A layer 1 blockchain refers to the base network, which can validate and finalize transactions without the need for another network.
What is Layer 1 Blockchain?
A layer-1 blockchain network is another name for the base network, a network that has the ability to validate and finalize transactions without the need for another network.
In comparison, a layer-2 solution is built upon layer-1, relying on the ability of layer-1 to validate and finalize transactions for it to function.
In other words, a layer-1 blockchain is the core layer of the blockchain network that provides the infrastructure for decentralized applications (dApps) and facilitates peer-to-peer transactions.
Bitcoin and Ethereum are examples of layer-1 blockchain networks. These networks have their own native cryptocurrency (BTC for Bitcoin and ETH for Ethereum) and have their own consensus mechanism, i.e., proof-of-work for Bitcoin and currently transitioning to proof-of-stake for Ethereum.
The layer-1 blockchain is essential because it provides the necessary security, transparency, and immutability that are essential for a decentralized system.
A layer-1 blockchain serves as a foundation on which developers can build applications using smart contracts, which can be used for a wide range of purposes, including decentralized finance (DeFi), supply chain management, and identity verification.
Examples of Layer 1 Blockchains
- Bitcoin (BTC)
- Ethereum (ETH)
- Binance Chain (BNB)
- Solana (SOL)
Importance for Investors
Some of the fastest and greatest growth cryptocurrencies have been layer-1 blockchains. This includes Bitcoin, Ethereum, Binance, and Solana.
One of the reasons layer-1 blockchains have appreciated in value so significantly is that many other projects and applications are built upon them.
Using Ethereum as an example, there are literally thousands of cryptocurrencies built upon Ethereum, helping this cryptocurrency grow in both use, utility, and market value.
Why Layer-1 Blockchains are often seen as a Good investment?
Investing in layer-1 blockchains can potentially be a good investment opportunity for several reasons:
- Growth potential: Layer-1 blockchains are relatively new and still in their early stages of development. As more people adopt blockchain technology and more applications are built on top of these networks, the value of these networks and their native cryptocurrencies could increase significantly.
- Decentralization: Layer-1 blockchains are decentralized networks that are not controlled by any central authority or government. This means that they are less susceptible to censorship, corruption, or manipulation, making them more secure and trustworthy.
- Community and developer support: Layer-1 blockchains often have active communities and a strong network of developers who are constantly working to improve the technology and build new applications. This can lead to a virtuous cycle of innovation and adoption, which can further drive the value of these networks.
- Limited supply: Most layer-1 blockchains have a limited supply of their native cryptocurrency, which can make them more valuable as demand increases.
Popular Layer-1 Blockchains:
There are several popular layer-1 blockchains currently in use, including:
- Bitcoin (BTC): Bitcoin is the first and most well-known cryptocurrency, and its blockchain is a popular choice for investors and traders. It is a proof-of-work (PoW) blockchain that uses the SHA-256 algorithm to secure its network.
- Ethereum (ETH): Ethereum is a blockchain platform that enables developers to build and deploy decentralized applications (dApps) and smart contracts. It is currently transitioning from proof-of-work to proof-of-stake consensus mechanism and supports a wide range of use cases, including DeFi, gaming, and non-fungible tokens (NFTs).
- Binance Smart Chain (BSC): Binance Smart Chain is a blockchain platform that is compatible with the Ethereum Virtual Machine (EVM) and allows for faster and cheaper transactions compared to Ethereum. It is a proof-of-staked authority (PoSA) consensus mechanism that is operated by a group of validators.
- Cardano (ADA): Cardano is a third-generation blockchain that is designed for scalability, sustainability, and interoperability. It is a proof-of-stake (PoS) consensus mechanism and supports smart contracts.
- Polkadot (DOT): Polkadot is a blockchain platform that connects multiple specialized blockchains into a single network. It is a proof-of-stake (PoS) consensus mechanism and enables interoperability and scalability.
- Solana (SOL): Solana is a high-performance blockchain platform that enables fast and cheap transactions. It uses a proof-of-history (PoH) consensus mechanism and supports smart contracts and decentralized applications (dApps).
There are several other popular layer-1 blockchains, each with its own unique features and use cases. The popularity of these blockchains can fluctuate over time as new technologies and use cases emerge, so it's important to stay up-to-date on the latest developments and trends in the industry.