The scalability problem in the blockchain refers to the decrease in the transaction capacity of the blockchain with the increase of users participating in the blockchain. Decreasing transaction capacities results in lower transaction speed and higher transaction costs in the blockchain. Layer solutions include network enhancements to address the scalability problem in blockchain and increase transaction capacity in blockchain.
What are Layer 1 and Layer 2 ?
Layer 1 refers to the underlying blockchain. A Tier 1 cryptocurrency is the main cryptocurrency of the blockchain, created for use on the blockchain. The first developed and the most popular Tier-1 level cryptocurrency today is Bitcoin.
Layer 2 refers to protocols and networks running on other blockchains. A layer 2 cryptocurrency runs on an already existing blockchain.
What are Layer 1 Solutions?
Tier 1 solutions are studies to provide solutions to scalability problems in blockchain and to make the system more scalable. With Tier 1 solutions, it is aimed to perform transactions on the blockchain faster and at a lower cost.
The most common solutions for improving the blockchain with Tier 1 solutions are modification of the consensus protocol and fragmentation.
Change of Consensus Protocol:
Consensus protocols are a set of algorithms used to validate blocks in the blockchain. Consensus protocol replacement of a blockchain is a Tier 1 solution used to solve the scaling problem in the network. With the Ethereum 2.0 update, it is aimed to replace the consensus protocol in the Ethereum blockchain.
Sharding:
Sharding is a database partitioning operation used to solve the scaling problem in a blockchain. In sharding, blocks in the database are split into sets of transactions. Segmented sets of transactions are made into a parallel array. Processing of more than one part in the set of operations in a parallel sequence can be performed at the same time. In this way, transactions can be performed faster than sequential transactions and the performance in the network can be increased.
What are Layer 2 Solutions?
Layer 2 solutions are the work done to solve the scalability problem in networks running on other blockchains, without making any changes to the main structure of the blockchain.
Layer 2 solutions do not directly affect the structure of a blockchain. Layer 2 solutions are also called off-chain solutions as they are not implemented on the mainnet of the blockchain.