The blockchain technology and the cryptocurrencies have paved a new path for the future of finance. Blockchain is the underlying concept behind the creation of cryptocurrencies. It is a decentralized, digital ledger that records all the transactions happening on the network. Cryptocurrencies like Bitcoin and Ethereum operate on this blockchain network. However, as the network grows, it poses several challenges such as scalability, speed, and cost. To overcome these challenges, developers have introduced L1 and L2 solutions.
What is L1?
L1, or Layer 1, refers to the base protocol layer of the blockchain network. It is the fundamental infrastructure layer upon which all other layers are built. L1 solutions are designed to improve the core blockchain protocol and address the issues of scalability, speed, and cost.
For example, Bitcoin, which operates on the L1 layer, has a limited block size of 1 MB and can only process seven transactions per second. This results in a congestion of the network, leading to high transaction fees and slow confirmation times. Ethereum, another prominent blockchain, has a higher block size of 8 MB, but it still faced congestion during peak usage times.
To address these scalability challenges, developers have been working on L1 scaling solutions like sharding and Plasma. Sharding is a process of partitioning a large blockchain into smaller, manageable pieces called shards. Each shard will have its own set of validators, and only transactions relevant to that shard will be processed. Plasma is another L1 scaling solution that allows for faster processing of smart contracts on Ethereum. It works through the creation of hierarchical Child Chains that operate on top of the main Ethereum blockchain.
What is L2?
L2, or Layer 2, refers to the protocols and applications built on top of the L1 layer. L2 solutions are designed to improve the performance of the blockchain network further, particularly in terms of transaction speed and cost.
The most popular L2 scaling solution is the Lightning Network, developed for Bitcoin. It is a payment protocol that allows for instant transactions and near-zero fees. It achieves this by creating payment channels between users, which bypass the main blockchain network. Once the channels are open, users can transact with each other as many times as they want, and the transactions will only be broadcasted to the blockchain when the channels are closed. This results in faster and cheaper transactions for the users.
On Ethereum, one of the most popular L2 scaling solutions is the Optimistic Rollup. It is a Layer 2 scaling solution that processes transactions off-chain, but the transaction data is still broadcasted to the main blockchain network. It achieves this through the use of cryptographic proofs that ensure the validity of the transactions without needing the verification done on the blockchain itself.
Conclusion
L1 and L2 solutions are essential for the scalability and growth of the blockchain network. L1 solutions focus on improving the infrastructure of the blockchain network, while L2 solutions optimize the performance and cost of the network further. As the blockchain technology continues to evolve, we can expect more innovative L1 and L2 solutions to emerge, opening up more possibilities for the adoption of cryptocurrencies and the growth of the blockchain ecosystem.
