Layer-1 Scaling Solutions
In the decentralized ecosystem, a Layer-1 network refers to a blockchain Bitcoin, Litecoin, and Ethereum, for example, are Layer-1 blockchains. Layer-1 scaling solutions augment the base layer of the blockchain protocol itself in order to improve scalability. A number of methodologies are currently being developed — and practiced — that improve the scalability of blockchain networks directly.
Layer-1 solutions change the rules of the protocol directly to increase transaction capacity and speed, while accommodating more users and data. Layer-1 scaling solutions can entail, for example, increasing the amount of data contained in each block, or accelerating the rate at which blocks are confirmed, so as to increase overall network throughput.
Other foundational updates to a blockchain to achieve Layer-1 network scaling include:
Consensus protocol improvements: Some consensus mechanisms are more efficient than others. Proof of Work (PoW) is the consensus protocol currently in use on popular blockchain networks like Bitcoin. Although PoW is secure, it can be slow. That’s why many newer blockchain networks favor the Proof-of-Stake (PoS) consensus mechanism. Instead of requiring miners to solve cryptographic algorithms using substantial computing power, PoS systems process and validate new blocks of transaction data based on participants staking collateral in the network.
With Ethereum 2.0, Ethereum will transition to a PoS consensus algorithm, which is expected to dramatically and fundamentally increase the capacity of the Ethereum network while increasing decentralization and preserving network security.
Sharding is a mechanism adapted from distributed databases that has become one of the most popular Layer-1 scaling solutions, despite its somewhat experimental nature within the blockchain sector. Sharding entails breaking the state of the entire blockchain network into distinct datasets called "shards" — a more manageable task than requiring all nodes to maintain the entire network. These network shards are simultaneously processed in parallel by the network, allowing for sequential work on numerous transactions.
Further, each network node is assigned to a particular shard instead of maintaining a copy of the blockchain in its entirety. Individual shards provide proofs to the main chain and interact with one another to share addresses, balances, and general states using cross-shard communication protocols.
Ethereum 2.0 is one high-profile blockchain protocol that is exploring shards, along with Zilliqa, Tezos, and Qtum.