The Scalability Trilemma
The term "scalability trilemma," coined by Vitalik Buterin, Ethereum's founder, refers to a blockchain's ability to balance three organic aspects that make up its essential principles: security, scalability, and decentralisation.
According to the trilemma, any blockchain system can only have two properties at a time, never all three. As a result, one of the core features of existing blockchain technology will always have to be compromised. Bitcoin is a great example of this. While its blockchain has managed to optimize decentralisation and security – through no fault of its own – it has had to sacrifice on scalability – through no fault of its own.
So, what is a Layer 1 blockchain?
The growth of a network in digital space in terms of transaction processing speeds and processing capacity to handle the inclusion of additional applications and increased user operations is known as blockchain scalability. Scaling allows blockchain networks to compete with centralised networks for transaction volumes, application development, and user engagement by providing larger processing capacity and capabilities. Scaling refers to a growth in the throughput rate, which is defined in terms of the number of transactions per second, from a technical aspect.
The adoption of Layer 1 solutions is one of the leading strategies for addressing the scalability challenge. A Layer 1 blockchain is a collection of solutions that improve the fundamental protocol in order to make the system more scalable as a whole.
Bitcoin, Ethereum, Binance Smart Chain (BSC), Litecoin, and Avalanche are all examples of Layer 1 blockchains in use. However, because the underlying network relies on a rise in the number of miners to assure better transaction speed and volumes, Bitcoin remains the most affected by scalability difficulties.
Types of Layer 1 Blockchain Solutions
The classic consensus technique for Bitcoin and Ethereum is Proof-of-Work. Its goal is to use miners to decode sophisticated cryptographic algorithms in order to achieve both consensus and security. PoW, on the other hand, has two major flaws: it is slow and resource-intensive.
Proof-of-Stake is a distributed consensus process used on the blockchain network. Users can use their stake to authenticate block transactions. In terms of transaction speed, PoS outperforms PoW, but not in terms of security. Through Ethereum 2.0, the Ethereum blockchain intends to migrate from PoW to PoS. Ethereum 2.0 refers to a collection of enhancements that are currently being implemented to make the Ethereum blockchain more scalable and long-lasting.
Sharding is another technology that has been adapted for Layer 1 solutions from the distributed databases industry. Sharding is an experimental method in the blockchain realm since it entails breaking up a network into a number of distinct database blocks known as "shards" – hence the term "sharding" – to make the blockchain more manageable. Because all "shards" are processed in a parallel sequence, this strategy also reduces the present requirements for all nodes to process or handle transactions in order to maintain the network, allowing for more processing capacity to be freed up for other activities.
Limitations of layer 1
Inefficient Consensus Protocol
Layer 1 blockchains continue to rely on the clunky proof-of-work consensus mechanism. Although this mechanism is more secure than others, it is slower. Miners are required to solve cryptographic algorithms by utilising computing power. As a result, more computing power and time are required in total.
Proof-of-stake is an alternative consensus method that Ethereum 2.0 will employ. This consensus mechanism validates new transaction data blocks based on the network participants' staking collateral, making the process more efficient.
The workload on Layer 1 blockchain has increased as the number of users has grown. Processing speeds and capacities have slowed as a result.
Sharding is a scaling solution for this problem. Simply said, sharding divides the task of validating and authenticating transactions into smaller, easier-to-manage chunks. As a result, the workload can be distributed over the network to make use of more nodes' computing capability.
Layer 1 blockchain ecosystem
Examples of layer 1 protocols
Obviously, a slew of various blockchain networks has popped up throughout time, extending all the way back to the January 2009 introduction of the Bitcoin network.
Any cryptocurrency network that wants to be trusted by the market needs to have a blockchain as its foundation; yet, these foundation blockchains can have a wide range of characteristics and attributes. For example, Litecoin, the second blockchain to gain any meaningful traction after Bitcoin, took the Bitcoin software and tweaked it somewhat, such as reducing the duration between blocks from 10 minutes to 2.5 minutes and switching to a different proof-of-work algorithm.
On the other hand, Ethereum, the second-largest cryptocurrency network by market capitalization, made a much larger number of changes to the blockchain concept, most notably reducing block times to around fifteen seconds and introducing a much more expressive programming language for the development of more flexible smart contracts.
One of the barriers to worldwide crypto adoption is scalability. As the demand for cryptocurrencies grows, so will the pressure to scale blockchain protocols. Because both blockchain levels have their own set of restrictions, the eventual solution will be to develop a system that can solve the scalability trilemma. The two bottleneck solutions are straightforward: either reduce the scale issue or seek out viable alternatives.