current infrastructure of many Layer 1 blockchains can become strained as more users and transactions are added to the network. This results from the need for every node in the network to validate transactions, ensuring security and consistency but often at the cost of speed.

Decentralization, security, and scalability are the three core principles of a blockchain. However, striking a balance between these factors can be difficult and is often referred to as the blockchain trilemma.

Blockchains need to access the system's entire database to verify a transaction and add a new block to the blockchain, which is computationally intensive and limits processing speeds to just a few transactions per second.

The current infrastructure of many Layer 1 blockchains can struggle to handle high transaction volumes without significant delays or increased fees, with Bitcoin and Ethereum capped at 4.6 and 15 transactions per second respectively.

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To put this into perspective, Visa processes at least 1700 Transactions Per Second (TPS), highlighting the scalability issue faced by Layer 1 blockchains.

Here are some key statistics on the scalability of different blockchains:

These statistics demonstrate the significant gap in scalability between Layer 1 blockchains and centralized payment systems like Visa.

Changing the consensus mechanism can be a game-changer for a blockchain's security and scalability. This is because a consensus mechanism ensures that a majority of nodes agree on the state of the network, making it difficult for hackers to modify transactions.

A 51% attack, for instance, requires hackers to attack 51% of the system to change the consensus. This is why consensus mechanisms are crucial in preventing such attacks.

Bitcoin's Proof of Work (PoW) mechanism is a prominent example of a consensus mechanism, where miners compete to solve complex puzzles and earn rewards. However, this mechanism is computationally intensive and limits scalability.

Ethereum has opted to move to a Proof of Stake (PoS) model, where a validator is chosen randomly to create new blocks. This change in consensus mechanism can help enhance scalability.

However, changing the consensus mechanism is not ideal, as it takes years of research to develop and may present different risks.

Layer-1 blockchains aim to provide the core features of a blockchain, but striking a balance between decentralization, security, and scalability is difficult and is often referred to as the blockchain trilemma.

Decentralization is the idea that a blockchain should be operated by a large and diverse network of nodes, with no single entity controlling the majority of the network's computational power. Security is the concept of protecting the blockchain network from malicious attacks and ensuring the integrity of the data stored on it. Scalability refers to the ability of a blockchain to handle a large volume of transactions while maintaining the same level of decentralization and security.

The main limitation of Layer-1 blockchains is their ability to balance decentralization, security, and scalability. Developers are continuously exploring new solutions to improve the performance of Layer-1 blockchains while maintaining these core principles.

Some proposed methods to solve the blockchain trilemma include increasing the block size, changing the consensus mechanism, and sharding. However, each method comes with intrinsic trade-offs, while attempting to improve scalability.

Blockchain scaling solutions are difficult to implement because blockchains need to access the system's entire database to verify a transaction and add a new block to the blockchain. This process is computationally (and sometimes environmentally) intensive, limiting processing speeds to just a few transactions per second.

Blockchain technology has made significant strides in recent years, but it still has its limitations. One of the main limitations is the ability to balance decentralization, security, and scalability.

Early Layer-1 blockchains like Bitcoin and Ethereum prioritized decentralization and security, at the cost of scalability. This meant that as more users began using the network, the transaction speed became slower, and the fees to process transactions increased.

Decentralization is crucial for a blockchain, as it allows the network to operate without a single entity controlling the majority of the computational power. However, achieving this balance is difficult and is often referred to as the blockchain trilemma.

Security is another essential aspect of a blockchain, as it protects the network from malicious attacks and ensures the integrity of the data stored on it. However, increasing the block size to improve scalability can lead to centralization and potential security risks.

Scalability is the ability of a blockchain to handle a large volume of transactions while maintaining the same level of decentralization and security. Currently, blockchains like Bitcoin and Ethereum are capped at 4.6 and 15 Transactions Per Second (TPS) respectively, which is much slower than centralized payment systems like Visa, which process at least 1700 TPS.

Here are the three core principles of a blockchain and their limitations:

The blockchain trilemma is a fundamental challenge that blockchain developers face. It's about striking a balance between decentralization, security, and scalability.

Decentralization is crucial for a blockchain to operate without centralized entities. This means that no government or organization can have authority over it.

To improve scalability, developers have proposed various solutions, each with its own trade-offs. Some, like Segregated Witness (SegWit), are simple soft forks that only change the code.

Others, like consensus mechanism changes, may cause a hard fork that splits chains and impacts the value of certain cryptocurrencies. This can be a significant risk for investors and users.

To overcome the blockchain trilemma, developers are exploring new consensus mechanisms, such as proof-of-stake (PoS), which require less computational power and are faster. However, some argue that this comes at the cost of inferior security and centralization.

Another solution is sharding, which involves splitting the data into smaller parts called shards. Each shard can process transactions independently, increasing transaction speeds. However, the communication between sharded chains can be complex, resulting in inferior security for the blockchain.

Here's a summary of the proposed solutions to the blockchain trilemma:

Each solution has its own advantages and disadvantages, and the choice of which one to implement depends on the specific needs and goals of the blockchain project.

Layer 1 blockchains aren't just limited to Bitcoin and Ethereum, they include other blockchains that support many unique use cases.

There are 38 Layer 1 Blockchains (L1s) across popular web3 ecosystems, discoverable through Alchemy's Dapp Store.

The BNB Chain is one such Layer 1 blockchain that includes the initial Binance Chain launched in 2019 and its upgraded version, the Binance Smart Chain, introduced in 2020.

The Binance Smart Chain runs in parallel with the Binance Chain and relies on Proof of Stake consensus, where participants can become validators by staking Binance Coin (BNB).

There are over 115 Layer-1 blockchains as of January 2024, and this number is constantly growing.

You can find 38 Layer 1 Blockchains (L1s) across popular web3 ecosystems with Alchemy's Dapp Store, which also includes related collections like Sidechains and Testnets.

Bitcoin is the underlying architecture of the Layer 1 blockchain, securing the world's largest cryptocurrency with a computationally demanding cryptographic puzzle.

Ethereum is the second-largest tier 1 network on the Web3, using smart contracts to verify transactions and originally based on Proof-of-Work consensus, but now using a Proof-of-Stake update.

Algorand also uses smart contracts in its Layer 1 operation but uses Proof-of-Stake consensus instead of Proof-of-Work, selecting miners or block validators at random.

Cardano successfully implemented the Proof-of-Stake model and is known for its low gas fee, high degree of decentralisation, and ability to generate passive income from ADA staking.

Solana supports transaction speeds of up to 65,000 TPS with 200 nodes under test network conditions, using its innovative consensus model – Proof-of-History, which determines the order of events through cryptographic timestamps.

Avalanche is compatible with EVM and uses a C-chain as a proprietary network chain, making it versatile for developers who keep the C-chain in mind when creating smart contracts.

MultiversX (formerly Elrond) is a Layer 1 blockchain that's designed to compete with big players like Ethereum and Bitcoin by improving scalability and reducing computational waste.

Its unique feature is its adaptive state sharding mechanism, which improves scalability by combining three types of sharding: network sharding, transaction sharding, and state sharding.

MultiversX's adaptive state sharding mechanism is a game-changer for Layer 1 blockchains, allowing for more efficient and versatile blockchain solutions.

Ethereum is a popular choice for developers to create new projects on the blockchain due to its compatibility, decentralization, and strong ecosystem.

Some of the most notable Layer 2 protocols on the Ethereum blockchain include Polygon (MATIC), OMG Network (OMG), and Skale (SKL).

Here are some key features of popular Layer 1 blockchains:

The BNB Chain is a notable player in the world of layer 1 blockchains. It was launched in 2019 and has since undergone an upgrade to become the Binance Smart Chain in 2020.

Its primary focus was to offer an ultra-fast and decentralized trading option, aiming to replace the poor user interface of decentralized exchanges (DEXs). The Binance Chain was successful in its first year, paving the way for the launch of the Binance Smart Chain.

The Binance Smart Chain runs in parallel with the Binance Chain and relies on Proof of Stake consensus. This allows participants to become validators by staking Binance Coin (BNB).

BSC is also compatible with the Ethereum network, making it easy for developers to migrate decentralized applications (dApps) with minimal difficulties.

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Solana is a high-performing and efficient blockchain that's like a faster version of Ethereum. It uses a unique consensus mechanism called Proof-of-History.

Solana can support transaction speeds of up to 65,000 TPS under testnet conditions. This is a major improvement over other blockchains.

Its core innovation is the Proof of History (PoH) mechanism, which combines elements of Proof of Stake. This allows the network to reach consensus on the time and order of events without waiting for confirmation from other nodes.

Each node in Solana has a clock that helps the network validate transactions quickly. This reduces network congestion and improves scalability.

Solana benefited from the scaling issues that Ethereum and Bitcoin faced by improvising from the early joiners.

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Bitcoin is probably the most popular Layer-1 project. It has a few Layer-2 projects built upon its network, such as the Lightning network and Liquid Network.

Bitcoin operates on a Proof-of-Work mechanism, which is a complex process that requires significant computational power. This mechanism has a TPS (transaction per second) time of 7 TPS, making it relatively slow compared to other systems.

The Bitcoin Lightning Network, however, is able to process up to 1,000,000 TPS, showcasing the potential of having a Layer-2 protocol on the base layer of Bitcoin. This highlights the importance of scalability in blockchain technology.

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Cardano (ADA) is a unique blockchain that differentiates itself by using a mathematical consensus mechanism. This approach sets it apart from other blockchains.

Its multilayer architecture was designed by experts in cryptography and engineering. This expertise has enabled Cardano to power a smart contract platform on its blockchain.

Layer 1 blockchains are transforming traditional systems across various industries. They're driving innovation and have far-reaching implications.

In the financial sector, Layer 1 blockchains provide secure and transparent platforms for transactions, enabling faster and more cost-effective cross-border payments.

Decentralized finance (DeFi) applications are revolutionizing traditional financial services by offering greater accessibility and lower costs. This is a game-changer for people who need financial services but have been excluded by traditional systems.

Layer 1 blockchains enhance supply chain management by providing traceability and transparency, improving trust and efficiency in logistics operations. This helps companies ensure the authenticity and integrity of their products throughout the supply chain.

Layer 1 blockchains have transformed the financial sector by providing secure and transparent platforms for transactions.

Faster and more cost-effective cross-border payments are now possible, revolutionizing the way businesses and individuals conduct international transactions.

Decentralized finance (DeFi) applications are also on the rise, offering greater accessibility and lower costs to traditional financial services.

By leveraging blockchain technology, companies can create secure and transparent platforms for transactions, reducing the risk of fraud and increasing trust among customers.

Layer 1 blockchains are supporting the development of innovative financial solutions, enabling faster and more efficient transactions.

AI Governance is crucial for ensuring that AI systems are used responsibly and ethically. Casper Labs, in collaboration with IBM, has developed Prove AI, a blockchain-powered solution that improves the auditability and transparency of AI systems.

This integration highlights the potential for blockchain technology to support the development of AI in a more transparent and accountable way. By leveraging the capabilities of blockchain, organizations can ensure that their AI systems are trustworthy and reliable.

Layer 1 blockchains, in particular, play a pivotal role in AI governance, offering a secure and transparent framework for AI development. This is evident in the work of Casper Labs and IBM, which demonstrates the potential for blockchain to drive responsible AI development.

The future of blockchains is looking bright, thanks to ongoing technological innovations aimed at enhancing scalability, security, and interoperability. Advances such as sharding and new consensus mechanisms are paving the way for more efficient and versatile blockchain solutions.

These improvements will enable layer 1 blockchains to meet the growing demands of modern digital economies. This is a crucial step towards unlocking the full potential of blockchain technology.

Layer 1 blockchains are increasingly being integrated with emerging technologies like artificial intelligence (AI), the Internet of Things (IoT), and decentralized identity solutions. This integration is unlocking new possibilities and use cases that will transform various aspects of society.

The future of blockchains is looking bright, with technological innovations aimed at enhancing scalability, security, and interoperability.

Sharding and new consensus mechanisms are being developed to make blockchains more efficient and versatile.

These advancements will help Layer 1 blockchains meet the growing demands of modern digital economies.

Integration with emerging technologies like artificial intelligence (AI) is unlocking new possibilities and use cases for blockchain technology.

Decentralized identity solutions are also being integrated with blockchains, further expanding their potential to transform various aspects of society.

By combining blockchain technology with AI, IoT, and decentralized identity solutions, we can expect to see new and innovative applications emerge.

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Layer-1 blockchains are not obsolete, despite the benefits of Layer-2 solutions.

Most Layer-1 scaling solutions negatively impact blockchains by upsetting the balance between decentralization and security.

There are many promising Layer-1s that have solved scalability efficiently, making great strides in decentralized finance (DeFi).

Layer-2 solutions build atop an existing Layer-1 solution to improve scalability while retaining decentralization and security.

The blockchain ecosystem has developed several Layer-1 and Layer-2 solutions to deal with the blockchain trilemma, but Layer-1s are still worth exploring.

The balance between decentralization and security is crucial for blockchains, and some Layer-1 solutions have managed to achieve this balance effectively.