The network experienced rapid adoption by DeFi proponents and decentralized application developers who recognized the value of its smart contract platform. Though PoW is an asset to ‘store of value’ minded bitcoin investors, the consensus mechanism’s extensive computational demands are a scalability pain point for Ethereum’s popular programmable blockchain. Thanks to the PoW consensus mechanism, bitcoin is regarded as a secure store of value due to the blockchain’s renowned security and global trust in the network’s censorship-resistant ‘decentralization’ value proposition. PoW’s inherent scalability limitations directly contribute to network security––it is prohibitively expensive for hackers to interfere with the consensus mechanism or to manipulate data within blocks containing a linear history of the entire network. The PoW consensus algorithm provides reliable network security and an ability to maintain reputable decentralization. Pioneered on Bitcoin and adopted as the foundation for the Ethereum network, PoW is the original blockchain consensus mechanism. A network’s ability to scale these essential blockchain functions is vital to the health, reputation, and survival of a decentralized platform.³ Validator nodes evaluate transactions and secure the network via consensus mechanisms like Proof of Work (PoW) and PoS. Layer 1 and Layer 2 blockchain scaling solutions are mutually beneficial innovations designed to optimize network performance.ĭecentralized blockchains distribute data management duties and computation requirements across nodes. Think of Layer 1 blockchains as the main network and Layer 2 scaling solutions as performance-enhancing attachments. In contrast to Layer 1 strategies, Layer 2 scaling solutions are secondary layers of protocols that integrate with blockchains to improve network performance. Consensus protocols, like Ethereum’s Proof of Stake (PoS) consensus mechanism and sharding, are the most common Layer 1 solutions. A Layer 1 scaling solution is an innovation or change to the underlying parent network protocol. Scalability is measured by a Layer 1 blockchain’s ability to support high transactional throughput and future growth.² To resolve scalability issues, blockchain developers have two main routes of implementation: Layer 1 and Layer 2 scaling solutions. To remain competitive within the Decentralized Finance (DeFi) network, infrastructures must demonstrate their ability to balance the Blockchain Trilemma: decentralization, security, and scalability.¹ Of the three, blockchain scalability remains the dominant design concern for existing and emerging platforms. Ethereum and Solana are examples of Layer 1 blockchain networks. A Layer 1 blockchain is the term used to describe the parent––or base layer––blockchain network.

Layer 1 defi coins