What Are Layer 1 Blockchains?

Decentralization is a defining feature of virtual currencies like Bitcoin (BTC), but lacking a central authority doesn’t mean cryptocurrencies are disorganized. In fact, when you dive into the technical architecture of crypto networks, the sophistication and structure of blockchain technology often stand out. Cryptocurrencies depend on robust, self-sufficient protocols to securely support peer-to-peer (P2P) transfers. For most crypto projects, the Layer 1 (L1) blockchain is the foundation of their software architecture—making it the best starting point for understanding this innovative technology.

What Is a Layer 1 Blockchain?

Layer 1 (L1) blockchains serve as the fundamental layer of cryptocurrency architecture, acting as decentralized software protocols that underpin many digital currencies. These protocols both set and enforce the rules within the crypto ecosystem. The L1 protocol’s core code establishes comprehensive standards for network nodes (computers), guiding how they securely transmit, verify, and record new transactions in a public ledger.

An L1 blockchain lays out all the instructions required to operate a cryptocurrency, including transaction processing, security measures, and network consensus protocols. Positioned at the base of crypto architecture, L1 blockchains are accurately called the foundational or base layer. Developers frequently use “mainnet” and L1 interchangeably, since the L1 protocol encompasses all the critical elements necessary for a cryptocurrency’s operation and functionality.

How Do Layer 1 Blockchains Work in Cryptocurrency?

Each cryptocurrency utilizes its own coding standards and protocols, but every L1 blockchain relies on a consensus mechanism to establish trust among decentralized node operators. Consensus mechanisms implement complex algorithms to define and enforce the rules for processing crypto transactions accurately.

Two principal consensus mechanisms dominate the L1 blockchain space. The Bitcoin blockchain uses proof-of-work (PoW), where computers compete to solve complex mathematical equations every 10 minutes to record new BTC transactions. In contrast, L1 blockchains like Ethereum (ETH) and Solana (SOL) use proof-of-stake (PoS), which allows nodes to lock cryptocurrency on the blockchain for the chance to validate transactions.

To motivate participation, PoW and PoS networks both reward node operators who successfully publish blocks with native cryptocurrency. For instance, Bitcoin nodes earn BTC, while Ethereum nodes receive ETH. Alongside consensus algorithms, L1 blockchains include extra security measures to protect process integrity and deter malicious actors. Many PoS blockchains enforce “slashing” policies that seize staked cryptocurrency from node operators who break the rules. Bitcoin requires six separate confirmations to validate a BTC transfer before it’s permanently recorded on the ledger.

Layer 1 protocols also control transaction fees (gas fees) and cryptocurrency issuance schedules. The Bitcoin L1 blockchain automatically reduces BTC circulation every four years through an event called “halving.” In contrast, L1 Ethereum uses a dynamic system to issue and burn ETH, automatically adjusting circulation based on network activity. Following the EIP-1559 upgrade in 2021, Ethereum burns a portion of every user fee to manage ETH inflation.

Examples of Layer 1 Blockchains

Bitcoin introduced the model for successful L1 blockchains in 2009, inspiring hundreds of cryptocurrencies to build their own L1 chains. Today’s most widely used cryptocurrencies depend on L1 blockchains for network security.

Bitcoin launched in 2009 under the pseudonym Satoshi Nakamoto, and is the oldest and largest cryptocurrency. The BTC L1 blockchain relies on an energy-intensive PoW consensus, where nodes compete every 10 minutes to solve mathematical problems and record new transactions.

Ethereum ranks second only to Bitcoin by market capitalization and enables third-party developers to build decentralized applications (dApps) on its L1 protocol. Initially released in 2015 as a PoW L1 blockchain modeled after Bitcoin, Ethereum switched to PoS consensus after the “Merge” upgrade in 2022.

Litecoin (LTC) was created to provide fast, affordable P2P virtual currency transactions. While Litecoin uses a different algorithm in its L1 architecture, it maintains a PoW consensus similar to Bitcoin’s network.

Solana is an “Ethereum competitor,” offering similar services with unique advantages like faster confirmation speeds and lower transaction fees. Solana’s L1 PoS blockchain is known for high throughput, potentially processing up to 50,000 transactions per second (TPS).

Cardano is another L1 PoS blockchain in the Ethereum competitor category. Launched in 2015 by former Ethereum developer Charles Hoskinson, Cardano emphasizes peer-reviewed research and invites third-party developers to build dApps on its L1 blockchain.

What Are the Limitations of Layer 1 Protocols?

Despite their vital role in processing secure and efficient crypto transactions, Layer 1 protocols often lack flexibility. L1 blockchain algorithms are intentionally deterministic, ensuring all network participants follow the same rules. While this strict code brings predictability and security, it frequently limits innovation and scalability.

Ethereum co-founder Vitalik Buterin described L1 scalability issues as the “blockchain trilemma,” claiming crypto developers must inevitably sacrifice one of three components—decentralization, security, or scalability—when building protocols. However, developers on L1 chains like Ethereum are devising new scaling solutions, such as “sharding,” which divides the main blockchain into smaller, indivisible data fragments. This technique reduces data requirements for each node operator, boosting network speed and efficiency.

Another major L1 limitation is poor communication with other blockchain projects. Each L1 operates as an autonomous system with its own coding standards, making secure coin transfers between different L1s or cross-chain application interactions difficult or even impossible. Some crypto enthusiasts call this limitation the “interoperability problem,” which motivates projects like Cosmos and Polkadot to focus on inter-blockchain communication (IBC).

Layer 1 vs. Layer 2 Protocols: Key Differences Between Blockchain Layers

Early in cryptocurrency’s history, the term L1 didn’t exist because every blockchain used similar processes and served the same purposes—transaction processing and network security. As new cryptocurrencies started building on top of base chains, developers needed terminology to distinguish L1 from emerging protocols, leading to the concept of Layer 2 (L2).

L2 refers to any crypto project that relies on the security infrastructure of a Layer 1 blockchain. L2s typically leverage the decentralization of established L1s like Ethereum to introduce new use cases or improve base protocol scalability. For example, L2 networks such as Arbitrum, Optimism, and Polygon run on top of Ethereum, giving users higher transaction speeds and lower average fees. When using these Ethereum-based L2s, users deposit digital assets into L2 for access to its services before final transaction settlement on the Ethereum mainnet.

L2s sometimes launch cryptocurrencies, but these are known as “tokens,” not “coins,” which exist natively on L1. The fundamental difference is that tokens exist only on top of an L1 blockchain, while coins are an integral part of the L1 protocol. Tokens add extra functionality to the L1 ecosystem, while coins act as the primary payment method for blockchains. Examples of L2 tokens include MATIC (Polygon), ARB (Arbitrum), and OP (Optimism).

Conclusion

Layer 1 blockchains are the backbone of the cryptocurrency ecosystem, providing the core protocols and security mechanisms that make decentralized digital currencies possible. From Bitcoin’s pioneering PoW consensus to advanced PoS implementations in Ethereum, Solana, and Cardano, L1 blockchains exemplify the technical sophistication at the heart of crypto networks. While Layer 1 protocols face challenges—including scalability limits, the blockchain trilemma, and interoperability issues—innovations like sharding and L2 solutions continue to expand their potential. Understanding L1 blockchains is essential for grasping how cryptocurrencies secure networks, process transactions, and power a growing ecosystem of decentralized applications. As technology evolves, Layer 1 blockchains will remain central to crypto’s progress, balancing decentralization, security, and scalability for the expanding digital economy.

FAQ

What Are Layer 1 Protocols?

Layer 1 protocols are core blockchain frameworks that power fundamental operations like consensus and transaction validation. They’re the foundation of blockchain networks.

What’s the Difference Between Layer 1 and Layer 2 Protocols?

Layer 1 protocols are the base blockchains. Layer 2 protocols are built on top to boost scalability, speed, and lower fees.

What Are Layer 1, Layer 2, and Layer 3?

Layer 1 is the foundational blockchain, Layer 2 provides scaling solutions, and Layer 3 consists of applications and services built above them.