But, what is this scalability problem? And, what exactly are blockchain layer 1 and layer 2 solutions?
The Scalability Problem
Within the blockchain and crypto world, scalability refers to a blockchain’s ability to scale up the number of transactions it can process at a single time, adjusting to user demand. When you talk about a blockchain’s scalability, you are talking essentially about transaction speed. The scalability problem is the result of various challenges present in the realization of the ideal blockchain, which ought to be decentralized, secure, and scalable.
These challenges have been summed up and conceptualized as the “blockchain trilemma” by Ethereum’s co-founder, Vitalik Buterin. The blockchain trilemma posits that while the ideal blockchain should be decentralized, secure, and scalable, it can only have two out of the three characteristics.
Read More: What Is the Blockchain Trilemma?
The blockchain trilemma represents one of the technology’s major challenges to its widespread adoption. It should still not be taken as a given, though, as there is no actual law preventing the technology from being improved and reaching a desired level of scalability without the need to sacrifice neither decentralization nor security.
There are actually many teams of developers working hard to solve the blockchain trilemma, with some techniques and ideas that intend to solve the scalability problem, even if partially, already being implemented. These ideas and techniques come in the form of either layer 1 or layer 2 solutions, depending on their level of implementation regarding the blockchain.
What Are Blockchain Layers?
In the crypto world, and particularly when you talk of scaling solutions, blockchain layers refer to the level of implementation of scaling solutions; whether they are implemented directly on the blockchain or if they function atop of it as a separate, but dependent, protocol or network.
What Is Blockchain Layer 1?
Blockchain layer 1 refers to the distributed database itself, the peer-to-peer network that brings all the blockchain’s nodes together into a single system, and its underlying consensus mechanisms. For example, Bitcoin’s layer 1 is the Bitcoin network, Ethereum’s is the Ethereum network, and Ripple’s is the XRP Ledger.
Blockchain layer 1 scaling solutions:
Increasing block-creation speed. Increasing block-size. Consensus protocol changes, changing the core rules nodes must follow to be admitted into the network and the mechanisms the network follows to find consensus among the nodes. Sharding, breaking blocks of transactions into smaller shards, and processing simultaneously by the blockchain, allowing it to process several transactions at a single time.
What Is Blockchain Layer 2?
Blockchain layer 2 refers to the intended scaling solutions, such as protocols or networks, that operate atop a blockchain, essentially functioning as different layers of blockchain. For example, Bitcoin’s Lightning Network or Ethereum’s Plasma, Polygon, and so on.
Blockchain layer 2 solutions:
Nested networks: In this kind of network, the main blockchain, called the “mainchain,” sets the rules for the whole network and is not expected to participate in any operation unless there is the need for resolving a dispute. This system allows several levels of blockchains to be built on top of each other, linking them through a parent-child connection. The parent chain assigns and distributes the tasks among its children, who in turn execute them and send back the result to the mainchain, relieving their parent of its workload and increasing scalability. State channels: These create a two-way communication channel between the blockchain and off-chain transactional channels. When using state channels, transactions occur off the blockchain, thus, they do not require node verification. Instead, state channels rely on smart contracts to finalize transactions.
Layer 1 vs. Layer 2: Solving Blockchain Scalability
Even though the blockchain trilemma continues to be a thorn at the side for both blockchain technology and cryptocurrencies, developers continue to work hard on solving the scalability problem and are coming up with new solutions by the day. There is ample room for experimentation.
If the blockchain trilemma is too limiting for an on-chain, layer 1 solution, developers have proven that off-chain, layer 2 solutions can offer an efficient alternative.
