Crypto WOTD — Layer 1 vs Layer 2

HELLO CAPPIES! Another day another article to demystify the terms in the crypto space. Today is going to be a challenging one as there are so many intricacies to the technologies behind the Layer 1 and Layer 2 solutions.

BACKGROUND — Blockchain Challenges

This is the infamous “Scalability Trilemma” coined by Ethereum founder Vitalik Buterin. It is a difficult balance act between three of the following properties — decentralization, security, and scalability. For example, if I would like to build a brand new CAPPY PROTOCOL which is easy to scale and has ass-tight security; doing that would mean it will be reliant on a limited number of nodes, thus compromising “decentralization”. Therefore, Layer 2 solutions are borned!

The different layers

Bear in mind the main goal of these protocols is to solve the transaction speeds and scalability issues.

Layer 1 is the term used to describe the underlying main blockchain architecture. It serves as the security layer that anchors data transactions in a way that’s immutable, cryptographically secured without a central authority.

Some Layer 1 solutions would include consensus protocol changes, sharding (as explained in previous article!)

Layer 2 is an overlaying network that lies on top of the underlying blockchain. It is often referred to as an “off-chain” solution.

Examples of Layer 2 scaling solutions include: Lightning Network for Bitcoin, the Loom Network, Raiden, and Plasma Cash on the Matic network.

Hope that sheds alittle light on the Layer 1 vs Layer 2 issues in the crypto space. As always, Google and th3cappy is always your best friend !