Crypto

What is a Layer 1 Blockchain? A Beginner’s Guide

Layer 1 Blockchain tokens_ A complete guide

There are many different coins, tokens and blockchains out there. If we go on Coingecko right now, we see that there are 13428 different coins currently listed.  Out of these many coins, there are probably around 20 or 30 dominating layer 1 blockchain.

So, what is a layer 1 blockchain, how is it different from a layer 2 blockchain, and what are the main layer 1 blockchains?

What is a layer 1 blockchain?

A layer 1 blockchain is the base layer. In other words, a layer 1 blockchain is the term that is used to describe the blockchain’s main underlying architecture. The blockchain runs based on the initial architecture that is given to it. As it is the base blockchain layer, it generally requires nodes and validators in order to approve every transaction.

The easiest examples of a layer 1 blockchain would be Bitcoin and Ethereum: they both act as the base ledger on top of which people can build other applications. For Bitcoin, this would be for example the Lightning network. For Ethereum, this could be one of the many ERC-20 tokens (such as $SUSHI for example).

A layer 1 blockchain provides the framework and structure on top of which other applications and blockchains can be built on top of; it is the base layer.

Ethereum vs Bitcoin. How started and how is it going?

What are the main L1 blockchains by market cap?

There are many L1 blockchains that exist out there. Some have managed to gather a significant following and market cap, others have not. The code for Bitcoin’s blockchain is 100% public, and therefore anyone can copy it and start their own L1 blockchain from scratch.

Since there are essentially unlimited potential L1 blockchains out there, we will focus on eight of the largest L1 blockchains by market cap: Bitcoin, Ethereum, Binance Coin, Ripple, Cardano, Solana, Polkadot and Avalanche. Through the description of all 8 of these blockchains, you will understand that the L1 can be built in many different ways, and certain L1’s are better than others for certain applications.

Bitcoin ($BTC)

Could Bitcoin ever lose its status

Bitcoin is considered by many to be the first p2p blockchain that has ever existed. It has a hard cap at 21 million coins, meaning the maximum possible supply that Bitcoin can have will always be under 21 million. Bitcoin was worth less than a penny during its humble beginnings, and at the time of writing this is worth around $30k

Bitcoin is relatively simple: it is mainly used as a ledger to record every BTC transfer and transaction that has ever happened. It uses the Proof of Work (PoW) mechanism and is considered slow and expensive. This may be why many people forked the BTC code in order to make a faster, more efficient blockchain; DOGE and LTC are actually forks of the BTC code, with a few slight differences which enable faster (and cheaper) transaction times.

But this has its downsides, Dogecoin, for instance, is particularly volatile as it has an unlimited supply. Litecoin on the other hand is trading much cheaper than Bitcoin, as it has a larger supply but lower demand than BTC. The downside of these BTC forks is that they are not the original; there can only be one cryptocurrency that is constantly the largest cryptocurrency by market cap.

Could Bitcoin ever lose its value as the king of crypto? Read On.

Ethereum ($ETH)

crypto complete guide

Ethereum is similar to Bitcoin in the sense that it also uses the PoW mechanism in order to validate transactions. The big difference with Ethereum is that developers can build applications and services on top of Ethereum, using the Ethereum Virtual Machine (EVM). 

Ethereum is considered by many to be the first blockchain with which people can code smart contracts and tokens onto the protocol. This way, instead of everyone needing to build their own blockchain from scratch, they can borrow Ethereum’s solid blockchain infrastructure to handle the transactions for their application or service.

NFTs are an Ethereum based project and Cryptopunks are one of the most successful NFT collection ever created. Find out why there are so expensive. 

Binance coin (BNB)

BNB is the native blockchain for Binance. It was initially used for the Binance exchange, as people who held BNB could receive discounts on trading fees. This provided an incentive to hold BNB, causing the price to increase. In 2020, Binance released the Binance Smart Chain, which is EVM-compatible and has much faster and cheaper transactions compared to Ethereum and Bitcoin.

People could develop applications on top of Binance this way, just like Ethereum. The Binance Smart Chain achieves these fast transactions by being more centralized: looking at the Binance blockchain explorer, we see that Binance has only 21 active validators, compared to thousands of active validators for Ethereum. This poses a risk that Binance could someday choose to shut down its validators, and therefore shut down the network. This would not be possible on Ethereum or Bitcoin, as with those two blockchains anyone from anywhere can create a validator node and secure the blockchain. 

Ripple ($XRP)

Ripple is different from the other blockchains because it is not open consensus, and focuses on incredibly fast and cheap transaction times. Ripple has made many partnerships with many multinational banks, and aims to someday enable lightning-fast borderless remittances between banks and institutions.

It focuses more on connecting institutional players through a common framework than on delivering a decentralized payments system. People can also integrate payments into applications using XRP, giving it utility beyond a simple ledger of transactions like BTC.

However, as XRP is native to the Ripple network, it is somewhat centralized, going against the core value of cryptocurrency decentralization, balancing the control that banks and corporations have with our money.

XRP’s centralized network means that we need to trust its partner banks that no transactions are fraudulent, void or forged. Unlike BTC, where no external authority can come and tamper with the protocol, certain people and entities may have the power to change how XRP functions and which member banks get to be a part of the network.

In other words, XRP requires us to trust whoever is at the helm of the protocol, something that is not necessary for truly decentralized protocols like ETH, ADA or BTC.

Cardano ($ADA)

cardano, solana and polygon

Cardano is founded by Charles Hoskinson, who used to work on the Ethereum project but then branched off to create his own project.

Cardano is very similar to Ethereum in the sense that people can build applications on top of Cardano. The big difference with Cardano is that unlike ETH and BTC which are PoW-based, Cardano uses a Proof of Stake (PoS) consensus in order to validate transactions.

The PoS mechanism allows Cardano to be much more energy-friendly and scalable compared to PoW blockchains like BTC or ETH. The downside of Cardano is its complex programming structure for building applications (you need to learn the Plutus platform and the Marlowe DSL language), as well as its somewhat slow transaction speeds compared to other protocols out there.

Don’t miss the new kids on the crypto block: Cardano, Solana and Polygon.

Solana ($SOL)

Solana uses the Proof of History (PoH) consensus to validate transactions. PoH is similar to PoS, but relies on timestamps to validate transactions as well. This gives Solana the capacity to handle a large number of transactions per second, much more than any other L1 blockchain in this list. Solana can process 50,000 transactions per second, which is a big difference compared to Cardano’s 250 transactions per second and Ethereum’s 30 transactions per second

People can develop applications on top of Solana by using the Rust programming language. Since Solana uses PoH, it delivers extremely cheap and fast transactions, as well as uses much less energy compared to other PoW blockchains.

This might be why Solana is starting to host more and more NFT projects over time: people may not want to deal with the high fees paid on Ethereum when minting (and collecting) NFTs.

Solana’s downside is that it experiences many outages and to some degree is more centralized than purely decentralized protocols like BTC and ETH. So, although it is usually speedier, the somewhat frequent outages mean that there are times when nobody can generate a transaction on the Solana blockchain.

What’s the difference between Polygon and Solana? Read On.

Polkadot ($DOT)

Polkadot was founded by Gavin Wood, and hopes to someday become the “internet of blockchains”. It achieves this by having many independent blockchains, called parachains, be interconnected through Polkadot’s base layer, the relay chain.

Overall, Polkadot is complicated to understand, but its main purpose is to seamlessly interconnect multiple independent blockchains. Polkadot uses the PoS consensus, so it does not use a lot of energy compared to BTC and ETH.

The downside of Polkadot’s network is that its parachain model is quite costly, and does not allow innovation from very small teams. Every parachain goes through an auction, which is expensive and means that successful developers cannot surface from anywhere. This hinders true borderless innovation.

Avalanche ($AVAX)

Avalanche uses a PoS to validate transactions. The big difference between ADA and AVAX is that it is EVM-compatible. This means that the code of an application that is deployed on Ethereum can also be used to deploy the application on AVAX.

Just like with Binance Smart Chain, AVAX benefits from faster and cheaper transaction fees compared to Ethereum. The big difference between AVAX and BNB is that AVAX is considered a little bit more decentralized, as anyone can open a node and secure the network, unlike BNB.

The Bottom Line

There you have it, an overview of some of the top L1 blockchains! More L1 blockchains are constantly being released, so this list may very well be obsolete in the next five years.

Understanding the underlying architecture of an L1 is very important for developers so that they can build their applications on the blockchain that fits best. There are many factors to consider when deciding which blockchain to build on: speed of transactions, fees, liquidity, programming language, and more.

Each L1 blockchain has its own advantages and disadvantages, and it could be useful to understand how each L1 blockchain fits in the greater cryptocurrency and blockchain industry. 

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