Layer 1: understanding fundamental blockchains
Updated on 30 July 2026
A layer 1 blockchain is a network that processes and finalises its own transactions autonomously, without depending on another chain, as with Bitcoin, Ethereum or Solana. This article explains how layer 1 blockchains work, their scalability limits and the main solutions developed to address them.
- A layer 1 processes and finalises its transactions without depending on another network, unlike layer 2 solutions, which sit on top of it.
- The consensus mechanism (Proof of Work, Proof of Stake, etc.) and the native token define the security of each layer 1.
- Bitcoin, Ethereum, Solana, Cardano and MultiversX (formerly Elrond) illustrate different trade-offs between speed, decentralisation and security.
- Some networks are betting on bigger blocks or a new consensus mechanism; Ethereum now targets rollups rather than classic sharding.
What is a layer 1 in blockchain?
A layer 1 is the base protocol of a blockchain: it defines its own consensus rules, data structure, cryptographic mechanisms and transaction management, without depending on another network to function. This level of autonomy generally relies on a native token to pay transaction fees.
Key features
The layer 1 determines the consensus protocol (Proof of Work, Proof of Stake or a variant) as well as the cryptographic rules that ensure the network's security and reliability. Blockchains such as Bitcoin or Ethereum are layer 1 networks: they validate and finalise their own transactions.
The layer 1 also sets the protocol's governance parameters, such as block size or the time between two blocks, which directly determine the number of transactions the network can process. Below the layer 1, some projects even define a layer 0, a layer that interconnects several layer 1 blockchains with one another.
The layer 1's function is closely tied to that of the layer 2: a network built on top of a layer 1 blockchain to improve its scalability, without changing its consensus rules. Together, layer 1 and layer 2 form the two basic building blocks of a modern blockchain's architecture.
Why do layer 1 blockchains face scalability problems?
Layer 1 blockchains face scalability problems because their consensus mechanism mechanically limits the number of transactions processed per second, in order to preserve the network's security and decentralisation. This is particularly true for Proof of Work (PoW), historically used by Bitcoin and by Ethereum before its transition to Proof of Stake in 2022.
Proof of Work (PoW) consensus
Layer 1, the base layer of blockchains, is responsible for processing and finalising transactions. However, layer 1 networks face challenges in terms of capacity. In particular, the Proof of Work (PoW) consensus mechanism found on blockchains such as Ethereum or Bitcoin creates scalability problems.
PoW is a secure, decentralised and transparent mechanism, but it has drawbacks. It is both energy-intensive and slow, which limits the number of transactions per second a blockchain network can handle. For example, the Bitcoin blockchain is limited to 7 transactions per second and Ethereum's to around thirty.
Scalability solutions for Layer 1
Increasing block size
One solution considered for increasing the capacity of Layer 1 networks is to increase block size. This allows more transactions to be processed within a single block. However, this solution can lead to a concentration of power among the network's most powerful nodes, compromising decentralisation and security.
Changing the consensus mechanism
Another solution is to replace the PoW consensus mechanism entirely with another one, such as Proof of Stake (PoS), which relies on staking: holding and locking up tokens to validate transactions and create new blocks. PoS is less energy-intensive and speeds up the transaction validation process. However, it requires a deep transformation of the protocol and can raise challenges in terms of security and decentralisation.
Implementing sharding
Sharding is a technique that involves splitting a blockchain network's transactions and data into several subsets, called shards. Each shard processes a specific set of transactions, which allows processing to run in parallel and improves performance. This solution increases the capacity of the Layer 1 network and allows more transactions to be processed simultaneously. That said, sharding can also raise security and coordination challenges between shards.
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Layer 1 improvements and innovations
The development of Layer 1 has seen several major innovations, with SegWit and sharding among the most notable.
SegWit
The Segregated Witness (SegWit) is a solution proposed to improve the Bitcoin protocol. SegWit aims to optimise block space by separating transaction signatures from the rest of the transaction data. This optimisation increases the number of transactions per block and also improves transaction speed.
In addition, SegWit resolves the transaction malleability problem, which makes it easier to develop layer 2 solutions such as Lightning Network. Thanks to these improvements, the Bitcoin network is made more scalable and secure for users.
Sharding
Sharding is a method of partitioning blockchain data, which spreads the data across several nodes where each node stores only part of the overall blockchain. This mechanism featured on Ethereum's roadmap for a long time, but the classic execution-sharding project has since been dropped: Ethereum now relies on an approach centred on layer 2 rollups, with proto-danksharding (EIP-4844) deployed during the "Dencun" upgrade in March 2024 to make these rollups cheaper, without directly fragmenting the layer 1 blockchain. According to Ethereum's official documentation, "shard chains are no longer part of the roadmap."
Sharding can be implemented in different ways, notably by using specific consensus algorithms or by grouping transactions into shards (fragments), which are then processed by distinct groups of validator nodes. This approach allows for linear scalability and reduces the overall load on the network, which makes it possible to accommodate a larger number of transactions and improve the performance of the blockchain protocol.
In short, SegWit and sharding are key innovations that have improved the performance and scalability of Layer 1 blockchains. These innovations have made blockchains more accessible and better suited to future technology and transaction needs.
What is the difference between layer 1 and layer 2?
Layer 1 is the base blockchain infrastructure, such as Bitcoin or Ethereum, which validates and finalises its transactions autonomously. Layer 2 is a network built on top of a layer 1 to improve its speed and reduce its costs, while relying on the underlying blockchain's security.
Layer 1
Layer 1 refers to a blockchain's main architecture. It is the layer where consensus rules, data structure, cryptographic mechanisms and transaction management mechanisms are defined. This layer is the foundation on which the network's security, decentralisation and data integrity rest.
Layer 2
Layer 2 is a network that sits on top of a layer 1 blockchain. The main goal of Layer 2 solutions is to improve the network's scalability, meaning its ability to handle a growing number of transactions without affecting its performance. Layer 2 solutions also help reduce transaction costs and delays.
Lightning Network
Overview
The Lightning Network is an example of a Layer 2 solution developed to solve the Bitcoin network's scalability problems. This network works by creating payment channels between users, which allows for instant, lower-cost transactions.
How it works
The Lightning Network establishes bidirectional payment channels between users who want to transact with one another. Instead of sending every transaction directly to the blockchain, users carry out their exchanges through their payment channels. Only once the payment channel is closed are the final transactions settled on the main blockchain. This approach significantly reduces the number of transactions that must be validated by the whole network, which improves scalability and lowers transaction costs.
In summary, the distinction between Layer 1 and Layer 2 highlights different approaches to solving the scalability, transaction cost and decentralisation problems inherent to blockchain networks. While Layer 1 represents the blockchain's base infrastructure, Layer 2 builds on this foundation to offer complementary solutions aimed at improving the overall network's performance.
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Examples of Layer 1 blockchains
This section presents various layer 1 blockchains, their unique characteristics and, for some, their market capitalisation (market cap).
MultiversX (formerly Elrond)
MultiversX, formerly called Elrond, is a layer 1 blockchain that stands out for its ability to process a large number of transactions per second. Thanks to an architecture based on adaptive sharding and a Proof of Stake consensus protocol, the network aims for high transaction throughput while keeping latency low.
Bitcoin
Bitcoin is a layer 1 blockchain widely recognised as the first and most famous cryptocurrency. It uses a consensus protocol called proof of work (Proof of Work) and is designed to be a decentralised currency with no central authority. Its main characteristic is its security and decentralisation.
Ethereum
Ethereum is a layer 1 blockchain that enables the creation and execution of smart contracts. It is based on a Proof of Stake protocol. Ethereum is particularly valued for its flexibility and its ability to host decentralised applications (dApps).
BNB Smart Chain
BNB Smart Chain is a layer 1 blockchain developed by Binance. It is designed to offer a fast, low-cost solution for transactions and decentralised applications. BNB Smart Chain uses a consensus protocol called Proof of Staked Authority (PoSA), where validators stake BNB to be selected, and it remains compatible with Ethereum's smart contracts.
Solana
Solana is a layer 1 blockchain known for its speed and efficiency. It uses a unique consensus protocol called Proof of History (PoH) combined with Proof of Stake (PoS). Solana can process thousands of transactions per second thanks to its innovative architecture.
Cardano
Cardano is a layer 1 blockchain that focuses on academic research and formal verification. It uses a Proof of Stake consensus protocol called Ouroboros. Cardano is designed to be secure, sustainable and scalable.
Ripple
The XRP Ledger, often associated with Ripple, the company that was one of its main contributors, is a layer 1 blockchain focused on the fast processing of international financial transactions. It uses its own consensus protocol, the XRP Ledger Consensus Protocol (formerly known as the Ripple Protocol Consensus Algorithm, RPCA), and its native token is XRP. The network is used by several banks and financial institutions.
Dogecoin
Dogecoin is a layer 1 blockchain that started as a joke based on an internet meme but gained popularity as a way to tip and donate online. It uses the same proof of work consensus protocol as Bitcoin, but with modifications to allow faster transactions.
Cosmos Hub
Cosmos Hub is a layer 1 blockchain that aims to create an "internet of blockchains," allowing different blockchains to communicate with one another. It uses a Proof of Stake consensus protocol built on CometBFT (formerly known as Tendermint). Cosmos Hub is designed to improve blockchain interoperability and scalability.
There are hundreds of other cryptocurrencies and layer 1 blockchains, each with its own trade-offs between speed, decentralisation and security. Before buying any via a broker or an exchange, it helps to understand what sets these two types of platform apart. These assets often sit side by side in the same portfolio: tools such as Finary make it possible to track their performance in one place, alongside the rest of one's wealth.
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Investing carries a risk of partial or total capital loss. Crypto assets are highly volatile: you may lose all or part of your investment. Past performance is not a reliable indicator of future performance. Finary is authorised as a Crypto-Asset Service Provider (CASP) under the MiCA regime by the AMF.
Frequently asked questions
Does a layer 2 remove the need for a layer 1?
No. A layer 2 is generally faster and less costly for the user, but it depends on the security of its underlying layer 1 to finalise transactions. A decentralised, secure layer 1 remains the trusted foundation the whole ecosystem rests on.
What is the difference between a Proof of Work layer 1 and a Proof of Stake layer 1?
A Proof of Work layer 1, such as Bitcoin, secures the network through miners' computing power, which consumes a lot of energy. A Proof of Stake layer 1, such as Ethereum since 2022, relies on validators who lock up tokens, for far lower energy consumption.
Why don't Bitcoin and Ethereum have the same transactions-per-second capacity?
Their capacity depends on technical choices specific to each protocol, such as block size, block time and the consensus mechanism chosen. Bitcoin and Ethereum both prioritise security and decentralisation, with different trade-offs that produce distinct transaction throughputs.
Is a native token essential to a layer 1 blockchain?
It is not an absolute technical requirement, but it is the norm on public layer 1 blockchains such as Bitcoin, Ethereum or Solana. The native token is used to pay transaction fees and to reward the validators or miners who secure the network day to day.
Is sharding still Ethereum's preferred scalability solution?
No, not for the past few years. Ethereum has dropped classic execution sharding in favour of a roadmap centred on layer 2 rollups, with proto-danksharding (EIP-4844) deployed in March 2024 to make these rollups cheaper, without directly fragmenting the layer 1 blockchain.
Sources
Ethereum.org, Danksharding roadmap: shard chains are no longer part of the roadmap
Binance Academy, definition of layer 1 in blockchain
Binance Academy, the Proof of Staked Authority (PoSA) consensus of BNB Smart Chain
XRPL.org, the XRP Ledger Consensus Protocol
MultiversX.com, Elrond's transformation into MultiversX
Cosmos.network, CometBFT, Cosmos Hub's consensus engine
AMF, CASP whitelist, Finary SAS
Regulatory disclaimers: Marketing communication. Investing carries a risk of partial or total capital loss. Past performance is not a reliable indicator of future performance. This article is provided for information and educational purposes only; it does not constitute personalised investment advice, a buy or sell recommendation, or tax advice. Crypto assets are highly volatile and carry a risk of total capital loss. They benefit from no capital guarantee and no deposit-guarantee or investor-compensation schemes. Before investing, read the Key Information Document (KID) and, where relevant, consult an authorised adviser. Finary SAS, an investment firm authorised by the ACPR (no. 19283), member of AMAFI. Insurance broker registered with ORIAS (no. 21001279), member of the CNCGP (association approved by the AMF). Crypto-Asset Service Provider (CASP) authorised by the AMF under the MiCA regime, references no. A2026-026 and no. N2026-008.
