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Offering secure transactions on a decentralized system laid the foundation of what is known today as Layer 1 (L1) blockchain. Bitcoin, Solana, and Ethereum, which today are giants and the foundation of the blockchain-based economy, are the Layer 1 chains.
When these chains came into being, the founder hadn't imagined the scale of DeFi applications and the need for speed in carrying out transactions on these chains. Layer 1 has its own consensus mechanism, which gives it the security. Meanwhile, Layer 2 (L2) helps scale and decongest the L1 blockchains to make the multitude of chain-based applications possible.
Note: Crypto investments involve significant risk. Do not take the views mentioned here as financial advice. Please conduct thorough research before making any investment.
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What are L1 blockchains?
L1s are the base layer chain, and they are at the core of all the transactions that happen on the chain. Some examples of L1 blockchains are Bitcoin, Ethereum, and Avalanche.
They keep a tab of all the transactions on the consensus-based blockchain. They use the power of computational mining, staking, and cryptographic time-keeping to ensure secure transactions. These blockchains are the foundation of smart contracts that get auto-executed when certain conditions are fulfilled. Hence, the L1 lies at the core of smart contract-based applications in DeFi.
Although safe, the biggest problem for L1 blockchains is that they get congested soon, lowering speed and increasing fees. They are slow and carry out three to 15 transactions per second.
What are L2 blockchains?
L2s help L1s scale. They increase the speed of transactions and reduce transaction fees. Instead of pushing every transaction to the base layer, they bundle up them up into a single proof and submit that to the base layer.
Some examples of L2s are Optimistic Rollups (Optimism, Arbitrum), ZK-Rollups (zkSync), StarkNet, and Polygon) and payment channels (Lightning Network for Bitcoin).
Some L2s, like Optimistic's rollups, allow transactions to be valid unless challenged. Some like Polygon's POS chain allow independent chains to run parallel to L1s and connect them via bridges. Some use cryptographic proofs to validate transactions instantaneously, thereby improving speed.
L2s are fast, and they carry out transactions in a fraction of a second. So they can carry out thousands of transactions per second. They offload the L1 chain and benefit the entire ecosystem. However, some L2 blockchains offer tradeoffs in decentralization, and some, like zkSync and StarkNet, are not fully interoperable with each other.
Performance enhancement using L2 technologies will enable many new applications, such as gaming, non-fungible tokens, and micropayments, which require high data throughput and low latency.
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Benefits such as increased scalability and cost reduction usually come at the expense of decentralized structures and compatibility issues. Specific Layer 2 blockchain technologies may aggregate certain functionalities or nodes for better efficiency.
Secondly, blockchains are difficult to integrate with their various layers since they lack smooth compatibility among different components. This hinders the efficient transfer of assets across chains and enhances inter-layer communication.
Security
The foundational architecture of Layer 1 blockchain greatly influences the reliability of security in Layer 2. Adding layers, however, brings multiple complications and introduces many uncertainties related to issues of risk management, such as late fraud identification or unbalanced incentives for validators.
Here is a table summing up the differences between L1 and L2 blockchains:
