Blockchain Networks - Layer 1 & Layer2

Let's deep dive into the different types of blockchain networks, their functionalities and what is Layer 1 and Layer 2 blockchains are.

There are many behind -the-scene actions that we are so used to and take for granted every day.

When we swipe a credit card, we don’t think what Mastercard have to do to make that transaction go through.

When we send an email, we don’t ponder how Gmail and Yahoo and Hotmail are interoperable based on the same standards: subject, recipient address, CC, etc.

Blockchain networks are similar in this sense, providing technical standard and infrastructure to enable the next generation of value exchange.

We talked about blockchain technology very briefly in previous courses - a chain of blocks containing data that are unchangeable. Now think about blockchain as a digital ledger.

Stored within each block are transaction data, including the amount, balance, sender, receiver, etc. Anything of value can be traded and recorded on this digital ledger.

However, there’s no Visa in Web3 yet, and we’re still in the phase of exploration. Different networks have various approaches to maximize decentralization, security and scalability to provide infrastructure for applications to build on.

Here are some specific examples and numbers to make it more clear. Bitcoin Network processes approximately 7 transactions per second and Ethereum at 30.

Therefore, in a micro-payment setting, they’re impossible to compete with Visa which processes around 1,700 transactions per second.

Another problem is when networks get crowded, users are charged with a high network fee called gas fee in order to get their transactions go through.

What are Layer 1 and Layer 2 Blockchain Networks?

To solve these problems and support real use cases, many networks are proposed with various approaches.

There are two main categories, Layer 1 (L1) blockchains and Layer 2 (L2).

L1 refers to a base network, such as Bitcoin and Ethereum, that validates and finalizes transactions on its own.

There are a lot of L1 blockchains out there, the popular ones include the BNB Chain, Solana, Avalanche, etc.


We talked about the scalability issue of L1 networks, thus developers create Layer 2 blockchains. L2s rely on L1s for security and stability but allow users to make transactions at a vast scale and lower cost.

Here is a high-level explanation of how it works: a large amount of transactions are first pre-processed and packed on L2 before they are eventually finalized on L1.

To further clarify this, let’s look at Ethereum, since many popular L2 chains are built on Ethereum, including Polygon, Optimism, Arbitrum, etc. These chains are also referred to as EVM (Ethereum Virtual Machine) chains.

Imagine 1,000 transactions on Ethereum, which would take a lot of network space and power to process.

Now these 1,000 transactions are pre-packed into 1 transaction on a L2, reducing processing power by 1000% for the L1 Ethereum network, but with the same stability and security at much lower cost.

With the mission to make Ethereum accessible to everyone, L2 provides the stability and security of the EVM environment at much lower cost.

Why Networks Matter?

As a user and developer, you get to choose the network to interact with, building applications, deploying smart contracts, trading, staking, participating in campaigns, etc.

📝 Example: If you’re claiming a NFT that’s deployed on the BNB Chain, you’ll need to switch networks in your wallet. (You need to be on BNB!)