Cryptocurrency Although traditional financial markets have been presented as a strong alternative, it is not a perfect system. Despite the existing flaws and problems, the biggest savior of the industry, which continues to progress strongly, is the auxiliary ecosystems, also known as “solutions”. For example, scalability is the biggest problem for some blockchains. BlockchainThe difficulties due to the increasing number of transactions and data in . This is where layer-1 (L1) and layer-2 (L2) solutions come into play. So what are Tier-1 and Tier-2 solutions, and what do they mean?
What is Layer-1 (L1) Solution?
Tier-1 A concept that usually refers to a blockchain itself or the fundamental level of the blockchain. Bitcoin (BTC)More fundamental blockchains such as Ethereum (ETH) and Litecoin (LTC) are examples of a layer-1 blockchain. Solutions associated with this are often implemented on the original blockchain itself. This is accomplished by changing mechanisms or rules to increase processing capacity. In addition to data, more users are in the network, suitable for L1 scaling solutions.
Prominent Tier-1 scaling solutions include modifying the consensus protocol. Crypto assets such as Bitcoin and Ethereum currently use the Proof-of-Work (PoW) consensus mechanism. Although this is touted as one of the safest algorithms, it can sometimes run quite slow. In addition to the clogs, this consensus comes with a serious energy consumption. As a result, networks Proof of Stake (PoS) they are discussing moving to the consensus mechanism and generally looking for the right solutions to implement it. One of the best examples in this regard is the Ethereum blockchain. Once the process is complete, the “mining” process will no longer be needed and only validators will be present in the network.
The other solution is a process called sharding. This term is quite popular among the Ethereum community. The crypto network is struggling with many scalability issues. Ethereum 2.0 works the same as Tezos, Qtum and Zilliqa.
Koinfinans.com As we report, despite its relatively experimental status in the Blockchain industry, sharding is one of the favorite Tier-1 scaling options and a method borrowed from growing distributed databases. To make it more convenient to monitor the entire network, sharding involves dividing the state of the entire blockchain network into separate databases known as “shards”. Following this, the pieces are processed by the network to pave the way for many other processes.
What is Layer-2 (L2) Solution? What is Layer-2 Scaling?
Unlike Tier1 Tier-2 solutions It runs on an already existing blockchain. Here, Layer-2 is included to reduce the load on a single blockchain by incorporating a similar architecture. The original blockchain is basically based on secondary networks running in parallel with the main chain. Bitcoin’s Lightning Network is a prominent example of L2.
Layer-2 scalability solutions consist of state channels, sidechains, and nested blockchains.
Sidechains are separate networks with their own validators adjacent to transaction chains. This indicates that the main chain’s bridge smart contract does not independently verify the legitimacy of the sidechain network. As a result, the sidechain is assumed to be working well, as it has the ability to manage assets on the main chain. Also, the main chain is not affected by any security breach on the sidechain.
Nasted blockchains operate inside the main chain, not on top of it, and are therefore quite different. The nested blockchain architecture usually consists of a core blockchain that sets the rules for a larger network and executions take place in an interconnected network of subchains. The main chain can serve as the foundation for several blockchain layers, each utilizing a parent-child link. The main chain assigns tasks to the child chains, which completes them and then passes them back to the parent. Unless it becomes imperative to resolve a dispute, the underlying blockchain does not participate in the network operations of the affiliated chains.
State channel, on the other hand, creates a two-way communication environment for trading assets. This often includes blockchain and off-chain transaction channels. The transaction speed and capacity of the crypto network take a hit in this case.
A state channel is not subject to Layer-1 network node validation. Conversely, it is a near-network resource locked using a multi-signature or smart contract method. The final “state” of a state channel and associated transitions are sent to the underlying blockchain after a transaction or batch is complete.
The Bitcoin Lightning Network is the primary example of a state channel.
In the last few years, the crypto industry has witnessed a flawless growth. The increasing amount of investors entering the industry has forced them to use L1 and L2 solutions to host the networks. As the masses continued to explore cryptocurrency, the chances of more solutions coming to the markets were high.
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Disclaimer: What is written here is not investment advice. Cryptocurrency investments are high-risk investments. Every investment decision is under the individual’s own responsibility. Finally, Koinfinans and the author of this content cannot be held responsible for personal investment decisions.