Layer 1 vs Layer 2 Blockchain: Complete Guide 2025

As blockchain adoption accelerates, scalability has become one of the ecosystem's most pressing challenges. With the growth of decentralized applications, smart contracts, and higher transaction volumes, blockchains must scale to handle global demand. Two main approaches have emerged to address this: Layer 1 and Layer 2 scaling solutions.

Layer 1 refers to the base protocol layer of a blockchain, such as Bitcoin or Ethereum, while Layer 2 refers to protocols that operate on top of Layer 1 to enhance throughput, reduce fees, and offload congestion. This comprehensive guide explores how both layers contribute to the future of blockchain infrastructure.

What is Layer 1 Blockchain?

Layer 1 scaling involves directly improving the base blockchain protocol to increase performance and capacity. This could mean modifying consensus mechanisms, adjusting block sizes, or implementing new features like sharding.

Key Layer 1 Blockchains

Bitcoin: Optimized for decentralization and security, but limited in throughput.

Ethereum: Transitioned from Proof-of-Work to Proof-of-Stake to improve scalability and energy efficiency.

Cardano, Solana, Avalanche: Compete as scalable Layer 1 networks with native design improvements.

Layer 1 scaling solutions improve the blockchain's foundation to facilitate scalability improvements. This offers a wide range of ways to increase the scalability of blockchain networks by enabling direct modifications to protocol rules to increase transaction capacity and speed.

Layer 1 Scaling Techniques

Block Size and Block Time Adjustments

Larger blocks and shorter block intervals allow more transactions per second, but can impact decentralization. This approach increases the network's capacity to process more transactions within each block.

Consensus Mechanism Upgrades

Moving from Proof-of-Work to Proof-of-Stake reduces energy use and allows faster finality. This upgrade significantly improves network efficiency while maintaining security.

Sharding

Sharding divides the network state into smaller parts called "shards" that are processed in parallel. This technique is used by Ethereum 2.0, Zilliqa, and Polkadot to increase throughput without compromising security.

Layer 1 Advantages

Enhanced Scalability: Layer 1 solutions necessitate protocol modifications for enhanced scalability, providing the most direct approach to improving blockchain performance.

Decentralization and Security: A Layer 1 blockchain protocol provides decentralization and security with high scalability and economic viability.

Ecosystem Development: Layer 1 enhances ecosystem development by incorporating new tools, technological advancements, and other variables into the base protocols.

Layer 1 Disadvantages

Protocol Complexity: Requires hard forks or protocol upgrades that can be complex and risky to implement.

Deployment Challenges: Slower to deploy due to governance and coordination complexity across the network.

Scalability Limitations: Even with upgrades, Layer 1 blockchains face scalability ceilings due to the blockchain trilemma.

Resolving Layer 1 Limitations

Even with upgrades, Layer 1 blockchains face scalability ceilings. Bitcoin's Proof-of-Work mechanism limits throughput, and Ethereum faced high gas fees during congestion. Two notable solutions are:

Proof-of-Stake Implementation

Proof-of-Stake replaces miners with validators who stake tokens. This consensus mechanism is used in Ethereum, Cardano, and Tezos to improve efficiency and reduce energy consumption.

Sharding Technology

Sharding breaks the blockchain into parallel-processing shards. Ethereum 2.0 and Polkadot utilize sharded designs to boost throughput while maintaining security and decentralization.

These approaches aim to address the blockchain trilemma: the trade-off between scalability, decentralization, and security.

Understanding Sharding in Detail

Adapted from distributed databases, sharding has become one of the most popular Layer 1 scaling solutions. Sharding is the process of breaking up the state of the whole blockchain network into separate sets of data called "shards."

The network processes these shards in parallel, allowing for the sequential processing of multiple transactions. Each network node is assigned to a specific shard rather than maintaining a complete copy of the blockchain. Each shard sends proofs to the mainchain and shares addresses, general states, and balances with other shards using cross-shard communication systems.

What is Layer 2 Blockchain?

Layer 2 refers to technologies built on top of Layer 1 blockchains to improve scalability without altering the underlying protocol. They process transactions off-chain and post final results back to the base layer, relieving pressure on the main network.

The primary aim of Layer 2 scaling is to employ networks or technologies that operate on top of a blockchain protocol. An off-chain protocol or network helps a blockchain network achieve increased scalability and efficiency.

Key Layer 2 Protocols

zkSync and Starknet: Use zk-rollups to batch thousands of transactions with cryptographic proofs.

Lightning Network: Enables near-instant micropayments via payment channels for Bitcoin.

Optimism and Arbitrum: Use optimistic rollups to scale Ethereum without compromising security.

Layer 2 Scaling Solutions

Layer 2 scaling solutions facilitate the delegation of data processing tasks in support architecture more efficiently and flexibly. As a result, the core blockchain protocol does not experience congestion, making scalability possible.

Layer 2 Advantages

Network Performance: One of the most significant advantages of a Layer 2 solution is that it does not affect the performance or functionality of the underlying blockchain.

Micro-transaction Efficiency: Layer 2 solutions, such as state channels and Lightning Network, expedite the execution of multiple micro-transactions without unnecessary fees.

Reduced Congestion: Layer 2 solutions reduce congestion on the main blockchain by processing transactions off-chain.

Layer 2 Disadvantages

Connectivity Issues: Layer 2 can exacerbate blockchain connectivity issues by limiting interconnectivity within a network, as Layer 2 users are restricted to the protocols of the solutions they employ.

Security Variations: Various solutions offer varying levels of security and privacy. However, none of the solutions provides the same level of security as the major chains.

Complexity: Managing multiple Layer 2 solutions can create complexity for users and developers.

Types of Layer 2 Solutions

Rollups

Rollups batch transactions and submit them as a single proof to Layer 1. The most popular rollup designs are Zero-Knowledge and optimistic rollups.

Zero-Knowledge Rollups: A zk-rollup is a Layer 2 scaling solution that batches transactions off-chain and uses zero-knowledge proofs to verify their validity on-chain, ensuring high security and fast finality.

Optimistic Rollups: By contrast, optimistic rollups assume transactions are valid by default and only verify them if someone submits a fraud proof during a challenge period.

Nested Blockchains

Essentially, a nested blockchain is a blockchain within another blockchain. The nested blockchain typically comprises a primary blockchain that establishes parameters for a more extensive network, with executions occurring within an interconnected network of secondary chains.

On top of a mainchain, many blockchain tiers can be built, each with its own parent-child connection. The parent chain delegates tasks to child chains, which then complete them and return the results to the parent.

State Channels

A state channel enables bidirectional communication between a blockchain and off-chain transactional channels, enhancing transactional capacity and speed. A state channel does not require validation by Layer 1 network nodes.

When transactions are finalized on a state channel, a final "state" of the channel and its changes are written on the underlying blockchain. State channels include Liquid Network, Ethereum's Raiden Network, and Celer.

Sidechains

A sidechain is a transactional chain adjacent to a blockchain, typically used for bulk transactions. Sidechains use a consensus mechanism independent of the main chain, and users can optimize them for speed and scalability.

The primary function of the main chain in a sidechain architecture is to maintain overall security, validate batched transaction records, and resolve disputes.

Understanding the Blockchain Trilemma

The scalability trilemma refers to a blockchain's ability to balance three organic properties that constitute its core principles: security, decentralization, and scalability.

The trilemma states that a blockchain can only possess two of the three properties, never all three simultaneously. Consequently, current blockchain technology will always need to sacrifice one of its fundamental properties for its functionality.

Real-World Examples

Bitcoin: While its blockchain has optimized decentralization and security, it has sacrificed scalability.

Ethereum: Aims to balance all three via Layer 2 rollups and sharded Proof-of-Stake.

Solana: Prioritizes scalability and performance but reduces decentralization.

No blockchain has fully solved the trilemma, but innovations at both Layer 1 and Layer 2 continue to push boundaries.

Layer 1 vs Layer 2: Major Differences

Definition

Layer 1 scaling solutions modify the blockchain protocol's base layer to achieve the desired enhancements. For instance, the block size can adjust to accommodate more transactions, or users can alter the consensus protocols to improve speed and efficiency.

Layer 2 scaling solutions function as off-chain solutions that share the load of the primary blockchain protocol. Specific information processing and transaction processing tasks are delegated to Layer 2 protocols by the mainnet of a blockchain protocol.

Method of Operation

With Layer 1 blockchain networks, the actual scaling method focuses on modifying the core protocol. With Layer 1 scaling solutions, you must change blockchain protocols, making it difficult to immediately scale back modifications if transaction volume decreases.

In contrast, Layer 2 scaling solutions function as off-chain solutions that operate independently of the primary blockchain protocol. Off-chain protocols report only the ultimate results required by the main blockchain protocol.

Types of Solutions

In the case of Layer 1 blockchain solutions, consensus protocol enhancement and sharding are two prominent types of solutions. Scaling of Layer 1 includes alterations to block size or block creation speed.

Regarding blockchain Layer 2 scaling solutions, there is virtually no restriction on the solutions that can be implemented. Any protocol, network, or application can be a Layer 2 solution for blockchain networks.

Quality and Characteristics

Layer 1 networks serve as the definitive source of information and are ultimately accountable for transaction settlement. On Layer 1 networks, a native token is used to access the network's resources.

Layer 2 networks provide the same functionality as Layer 1 blockchains, plus additional characteristics. For example, Layer 2 networks boost throughput and programmability while lowering transaction costs.

The Future of Blockchain Scaling

Layer 1 and Layer 2 solutions both play essential roles in scaling blockchain networks. Layer 1 focuses on foundational integrity and protocol-level changes, while Layer 2 delivers practical scalability improvements without burdening the base chain.

Understanding how these layers interact is key to evaluating modern blockchain ecosystems, whether you're a developer building applications or an investor assessing scalability roadmaps.

The future of blockchain scaling likely involves a hybrid approach, combining the security and decentralization of Layer 1 with the efficiency and flexibility of Layer 2 solutions. As both technologies continue to evolve, we can expect to see more innovative solutions that push the boundaries of what's possible in blockchain scalability.

Frequently Asked Questions

What is the difference between Layer 1 and Layer 2?

Layer 1 refers to the base blockchain protocol that processes and validates transactions directly on the main chain. Layer 2 refers to secondary protocols built on top of Layer 1 blockchains to improve scalability without modifying the underlying protocol.

Is Ethereum a Layer 1 or Layer 2 blockchain?

Ethereum is a Layer 1 blockchain. It serves as the base protocol layer with its own consensus mechanism and native cryptocurrency. However, various Layer 2 solutions like Optimism and Arbitrum are built on top of Ethereum.

Is there a Layer 3 blockchain?

Yes, Layer 3 refers to application-specific blockchains built on top of Layer 2 solutions. These are designed for specific use cases and can provide even more specialized functionality and scalability.

What is a Layer 0 blockchain?

Layer 0 refers to the underlying infrastructure that enables multiple Layer 1 blockchains to be built on top of it. Examples include Polkadot and Cosmos, which provide the foundation for creating interconnected blockchain networks.

List of blockchains