Layer-1 Blockchain Tokens: Everything You Need to Know

2021-12-13

Key Takeaways

  • The blockchain space is expanding rapidly, 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 various networks, many of which face the scalability problem. Scalability is one of the elements of the famous "blockchain trilemma," which poses that it is extremely difficult for a blockchain network to achieve sufficient scalability, security, and decentralization simultaneously. 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 capacity to juggle three key organic features – security, scalability, and decentralization.

The trilemma states that any blockchain system can only feature two properties out of the 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. While its blockchain has managed to optimize decentralization and security, it has had to compromise on scalability – through no fault of its own.

What Are Layer-1 Blockchains 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 can compete with centralized networks for transaction volumes, application buildup, and user engagement if they offer higher processing capacity. 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 fundamental approaches to tackling the scalability problem is introducing layer-1 solutions. A layer-1 blockchain is the base protocol itself, and improving this ground-level infrastructure can make the system much more scalable. The two most popular layer-1 improvements include modifying the consensus protocol and introducing sharding functionality.

Examples of operating layer-1 blockchains include Bitcoin, Ethereum, BNB Chain, 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, network architects and developers rely on several methods to increase the system's scalability. 

Consensus Protocol

Proof-of-work, or PoW, is the original consensus mechanism used in Bitcoin and Ethereum, although the latter has recently migrated to proof-of-stake (PoS), described further below. PoW aims to achieve validator consensus and network security by incentivizing miners to commit computing power to solve complex cryptographic puzzles. However, PoW struggles with two main issues: it can be comparatively slow and resource-intensive.

Proof-of-stake, or PoS, is a different mechanism for reaching a distributed consensus in a blockchain network. Validators authenticate block transactions based on their holdings of the blockchain's native token, or their "stake" in the network. While in PoW-based systems it is the expanded computational power that ensures that validators have sufficient "skin in the game" and are disincentivized to game the system, in PoS it is holding a sizable amount of the blockchain's token whose value can drop if the decentralized consensus is breached.

Switching from one consensus mechanism to another can massively improve a blockchain's throughput and help it scale. Yet, such a dramatic change can be challenging to implement as it requires a broad consensus among the network's participants.

Sharding

Sharding is another approach to improving scalability that has been ported from the distributed databases sector and adapted for layer-1 blockchains. Sharding entails the breaking up of a blockchain network into a series of separate database blocks known as “shards” – hence the term “sharding.” This approach also eases the default requirement for all nodes to process all transactions to maintain the network, allowing the shards to work in a parallel sequence. This helps to increase the network's overall capacity.

Layer-1 tokens have been gaining considerable traction since their launch, and the most popular ones trade on the Binance exchange:

  1. Ethereum (ETH)

  2. BNB

  3. Solana (SOL)

  4. Cardano (ADA)

  5. Polkadot (DOT)

  6. Avalanche (AVAX)

  7. Algorand (ALGO)

* This list is ranked according to market cap as of December 8, 2021, 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 a credit/debit card.

3. To stake 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 challenges in the way of 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 blockchain trilemma.

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This article was edited on July 27, 2022.  

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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