The Battle for Blockchain Scalability: Layer 1 or Layer 2?

Blockchain has been popular for so long, but the biggest pain points remain the same old issues: slow, expensive, congested. Whether it’s Bitcoin or Ethereum, the number of transactions processed per second is frustrating. That’s why the debate between Layer 1 and Layer 2 has never stopped—one aims to fundamentally overhaul the main chain, while the other tries to build a “highway” on top of the main chain.

The Blockchain Trilemma

This concept was first proposed by Ethereum’s founder: Decentralization, Security, and Scalability—you can only satisfy two at the same time. It’s like choosing between fish and bear’s paw; every solution comes with trade-offs. So various projects are exploring how to innovate and break through.

Two Paths, Each with Its Strengths

Layer 1 solutions include:

• Sharding: dividing the database into smaller parts for parallel processing
• Changing consensus mechanisms: from PoW to PoS
• SegWit: an upgrade to Bitcoin that reduces transaction data size

Layer 2 solutions include:

• State Channels: transactions occur off-chain first
• Sidechains: independent parallel chains
• Rollups: bundling many transactions before submitting to the main chain

Layer 1: Performing Surgery on the Main Chain

Layer 1 involves modifying the main chain itself. Bitcoin and Ethereum are typical examples; they use decentralized node networks to ensure security, but this also results in slower speeds.

Main approaches of Layer 1

Sharding: The principle is simple—rather than having all nodes process all data, work is divided into parts, with different nodes handling different segments. This parallel processing greatly improves efficiency. Zilliqa is an example of this approach.

Switching from PoW to PoS: Another route. PoW relies on computational power and electricity costs, while PoS uses token staking to validate. Ethereum 2.0 is evolving this way, aiming for less energy consumption and faster transaction validation.

SegWit: A clever upgrade for Bitcoin. It separates digital signatures from transaction data, effectively “slimming down” transactions so that more can fit into each block. Previously, Bitcoin’s block size limit was 1MB, restricting throughput. SegWit addressed this longstanding issue.

Advantages and Challenges of Layer 1

Advantages:

• No need for additional infrastructure, just protocol upgrades
• Solves fundamental problems once and for all
• Maintains true decentralization

Challenges:

• Miners and validators may oppose changes (revenue may decrease)
• Node storage and bandwidth still have limits
• Cross-shard transactions remain complex

Layer 2: Building an Intermediate Layer on Top of the Main Chain

Layer 2 is like adding a second floor on top of Layer 1. Transactions are processed on this layer first, then settled on the main chain, ensuring security while improving speed and reducing costs.

Main three solutions of Layer 2

Rollups: Compress and bundle many transactions before submitting to the main chain. This approach requires less storage on the main chain, naturally lowering costs. Arbitrum and Optimism are examples of this.

State Channels: Like opening a private, off-chain channel where participants can conduct multiple transactions, then settle once at the end. Bitcoin’s Lightning Network is a typical example, making Bitcoin transactions as fast as transfers via Alipay.

Sidechains: Independent blockchains connected to the main chain via two-way pegs. Polygon is the most successful sidechain in the Ethereum ecosystem. It has its own consensus and validation system but can interoperate with Ethereum.

Real-world Cases and Data

• Arbitrum: Uses optimistic rollups, reducing transaction costs by over 90% compared to Ethereum, with much higher throughput
• Lightning Network: Reduces Bitcoin transaction times from minutes to seconds, with fees dropping from a few dollars to a few cents
• Polygon: Once had over $1 billion in total value locked (TVL) in DeFi, supporting top protocols like Compound and Aave
• Optimism: Integrated with 97 protocols, with a total TVL exceeding $500 million

Costs of Layer 2

• Interoperability between applications is limited, potentially causing ecosystem fragmentation
• Liquidity is dispersed across multiple chains, affecting market depth
• Users need to switch between systems, complicating the experience

Can Layer 1 and Layer 2 Coexist?

Some ask: After Ethereum 2.0 upgrades, will Layer 2 still be useful? The answer is definitely yes.

Ethereum 2.0 can theoretically reach 100,000 TPS (currently only around 30), which is impressive. But this doesn’t make Layer 2 obsolete—in fact, they complement each other:

• Layer 1 provides the foundational security: Ethereum 2.0 offers a solid base, on which all Layer 2 solutions depend
• Layer 2 enables application innovation: For composability in DeFi, cross-chain interoperability, and other advanced needs, Layer 2 is more flexible

For example, Polygon is actively working to enable seamless collaboration among different Layer 2 solutions.

Future Application Scenarios

Payments: Lightning Network makes micro-payments feasible. Decentralized social apps like Nostr allow users to transfer funds via Lightning. Strike already supports cross-border transfers that are instant.

Gaming and NFTs: Polygon Studios focuses on blockchain gaming, with high throughput and low fees, transforming the user experience in GameFi.

DeFi: MakerDAO’s DAI stablecoin and Compound’s lending protocols are leveraging Layer 2 solutions to offer cheaper, faster services.

Final Thoughts

These two paths are not mutually exclusive but are mutually reinforcing ecosystems.

In the short term, Layer 1 and Layer 2 will coexist, each serving its purpose. Some applications require maximum security and will use Layer 1; others prioritize user experience and will adopt Layer 2.

In the long run, hybrid solutions will become mainstream. More projects will resemble Polygon—optimizing Layer 1 while enhancing Layer 2, ensuring seamless interoperability.

Continuous innovation in blockchain scaling solutions will ultimately benefit users—faster transactions, lower fees, better experiences. This is why blockchain is gradually moving from a niche hobby to mainstream adoption.