Layer 1 Blockchain: A Comprehensive Overview

dApps are experiencing a surge in popularity, bringing forth a growing need for Layer 1 blockchain technologies to fulfill essential requirements of security, speed, and decentralization. As the landscape of blockchain evolves, Layer 1 stands as a critical foundation, providing the necessary application infrastructure to support the diverse and expanding ecosystem of decentralized applications.

What is the Layer 1 blockchain?

Layer 1 blockchain is the foundational blockchain, acting as the main network of the ecosystem and capable of processing and completing transactions on its own blockchain without the need for another network.
 
At its core, Layer 1 blockchain operates as a distributed ledger technology (DLT), designed to securely record transactions on a public, immutable, and trustless ledger. This technology is instrumental in establishing transparent public ledgers, as it handles on-chain transactions without relying on third-party interventions or other blockchains. Acting as an infrastructure platform, Layer 1 blockchain facilitates the development of a robust blockchain ecosystem by providing the groundwork for applications, protocols, and networks, including Layer 2 solutions and decentralized applications (dApps).
 
One of the distinctive features of Layer 1 is its consensus mechanism, a critical element that defines the speed, security, and transaction throughput of each blockchain. The diversity in consensus mechanisms among Layer 1 platforms contributes to the varied advantages and disadvantages exhibited by different blockchains.

 
Layer 1 blockchain is often considered the “core” or “foundation” of the entire blockchain landscape. They serve as the backbone, ensuring the maintenance of a distributed ledger, validating transactions, and fortifying the network against malicious activities. The significance of Layer 1 extends beyond being a mere transaction processor; it is the infrastructure that empowers the entire blockchain ecosystem.
 
Central to the functionality of Layer 1 platforms is the issuance of native tokens, which is crucial for ecosystem development. Validators play a pivotal role by holding these tokens, participating in network authentication processes. Additionally, the original Layer 1 tokens are utilized to pay gas fees for transactions within the dApps built on the Layer 1 infrastructure.

Why is Layer 1 blockchain important?

Decentralization, scalability, and security stand as the triumvirate of essential goals for any blockchain, with Layer 1 blockchain emerging as a pivotal player in achieving these objectives.

Decentralization

Layer 1 blockchain serves as the bedrock for decentralized applications (dApps) to flourish and expand. They play a critical role in transaction processing, ensuring ledger transparency, and safeguarding the network. The absence of Layer 1 would pose a significant challenge to the development of decentralized applications, as these blockchains are fundamental to their construction.
 
Moreover, Layer 1 blockchain contributes to decentralization by providing a platform independent of any single entity. This autonomy enhances the safety and resilience of applications and services built on Layer 1, making them less susceptible to censorship and external control. Layer 1 infrastructures are integral to fostering decentralization and creating a distributed environment that promotes innovation and autonomy.

Scalability

Scalability is another vital goal addressed by the Layer 1 blockchain. These blockchains form the foundation for building scalable applications and services, ensuring that the network can handle increased transaction volumes without compromising efficiency. The robustness of Layer 1 is essential for accommodating the growing demands of an expanding blockchain ecosystem. By facilitating the scalability of applications, Layer 1 blockchain enables the seamless integration and execution of a diverse range of services, contributing to the overall efficiency of the blockchain network.
 
Scalability appears to be the biggest challenge and a major concern for Layer 1 blockchain. Solving complex mathematical problems to add a new transaction to the blockchain is time-consuming for miners and resources, and it is not environmentally friendly. During times of high transaction demand, low throughput processing capacity can cause transaction delays and increase transaction fees.

Security

Security is paramount in the blockchain landscape, and Layer 1 blockchain plays a crucial role in fortifying the entire ecosystem. As the primary infrastructure, Layer 1 ensures the integrity of transactions, provides transparency through a decentralized ledger, and guards against potential threats to the network.
 
The immutability and transparency inherent in Layer 1 infrastructures contribute significantly to the security of blockchain networks. By leveraging these features, Layer 1 blockchain creates a trustworthy environment for users, mitigating the risks associated with fraudulent activities and unauthorized access.

Layer 1 blockchain structures

Consensus protocol

Proof-of-Work

Bitcoin’s traditional consensus mechanism, Proof-of-Work (PoW), has long been the bedrock of the cryptocurrency’s security and consensus-building efforts. While it has played a crucial role in protecting against DDoS attacks and ensuring market stability, PoW is not without its challenges.
Advantages

• Security Measures Against DDoS Attacks: PoW acts as a formidable shield against Distributed Denial of Service (DDoS) attacks and other negative impacts stemming from cryptocurrency software. This feature ensures the robustness of the Bitcoin network against external threats.
• Limiting Authority for Fairness and Stability: The “Proof of Work” algorithm restricts authority, enforcing specific policies for participants. This limitation contributes to the fairness and stability of the market, preventing undue influence from individuals with large financial holdings and fostering an equitable environment for all network participants.

Defects

• Resource-Intensive Nature: One of the primary drawbacks of PoW is its substantial resource consumption, spanning hardware, software, and energy sources. The energy footprint of PoW mining applications is staggering, equivalent to the electricity needs of entire countries.
• Wasteful Energy Consumption: PoW is criticized for its inherent wastefulness, as only one miner receives a reward for solving a block, while the efforts of the remaining miners are essentially wasted. This inefficiency contributes to the environmental concerns associated with cryptocurrency mining.
• Centralization Challenges: The current dominance of ASIC machines in mining activities has led to a concentration of mining capacity in the hands of large companies. This centralization poses a risk to the overall decentralization ethos of cryptocurrencies, as only well-funded entities can afford the maintenance and scale required for competitive mining operations.

Proof-of-Stake
Proof-of-Stake (PoS), a distributed consensus mechanism in blockchain networks, revolutionizes transaction validation through staking activities. While it offers advantages such as enhanced transaction speed and reduced resource consumption, concerns linger about its security. Notably, the Ethereum Blockchain is in the process of transitioning from PoW to PoS with the implementation of Ethereum 2.0, aimed at addressing scalability issues and ensuring sustainability.

Advantages

• Cost Efficiency and Accessibility: PoS requires lower initial investment capital and maintenance costs, making it a more cost-effective option compared to PoW. Moreover, it is less time-consuming as it doesn’t demand stringent hardware requirements.
• Reduced Time and Energy Consumption: Unlike PoW, PoS eliminates the need for complex hash function calculations, resulting in quicker transaction processing and reduced energy consumption.
• Decentralization Promotion: PoS mitigates the trend of centralization witnessed in PoW. With less dependence on specialized hardware and significant energy sources, PoS encourages a more diverse range of participants, fostering decentralization and inclusivity.
• Security Through Deposits: PoS enhances security by requiring a deposit from each participating entity. This safeguard ensures that validators have a stake in the network’s integrity, discouraging malicious activities. Censors knowingly confirming illegal transactions risk losing the majority of their assets, providing an additional layer of security.

Defects

• Wealth Concentration and Token Holder Rights: PoS’s reliance on ownership shares can lead to a concentration of power among large token holders, potentially creating an imbalance where the wealthy gain more rights. This dynamic poses a threat to the decentralized authentication process.
• Profit Vulnerability to Token Price Slippage: PoS systems may experience profit loss due to token price slippage, impacting the returns for participants. This vulnerability introduces a financial consideration that users must navigate.
• Risk of Fraud and Unreliable Platforms: There is a potential risk of fraud when selecting a stake platform or investing in lesser-known coins. Reliance on trustworthy platforms is crucial to mitigating these risks and ensuring the integrity of the PoS ecosystem.

Sharding

Sharding, as tested and integrated into blockchain technology, fundamentally involves the fragmentation of the network into independently processed shards. The term “sharding” aptly describes this process, underscoring its effectiveness in rendering blockchain more manageable. Unlike traditional methods, sharding does not necessitate the involvement of all nodes in processing or executing transactions to uphold the network’s integrity.
 
The key innovation lies in the parallel processing of all “shards,” operating concurrently to enhance overall processing capacity. This not only streamlines transaction processing but also contributes to the scalability of the blockchain. Sharding, by design, allows for a more efficient utilization of resources, offering a practical solution to the limitations that conventional blockchains encounter as they expand.

Features of Layer 1 blockchain

Block Production

At the core of blockchain functionality is the production of blocks, fixed units generated by miners or validators. These blocks serve as the building blocks of the blockchain, creating an unbroken chain of transactions. Each block contains references to previously recorded blocks, forming a transparent ledger. This meticulous recording ensures that every transaction is accounted for, fostering transparency and accountability.

Final Determination of Transactions (Finality)

A hallmark of blockchain is the concept of transaction finality, ensuring that once a transaction is recorded, it cannot be altered or reversed. The immutability of transactions on-chain is a key factor, and the time required for finality can vary based on blockchain design. While transactions may undergo processing on different layers or chains, true finality is achieved only on Layer 1 blockchain, reinforcing the integrity of the entire system.

Profits Obtained in Crypto Assets

The operation of Layer 1 blockchain relies on a cryptocurrency known as “coin,” used to pay transaction fees and reward miners or validators. It is crucial for sustaining the Layer 1 blockchain. In contrast, tokens such as UNI, DAI, LINK, and SAND power decentralized networks and applications built on Layer 1. Understanding this duality is essential for comprehending the economic dynamics within the blockchain ecosystem.

Security

The security of a blockchain network is intricately tied to the parameters established by Layer 1. This includes determining the consensus mechanism, such as Proof of Work or Proof of Stake, and setting rules that govern validator interactions. While other layers may offer additional security measures, Layer 1 blockchain stands as the ultimate authority on ecosystem security. It is the final arbiter that ensures the robustness and integrity of the entire blockchain network.

How Layer 1 blockchain is built

Blockchain

At the heart of Layer 1 blockchain networks lies the blockchain itself. This foundational component is structured from interconnected blocks, linked through a hash function, forming an unalterable chain. Each block encapsulates crucial information pertaining to transactions within the network, ensuring a transparent and immutable ledger.

Consensus Protocol

A vital aspect of Layer 1 blockchain functionality is the implementation of a consensus protocol. This protocol plays a pivotal role in achieving unanimity among all nodes within the system, establishing a shared version of the ledger. It not only governs the admission of new nodes into the network but also dictates the decision-making process for ledger modifications, fostering a cohesive and secure network environment.

Virtual Machine

Some Layer 1 blockchains introduce a virtual machine, exemplified by the Ethereum Virtual Machine (EVM). This virtual machine serves as an execution environment for smart contracts, facilitating the seamless operation of decentralized applications (DApps). By providing this versatile platform, Layer 1 enables the deployment and execution of a myriad of decentralized applications, contributing to the blockchain’s functionality and versatility.

Security Layer

Layer 1 blockchain networks are fortified by a robust security layer, essential for safeguarding the system’s integrity and user data. This layer incorporates advanced encryption techniques and cryptographic algorithms, fortifying the network against potential threats. Additionally, authentication methods and digital signatures are employed to ensure the authenticity and non-repudiation of transactions, bolstering the overall security posture of the Layer 1 blockchain.

Main limitation of Layer 1 blockchain

Capacity Limitations: Scaling Solutions to Boost Transaction Throughput

One prevalent challenge in Layer 1 blockchain networks is capacity limitations, hindering transaction throughput and speed. Scaling solutions address this concern by modifying the underlying blockchain protocol. By adjusting the protocol’s rules, these solutions significantly increase transaction capacity and processing speed. The outcome is a blockchain that can efficiently handle more data and, in turn, attract a growing user base.

Inefficient Consensus Protocols: Balancing Security and Speed

While PoW remains a robust security mechanism, its inherent computational requirements can impede transaction speed. PoW mandates miners to utilize substantial computing power to solve cryptographic algorithms, resulting in a slower system. Innovations in consensus protocols are actively addressing this challenge by seeking a delicate balance between security and speed. The objective is to retain the robust security features of PoW while introducing optimizations that enhance the overall efficiency of Layer 1 blockchain networks.

Workload Overload: Managing Increased User Activity

As the user base of Layer 1 blockchains expands, so does the potential for workload overload, leading to decreased processing speed and capacity. To counter this challenge, ongoing efforts focus on implementing strategies to handle the growing workload efficiently. Innovations include optimizing network architectures, introducing sharding techniques, and leveraging off-chain solutions. The goal is to create a scalable and responsive Layer 1 blockchain that can accommodate the demands of a flourishing decentralized community.

Blockchain Layer 1 expansion solutions

New Consensus Protocol: Transitioning from Proof-of-Work to Proof-of-Stake

While Proof-of-Work has been a stalwart for decentralized consensus and cryptographic security, its drawbacks, including slow transaction speeds and scalability challenges, have prompted the exploration of alternatives. Proof-of-Stake offers a more energy-efficient solution, relying on validators who stake cryptocurrency to create new blocks and validate transactions. This transition not only addresses environmental concerns but also opens doors to improved scalability and network efficiency.

Database Separation: Enhancing Scalability through Shard Partitioning

To overcome scalability hurdles, Layer 1 blockchains are increasingly adopting the technique of database separation, commonly known as sharding. This method involves the partitioning of the network into individual database blocks or shards. Each shard independently manages a subset of the network’s operations, holding distinct transactions, blocks, and nodes. By distributing workloads across these shards, blockchain networks can significantly improve transaction speeds and overall efficiency.

Increase Block Size: Optimizing Transaction Processing through Hard Forking

In pursuit of greater transaction throughput and reduced processing times, blockchain networks are leveraging hard forking to increase block sizes. Larger block sizes translate to improved transaction processing capacity, faster transaction times, and lower costs. However, it’s important to note that this approach can be contentious within the blockchain community. The potential for a split arises, as not all network users may agree with the proposed changes, highlighting the delicate balance between innovation and community consensus.