In simple words
Layer-1 is how all the core architecture blockchains are usually called. Whereas, Layer-2 are the ones, lying on top of them. Ethereum and Polygon are great examples of an L-1 and an L-2 blockchains, where Ethereum is Polygon’s base.
First of all we’ve got to talk about upscaling
Upscaling is a term, used for describing net’s ability to remain quick and stable no matter how many users are making transactions via the net. To support the needs of users blockchain needs to develop it’s nodes.
Upgrades typical for L-1 chains would be:
- Increasing the node’s transcaction approval speed.
- Increasing the quantity of node’s memory.
- Sharding - breaking the operation into multiple smaller ones, that can be processed simultaneously.
- Changing the old, but safer PoW (Proof of work) system to the newer and faster, but less secure PoS (Proof of stake).
However with L-2 upscaling goes a bit further.
What solutions does L-2 give us?
- State channels are the ability to separate certain on-chain operations to off-chain for higher speed and zero miner fees. A smart-contract seals off a blockchain operation, that is executed between the operation’s participants, the result is then added back to blockchain. Great examples would be Ethereum’s Raiden Network and Bitcoin’s Lightning Network.
- Nested blockchains (plasma project) are ecosystems of services, that focus on unloading the so-called parent chain or the root chain. Such systems also have high scalability with new blocks and services easily added to the bunch because of their structure.
So Layer-2 uses dedicated nodes and facilities to unload the core chain, letting to increase it’s speed and scalability.
The problems with L-1 and L-2
The biggest problem with scaling both layers is the money flowing around the chains, that should be all freezed for the time of implementation of any new services to the chain.
We also have the so-called scalability trilemma, introduced by Vitalik Buteryn (Ethereum’s creator).
The higher you focus on two of the three parameters - the weaker the third one becomes. Bitcoin focuses on decentralisation and security the most, that’s why the net shows such low speeds.
However, considering that right now the speed of the blockchain is becoming more and more important L-2 is the right option to use. All the operations are still carried on-chain with their parts executed between the users. This doesn’t affect security much, but gives a significant speed pro.