A layer 1 (L1) network refers to a DLT (including blockchains) that serves as the base layer to store information that can represent:
- assets such as tokens;
- smart contracts which can form dApps; as well as
- any kind of information that requires the immutability of a DLT. For example, the historic price of an asset on a certain date.
Collectively, the information stored on a DLT forms its ledger. Changes to the state of the ledger are enacted through transactions. And it is transactions that nodes verify and come to consensus on.
It’s called a layer 1 because it’s the base layer that other things can be built on top of, such as smart contracts and dApps, and it does not depend on any lower-level DLT/blockchain network.
Some prominent examples of layer 1 networks include:
Layer 2 networks generally refer to solutions that provide increased scaling and throughput over what is possible on a base layer 1. Layer 1 networks can face bottlenecks, so a Layer 2 network that operates adjacent to a layer 1 network can process transactions in parallel to the L1, settling the net results back onto the L1 when needed; this lessens the load on the L1.
L2 networks often have their own set of validators, liquidity, and token economic systems.
Some prominent examples of L2 technologies today include:
- Sidechains - these are kind of like their own L1 that interoperates into the main L1, sometimes called a “hub.”
- Rollups - these inherit some of the security of the L1. For “ZK” rollups, this is achieved through cryptographic proofs. For “optimistic” rollups, transactions on the L2 are processed “optimistically,” meaning that only if there is a dispute is the computation to perform the cryptographic proofs undertaken.
Layer 2 networks, however, break atomic composability between the L1 and L2 networks, making them unsuitable for DeFi.
Radix will never need a layer 2 network as Radix achieves infinite linear scalability all on the L1.