Understanding The Different Types of Blockchain Networks

My previous post, “The Blockchain Trilemma: Decentralization, Scalability, and Security,” delves into the blockchain trilemma.

This article will go over the various types of blockchain networks, and we’ll also review the distinctions between Layer 1 and Layer 2 blockchains. You should have a rudimentary grasp of how Layer 2 blockchain networks attempt to address the “Blockchain Trilemma” by the end of this article.

An Overview of Layer 1 and Layer 2 Blockchains

There are two important concepts to understand regarding blockchain technology: Layer 1 and 2.

Layer 1 is the primary blockchain network that handles on-chain transactions. This is the foundation of a blockchain, which keeps track of all transactions on the network.

Layer 2 is the connected network in charge of off-chain transactions. This secondary network runs on top of the underlying blockchain and is in order of rolling up all transactions off-chain before storing them on the main blockchain network.

To put it another way, Layer 1 is the blockchain’s base layer, whereas Layer 2 is the network that runs on top of it.

What is a Layer 1 Blockchain?

The core architecture of the main blockchain is a Layer 1 blockchain, and it is the foundation upon which all blockchains are created. Prominent Layer 1 blockchains include Bitcoin and Ethereum network.

These blockchains are considered the most secure because they have the most miners (people who verify and validate transactions). They are also the most time-consuming because all miners must validate all transactions.

Layer 1 blockchains are ideal for data storage and the creation of digital assets. However, they are not as effective in processing transactions, which is why Layer 2 networks were developed.

What is a Layer 2 Blockchain?

A Layer 2 blockchain is a network that is responsible for off-chain transactions. This means it can process transactions considerably faster than a regular Layer 1 blockchain and does not require all validators to be online at the same time.

This is made feasible by using a network of nodes that communicate with one another and act as a bridge between the two blockchains. These nodes can verify and approve transactions more quickly than standard blockchain nodes, making the process more efficient and scalable.

Layer 2 blockchain is often called “Layer 1 Scaling Protocols.” They are created atop the main blockchain network to solve the blockchain trilemma by creating a scalable network and leveraging the main network’s security and decentralization.

The Lightning Network, built on the Bitcoin Blockchain network and the Polygon network, built on the Ethereum Blockchain network, are two notable examples of Layer 2 networks. The Ethereum Plasma Chain, the EOSIO Sidechain, and the Polkadot Parachain are prominent Layer 1 scaling alternatives. Each of these systems has been built to scale differently, and each has its benefits and drawbacks.

Layer 1 Networks

Bitcoin Blockchain Network

Bitcoin, the first and most well-known cryptocurrency, was launched in 2009. The Bitcoin network is based on a proof-of-work consensus process, which implies that bitcoin tokens are generated through solving computational challenges and are used to reward miners on the network.

Bitcoin can be exchanged for other cryptocurrencies or fiat currencies, and used to purchase products and services. The Bitcoin network, however, has certain limitations. For example, transaction fees on the Bitcoin network can be fairly high, and the network can sometimes be slow and overloaded.

Ethereum Blockchain Network

Vitalik Buterin founded Ethereum in 2015, a decentralized platform that runs smart contracts. The Ether (ETH) native token on the Ethereum network is used to pay transaction fees.

The Ethereum network started with a proof-of-work (PoW) consensus process; however, it recently migrated to the proof-of-stake (PoS). It is referred to as a “Layer 1” blockchain.

The Ethereum network has a block time of 15 seconds and a transaction fee of $0.30 on average. However, when the network is congested, transaction fees go as high as $50.

The Ethereum network is mostly used to run decentralized apps (dApps), but it is also utilized for smart contract development. However, the Ethereum network has some downsides, such as scalability concerns.

Layer 2 Networks

Bitcoin Lightning Network

The Lightning Network is a layer two scaling method presented by Joseph Poon and Tadge Dryja in 2015.

The Lightning Network operates by establishing a network of nodes that are linked to one another. These nodes can communicate with one another without going through the main blockchain. This enables faster and cheaper transactions and better scalability and is considered a significant advancement in the Bitcoin space.

The Lightning Network connects participants through a bidirectional payment channel network. These channels can be regarded as a private blockchain to which only the channel participants can access.

Two parties must deposit an equal amount of bitcoin into a multi-signature wallet to create a channel. Once the channel is active, the two parties can conduct as many transactions as they like without having to broadcast them to the Bitcoin network.

The final balances are published to the Bitcoin blockchain only after the channel is ended (either by one or both participants). This resulted in only two transactions being recorded on the blockchain, although the two participants exchanged hundreds of transactions while the channel was active.

Polygonal Network

Polygon Network is a Layer 2 scaling solution that works with the Ethereum network (Layer 1) to boost output and efficiency. The network was founded in 2017 and operates using a variety of protocols.

Polygon Network is an Ethereum-based zero-knowledge scaling solution. Not all transactions must be completed and kept on the Ethereum blockchain, and instead, only a tiny percentage of transactions are handled on-chain, with the remainder performed off-chain. This enables far more scalability as well as better security and privacy.

In conclusion, the main blockchain that everyone uses is the Layer 1 Blockchain. A Layer 2 Blockchain is developed on top of the Layer 1 Blockchain to improve scalability.