At this point we’ve touched on the advantages of decentralized networks and how, in many cases, they have advantages over centralized structures. And now that more and more people are using blockchains, some (especially the Ethereum network) have reached some scaling limitations causing congested networks. This drives up the cost of using the network, creating the need for “scaling solutions.” One of the ways people have figured out how to help alleviate the scalability issue for blockchains like Ethereum are Layer-1 and Layer-2 scaling, aiming at accommodating a fast-growing number of users, transactions, and data.
The goal of these solutions is to increase the speed per transaction and the amount of transactions per second without compromising decentralization or security. Layer-1 (which refers to the blockchain itself) solutions add utility to a native blockchain to enhance performance. For example Bitcoin, Litecoin, and Ethereum are Layer-1 blockchains. Layer-1 solutions adjust the base layer of the blockchain protocol itself to help with scalability. Several methods are being worked on and used that optimize the scalability of the blockchain networks themselves.
Layer-1 solutions adjust the rules of the protocol to increase transaction speed and number while working with more information. Layer-1 scaling can involve things like increasing the amount of data in each block, or speeding up the time that blocks are approved. Improvements in the protocol are other ways to improve Layer-1 scaling. For example, Ethereum 2.0 will move to a PoS (Proof of Stake) consensus, which can drastically improve the capacity of the network while also increasing decentralization and security.
Layer-2 solutions are third-party protocols that merge with underlying Layer-1 blockchains to help with smoother transactions. Layer-2 technology exists on top of a blockchain protocol to improve scalability, which means it’s moving some blockchain transaction-work to its own protocol in parallel. This takes on much of the network’s work-load while reporting to the main blockchain to finalize the results. Layer-2 solutions working on top of Layer-1 blockchains can significantly help the Layer-1 blockchain (like Ethereum) become less congested and therefore more scalable. For example, the Lightning Network is a Layer-2 solution, in conjunction with the Bitcoin network, to optimize transaction speeds on the Bitcoin’s Layer-1 network.
Both of these solutions are aimed at making blockchain networks more efficient to its growing users. Layer-1 and Layer-2 solutions are not mutually exclusive, and both can be used together in order to enhance network efficiency while staying true to security and decentralization.