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Layer 1 Blockchain Tokens: Everything You Need to Know

2021-12-13

Key Takeaways

  • The blockchain space is expanding at extremely fast speeds, exacerbating the scalability problem.

  • Layer 1 solutions are used to tackle the scalability problem. Layer 1 blockchain protocols have to be decentralized, secure and scalable.

  • There are three approaches to implementing Layer 1 solutions – PoS, PoW and Sharding.

  • Popular Layer 1 tokens can easily be purchased on Binance.

The blockchain space is expanding rapidly as new solutions and applications are constantly being launched on a variety of networks, many of which are facing the scalability problem. Scalability is one of the pillars of the blockchain trilemma that poses a challenge for the expansion and operability of blockchain networks, with the other two being security and decentralization. In this post, we will consider the issue of scalability, the proposed solutions and how you can buy popular Layer 1 tokens on Binance.

The Scalability Trilemma

As postulated by Vitalik Buterin, the founder of Ethereum, the term “scalability trilemma” refers to a blockchain’s ability to juggle three organic properties that constitute its fundamental principles – security, scalability and decentralization.

The trilemma states that any blockchain technology can only feature two properties at most, never all three at once. Thus, the current blockchain technology will always have to compromise on one of the fundamental properties. An excellent example of this is Bitcoin.  Through no fault of its own, while its blockchain has managed to optimize decentralization and security, it has had to compromise on scalability – through no fault of its own.

What Is Layer 1 Blockchain And How Do They Work?

Blockchain scalability is the expansion of a network in digital space in terms of transaction processing speeds and processing power to accommodate the addition of new applications and the increase in user operations. By scaling, blockchain networks will be able to successfully compete with centralized networks for transaction volumes, application buildup and user engagement by offering higher processing capacities and greater capabilities. From a technical standpoint, “scaling” refers to an increase in the throughput rate, measured in terms of the number of transactions per second.

One of the forefront solutions for tackling the scalability problem is the introduction of Layer 1 solutions. A Layer 1 blockchain is a set of solutions that improve the base protocol itself to make the overall system a lot more scalable. The two approaches proposed for implementing Layer 1 solutions include the consensus protocol and sharding.

Examples of operating Layer 1 blockchains include Bitcoin, Ethereum, Binance Smart Chain (BSC), Litecoin and Avalanche. However, Bitcoin remains the most affected by scalability issues, since the underlying network relies on the increase in the number of miners to ensure higher transaction throughput and volumes.

Types of Layer 1 Blockchain Solutions

Layer 1 blockchain protocols have to be decentralized, secure and scalable. To achieve this, networks have resorted to using different methodologies to increase overall scalability. 

Foundational Layer 1 solutions often include the following approaches:

Consensus Protocol

Proof-of-Work, or PoW, is the traditional consensus mechanism for Bitcoin and ETH. It aims to achieve both consensus and security using miners to decode complex cryptographic algorithms. However, PoW struggles with two main issues - it is slow and resource-intensive.

Proof-of-Stake, or PoS, is a mechanism that features a distributed consensus over the blockchain network. Users can authenticate block transactions on the basis of their stake. PoS wins over PoW in terms of transaction speed but loses in terms of security.  The Ethereum blockchain wishes to transition from PoW to PoS through Ethereum 2.0. Ethereum 2.0 is the collective term for a set of upgrades that are currently underway to make the Ethereum blockchain more scalable and sustainable.

Sharding

Sharding is another method that has been ported from the distributed databases sector and adapted for Layer 1 solutions. Sharding is an experimental approach in blockchain space, since it involves the breaking up of a network into a series of separate database blocks known as “shards” – hence the term “sharding” – which essentially makes the blockchain more manageable. This approach also eases current requirements for all nodes to process or handle transactions in order to maintain the network, since all the “shards” are processed in a parallel sequence, thus allowing for greater processing capacities to be freed up for other processes.

Layer 1 tokens have been gaining considerable traction since their launch, and the most popular Layer 1 tokens can be found on the Binance exchange:

  1. Ethereum (ETH), at a price of $3,960.83 and $469,857.85 million market cap

  2. Binance Smart Chain (BNB), at a price of $554.20 and $92,441.19 million market cap

  3. Solana (SOL), at a price of $179.61 and $54,920.16 million market cap

  4. Cardano (ADA), at a price of $1.29 and $42,974.08 million market cap

  5. Polkadot (DOT), at a price of $25.48 and $25,163.52 million market cap

  6. Terra (LUNA), at a price of $62.53 and $24,071.36 million market cap

  7. Avalanche (AVAX), at a price of $79.03 and $19,184.60 million market cap

  8. Algorand (ALGO), at a price of $1.69 and $10,631.79 million market cap

  9. TRON (TRX), at a price of $0.08 and $8,171.36 million market cap

* These prices are a reflection of 8 December 2021’s prices.

* This list is ranked according to market cap and does not constitute a recommendation or endorsement by Binance to buy or sell any currency. 

How to Buy Layer 1 Tokens?

Are you thinking of getting your hands on these popular tokens? Here is a step-by-step guide for buying them on the Binance exchange.

1. Make a fiat deposit via an e-wallet transfer or bank transfer on Binance. Be sure to check the available fiat channels for desired currencies.

Optional: Convert the fiat currencies to BUSD or USDT to trade a greater variety of tokens.

2. Purchase Layer 1 tokens through a Wallet purchase, or directly with credit/debit cards.

3. To stake or participate in Layer 1 assets, transfer the tokens from the Binance crypto address to a MetaMask wallet address by following the instructions.

Conclusion

Scalability is one of the reasons hindering global crypto adoption. As demand for cryptocurrencies increases, pressure to scale blockchain protocols will also mount. Since both blockchain layers have certain limitations, the solution in the future will be to build a protocol that can tackle the scalability trilemma. The two options available for bottleneck solutions are simple – either mitigate the scaling problem, or look for viable alternatives.

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Disclaimer: Cryptocurrency investment is subject to high market risk. Binance is not responsible for any of your trading losses. The opinions and statements made above should not be considered financial advice.

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