Blockchain structures split into two primary categories: Layer-1 and Layer-2. Each layer serves a unique purpose, enhancing scalability, efficiency, and cost-effectiveness.
Let's Crack the Blockchain Scale Dilemma
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Introduction
Ever since Satoshi Nakamoto introduced Bitcoin to the world, blockchain tech has skyrocketed! But, as DeFi and Dex grew in demand, chains needed to adapt and scale, all while maintaining network security. Back in the day, blockchains were designed solely for decentralization and security, leading to self-imposed scalability limits like small block sizes and slow block production rates.
What's the Deal with Layer 1 Blockchain?
Layer 1 protocols extend the existing base layer of a blockchain. Notable examples include Ethereum and Bitcoin. L1 players experimented with protocol tweaks to scale primarily by amplifying the data capacity of each block (block size) and the block production rate to improve transaction speed. Yet restrictions on throughput resulted in network congestion, necessitating high-powered nodes. As fees rose and demand surged for limited block space, nodes prioritized transactions based on fees paid, pushing transaction costs up for users.
Modern L1 Networks: Scaling, Speed, and Low Fees!
Newer L1 blockchains are diving deep into their protocols to be both scalable, speedy, and wallet-friendly for users. Networks like ours employ strategies like sharding to significantly improve scalability and sustain low fees, even as usage grows. Sharding involves breaking up the L1 chain into smaller chains called shards, enabling them to process transactions separately, boosting network throughput. Crucially, many latest blockchains strive for both enhanced scalability and affordability, all while upholding high security and decentralization.
OK, Then What's Layer 2 Blockchain, Man?
Scalability issues pushed the need for Layer 2 (L2) scalable solutions, as Ethereum built on Bitcoin's innovation by introducing smart contracts and expanded blockchain uses beyond money transfers. Suddenly, public chains were overwhelmed by user transaction volume.
How Layer 1 Scaling Fits Together 🧩
Two main L1 scaling solutions are consensus protocol tweaks and sharding.
Consensus Protocol Mods 🤝
Adjustments to consensus protocols, including how transactions are processed and ordered, can boost scalability. Proof of Stake (PoS) may seem less secure than Proof of Work (PoW) but is deemed secure enough for public blockchains, making it popular. However, community acceptance is crucial when it comes to complex protocol changes or migrations.
Sharding: Your Secret Shared Network Sauce 🥄
Sharding enables networks to break down into smaller pieces, fostering parallel transaction processing. This makes networks scalable during peak demand while retaining low gas fees and fast finality. Networks like ours deploy Proof of Quorum consensus algorithm in tandem with PoS, ensuring high levels of scalability without compromising security and decentralization.
Block Size and Rate Chunks 📄
Though less common in public chains, which prioritize security and decentralization, block size and production rate adjustment is popular among private chains. Blockchains like Bitcoin and Ethereum keep block sizes and production rates smaller and slower compared to private chains. This strategic design helps maintain network security and reduces centralization risk. However, larger block sizes can increase network throughput, often at the cost of decentralization.
Private blockchains are tailored to meet the unique demands of enterprise and retail environments, where performance metrics like speed and capacity count bigtime. Most stablecoin projects today are examples of such private networks.
Layer 2 Scaling Solutions: Lift Off! 🚀
As Ethereum took Bitcoin innovation to a new level with smart contracts, allowing blockchain to enter finance, art, and governance in 2016, the need for scalable layer 2 solutions emerged fast. Here's how L2 solutions function:
Rollups: Bundle 'em, Submit 'em 📤
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Rollups group numerous L2 transactions and submit them to the mainnet using validity proofs to ensure integrity. Transactions continue to exist on the mainnet, so value remains secure.
Sidechains: Independence Day 🎗️
Sidechains are independent blockchains with their own validators. Even though the mainnet doesn't participate in transaction validation on sidechains, this L2 variant continues to rank as one of the top secure L2 options.
State Channels: Two-Way Off-Chain Passages 🌐
State channels are two-partys' communications environments. Through agreed-upon smart contracts, parties execute transactions off-chain, and only the final transaction state is submitted to the mainnet. The Bitcoin Lightning Network and Ethereum's Raiden are based on state channels.
Nested Blockchains: Multilayered Satisfaction
The intersection of science, finance, and technology is evident as blockchain networks delve deep into their protocols to scale, strive for affordability, and maintain high security and decentralization, intertwining these three fields. For instance, the sharding strategy employed by some networks is a testament to the scientific advancements in technology, aimed at solving the scalability dilemma of blockchain networks. On the other hand, finance plays a crucial role in determining transaction priorities with a rising need for low fees, which can impact the overall usability of blockchain networks.
