The "Blockchain Trilemma" was first proposed by Ethereum co-founder Vitalik Buterin. It refers to a blockchain’s ability to balance three core fundamentals that determine its functionality and operability; these are - security, scalability, and decentralization.

But why’s this important?

In blockchain technology, “scaling” refers to an increment in the system throughput rate, as measured by the number of transactions performed per second. Blockchain networks must become highly scalable and capable of growing fast enough to accommodate the increasing number of projects, users, transactions, and data being built on them every day. 

In order to solve the issue of blockchain scalability, thousands of enthusiasts and experts are working on scaling solutions. Some of these solutions are designed to tweak the architecture of the main blockchain (Layer 1), while others target Layer 2 protocols that operate on top of the underlying network. 

Layer 1 & Layer 2 Scaling Solutions

The term “Layer 1” refers to the primary blockchain architecture. It is the main structure of a blockchain network. Bitcoin, Ethereum, and BNB Chain are examples of Layer 1 blockchains. Layer 2, on the other hand, is a network that appears at the top of the underlying blockchain. The Lightning Network that runs on top of Bitcoin(Layer 1) is an example of a Layer 2. 

Blockchain network scalability improvements can be categorized into Layer 1 and Layer 2 solutions. A Layer 1 solution will change the rules and mechanisms of the original blockchain directly. A Layer 2 solution will use an external, parallel network to facilitate transactions away from the Mainchain. Let’s look at the Layer 1 and Layer 2 solutions that businesses are actively developing.

How do Layer 1 scaling solutions work?

As its name suggests, a Layer 1 blockchain network is about the blockchain’s core protocol. It hints at a base network like Bitcoin, BNB Chain, Litecoin, Ethereum, and their decentralized infrastructures. Layer 1 scaling solutions improve scalability by supplementing the blockchain protocol’s base layer. 

Layer 1 solutions are upgrades of the main architecture without an overlaying addition. Improvements to the main architecture can come through sharding and a new consensus mechanism.

An example of this is the Ethereum blockchain switching from Proof-of-work to Proof-of-Stake. This switch is based on the main architecture and not through side chains to make the network efficient. The Layer 1 solutions can verify, validate, and finalize trades without any dependence on another network.

Several methodologies are continuously being built – and implemented – to enhance blockchain networks' scalability.

How do Layer 2 scaling solutions work?

Layer 2 solutions offer a way of increasing transaction speeds and scaling while benefiting from the security of the main chain. In some cases, they can process thousands of transactions per second, which will be needed if Ethereum is to achieve wider adoption.

They are important because they allow for scalability and increased throughput while still holding the integrity of the Ethereum blockchain, allowing for complete decentralization, transparency, and security while also reducing the carbon footprint (less gas, means less energy used, which equates to less carbon.)

Many depend on secondary networks that function independently of the main chain or are parallel. This blockchain functions on the root layer to better its effectiveness. Layer 2 efficiently unloads transactions, takes a part of Level 1 blockchain’s transactional load, and then puts it on another system structure.

The Layer 2 blockchain then works on the processing burden and reports to Layer 1 to finalize results. Layer 1 becomes less congested because of load sharing, improving its scalability and lessening transaction fees. 

Differences between Layer 1 and Layer 2 Scaling Solutions

On a basic level, this is how Layer 1 and Layer 2 solutions differ

Bottom Line

To meet the standard legacy systems of payment processing, blockchain networks must become highly scalable and capable of accommodating an exponentially growing number of users, transactions, and data.  Layer 1 solutions add utility to a native blockchain to optimize its performance, while Layer 2 solutions are third-party protocols that integrate with an underlying Layer 1 blockchain to increase transactional throughput.