What Are Layer 1 Blockchains?

Key Takeaways

• Layer-one blockchains (L1s) serve as the foundational layer of blockchain technology, supporting the network's core functionality and operations.
• The three biggest L1 blockchains—Bitcoin, Ethereum, and Solana—each offer unique features and capabilities, influencing their popularity and use cases.
• These blockchains differ in their transaction speeds and scalability, impacting their suitability for various applications.
• Ethereum leads in smart contracts and decentralised apps, while Solana offers fast transactions and cheap fees, catering to different user needs.

The Role of Layer 1 Blockchains

L1 blockchains form the foundation where transactions are processed, validated, and recorded on a public ledger. They provide the essential infrastructure for building decentralised applications (dapps). With the increasing demand for blockchain technology, the need for scalable, secure, and efficient L1s is more crucial than ever.

Comparing the Three Biggest Layer 1 Blockchains

1. Bitcoin (BTC)

Bitcoin is the first and most well-known L1 blockchain, which leverages a proof-of-work consensus mechanism and is mainly used as a store of value and a medium of exchange.

Key Features

• Transaction speed and scalability: Bitcoin has a block time of approximately 10 minutes and a block size limit of 4 MB, resulting in a relatively low transaction throughput of around seven transactions per second (TPS).
• Use cases: Mainly used as a digital currency and store of value, with a strong emphasis on security and decentralisation.

Challenges

• Scalability: Limited transaction throughput and high fees during peak periods.
• Limited support for smart contracts: Bitcoin was not optimised to process smart contracts, unlike many newer L1s.

2. Ethereum (ETH)

Ethereum is a versatile blockchain platform known for its support of smart contracts and dapps. It launched in mid-2015 and has since released a number of major upgrades to improve performance and security.

Key Features

• Transaction speed and scalability: Ethereum processes around 30 TPS, with scalability improvements supported by ongoing updates and layer-two (L2) solutions.
• Smart contracts and dapps: Ethereum pioneered the use of programmable contracts, leading to a robust ecosystem of dapps, including DeFi platforms, NFTs, and more.
• Strong network effects: As more developers build dapps on Ethereum, the platform becomes more valuable, attracting even more developers and users. This self-reinforcing loop has created a vibrant ecosystem where projects benefit from shared infrastructure, tooling, standards (e.g. ERC-20), resources and users.

Challenges

• Scalability and high gas fees: Network congestion can still lead to high transaction fees, although L2s (e.g. Optimism, Arbitrum) are being developed to alleviate this issue.

3. Solana (SOL)

Solana is an L1 blockchain designed to provide fast transactions and cheap fees without compromising decentralisation. It is much newer than Bitcoin and Ethereum, having launched in 2020.

Key Features

• Transaction speed and scalability: Solana is capable of handling over 50,000 TPS, making it one of the fastest blockchains in terms of throughput. Its block times are around 400 milliseconds, with very low transaction fees.
• Developer and user ecosystem: Solana has gained popularity for hosting dapps, particularly in the DeFi and NFT spaces and captured massive attention with memecoins, due to its high throughput and low fees.

Challenges

• Network performance: Solana has experienced several network outages and periods of degraded performance, raising questions about its reliability and resilience.
• Unproven fee mechanism: Solana’s fee mechanism has long been a source of criticism, with many arguing it has contributed to previous network issues. Research to improve this mechanism is ongoing.

Conclusion

L1 blockchains are at the heart of the crypto space. Out of the hundreds of L1s that exist, the three most well-known are Bitcoin, Ethereum and Solana—each of which has distinct features and design trade-offs. As the blockchain industry continues to evolve, these L1s will likely remain central to innovation and adoption.