Individuals who may have dabbled in crypto-tech for any significant length of time would have probably come across the concept of ‘layer 1 protocols’ at some point or the other. In this regard, one can think of a layer 1 solution as being the basic architectural framework of any blockchain ecosystem, with examples including prominent digital assets such as Bitcoin, Ethereum, EOS, Litecoin, etc.
Additionally, as the blockchain industry has continued to evolve at a rapid pace, an increasing number of players, both from the retail as well as institutional space, have started to adopt various layer 1 protocols. This has resulted in several issues/limitations associated with these platforms — such as poor transaction speeds, low network efficiency — coming to light and becoming increasingly more glaring. That being said, presented below are a few technical facets of any layer 1 system that everyone should carefully examine before making a significant investment in them.
1. Scalability
The first thing to consider when going big on a project is whether or not it possesses the ability to scale as the need arises. In the context of a blockchain system, the term scalability essentially refers to a project being able to process an increasing number of transactions (referred to as the TPS rate) as and when the number of users on the network starts to grow.
The problem has increasingly grabbed the attention of crypto enthusiasts across the globe, especially as Ethereum — widely considered to be one of the world’s premier crypto platforms — has continued to suffer from scalability-related issues over the last couple of years. And while the project’s dev team has continually stated that once ETH 2.0 goes live in its entirely, it will mitigate any such issues, the fact of the matter remains that the platform’s native transaction fees recently soared to its all-time high (ATH) on January 4, 2020.
The main thing to look for in the context of scalability is the concept of Linear Scalability. Most layer 1 protocols have an upper TPS limit which implies that if adopted they will be capped at processing only up to that maximum amount of TPS. This automatically limits the level of adoption and growth of these protocols from the get-go. Linear Scalability however describes a protocol’s capability to process more TPS as the network grows, making it theoretically infinitely scalable.
Radix, for example, with its impressive 7 years of R&D, is infinitely scalable thanks to its novel consensus algorithm called Cerberus that allows for extremely fast transactions with a high degree of throughput and communication across the entire network. To put things into perspective, as a layer 1 infrastructure, Radix demonstrated the capability of processing 1.4 million transactions per second while Visa, one of the largest payment processors in the world handles around 65,000 transactions per second.
2. Composability
Composability in a blockchain allows developers to do more with less, which can lead to a compounding effect for innovation and growth across the industry. According to a17z, platforms are considered composable if their existing resources can be used as building blocks and programmed into higher-order applications. Think of this as legos that can be creatively interchanged to create the desired outcome.
Given the open-source nature of the industry, composability can also be driven through shared innovation across various development teams and platforms. Recently, Ethereum has been under fire for composability concerns including its throughput capacity via sharding, where there will be multiple blockchains that check-in with each other via a beacon chain. The concept of using shards to break transaction sets into small data sets is a major focus for many layer 1 protocols.
Before investing in layer 1, it is recommended to understand which protocols are currently designed for max compasability.
3. Atomicity (aka Atomic Composability)
Atomicity, also referred to as atomic composability, helps guarantee that a blockchain transaction is considered a single unit of data movement by performing a sequence of steps, called actions so that they appear to be done as a single, indivisible step. If this critical piece of the puzzle fails, then an entire transaction will fail. Together, these units combine and must be considered true for a transaction to succeed. Technologists may recognize this concept from computer science, where atomicity is one of four critical properties of database transactions (along with consistency, isolation, and durability) used to guarantee data validity.
In blockchain and DeFi specifically, it is critical that composability be atomic given the various cross-applications in use. This is one of DeFi’s most important elements. In fact, without atomic composability, DeFi wouldn’t exist. Unfortunately, most DLT solutions seeking to increase scalability do so at the expense of composability.
4. Interoperability
While the idea behind blockchain tech as a whole has, from the very beginning, been steeped in the ethos of decentralization, most individual networks are not inherently open and lack the ability to communicate effectively with one another. This is because a vast majority of projects in existence today employ different hashing algorithms, consensus models, etc resulting in them operating alongside — but still largely siloed — from one another.
It is not difficult to see why interoperability is not only desirable but also quite critical in today’s world, especially as more and more enterprise blockchain solutions continue to be entering the market with each passing day. By making blockchain platforms interoperable not only can information sharing become easier but it can also allow for other benefits such as: easier execution of smart contracts; a more user-friendly experience.
Lastly, as things stand, there are a number of projects such as Polkadot, Ark, Aion that are actively working on the interoperability aspect of blockchain computing. In fact, Cosmos is one project that has been gaining a lot of traction recently since it seeks to serve as an ecosystem where various platforms can interact with one another, allowing for the decentralized, seamless exchange of data.
5. Adoption
Another consideration that one needs to make when choosing a layer 1 protocol is whether or not it is widely accepted across the globe. For example, even though Dash, an open-source cryptocurrency project, delivers transaction throughput rates that are significantly higher than those of Bitcoin (as well as lower tx fees), it is not a widely accepted medium of transaction amongst most crypto users, merchants, etc.
For most competitive layer 1 protocols (such as Radix, Algorand, and Avalanche, and more) adoption is arguably the most important element after the technology itself. From a layer 1’s developer community to developer resources, effective adoption means developers building and enhancing technology to better serve the greater community. This is how real-world adoption starts.
For example, Radix offers a Component Catalog that allows developers to pick functionality and plug it together easily. This Lego-like feature helps make building dApps easier, allowing a collaborative and open-source process for innovation. To be competitive, layer 1 protocols should appeal to developers by offering products and features that make their job easier.
Image by Miguel Á. Padriñán from Pixabay