Understanding the Foundation: What Layer 1 Blockchains Actually Do

Bitcoin introduced the blueprint for decentralized finance in 2009, proving that digital currencies could operate without central authorities. Yet behind this revolutionary idea lies sophisticated technical infrastructure—specifically, layer 1 blockchains that make secure peer-to-peer transactions possible. To truly grasp how modern cryptocurrency works, you need to understand what Layer 1 protocols are and why they form the backbone of every blockchain network.

Layer 1: The Base Protocol That Runs Everything

A Layer 1 blockchain is the foundational software layer where all transaction processing and network security happens. Think of it as the rulebook and referee combined—it sets the standards that every participant must follow and enforces those rules automatically through code.

At its core, a Layer 1 blockchain contains all the essential instructions for how a cryptocurrency operates. The nodes (computers that run the network) use these specifications to verify transactions, broadcast new data, and maintain the shared ledger. Because Layer 1 sits at the ground level of a crypto project’s architecture, developers sometimes use the term “mainnet” to describe it.

The critical distinction: Layer 1 blockchains are self-sufficient. They don’t depend on other systems to validate transactions or ensure security. This makes them the true foundation of the crypto ecosystem.

How Layer 1 Networks Maintain Trust and Security

Every Layer 1 blockchain faces the same fundamental challenge: how do thousands of independent computers agree on which transactions are valid when no central authority exists to verify them? The answer is a consensus mechanism—a set of rules and algorithms that coordinate node operators and establish shared trust.

Proof-of-Work Systems

Bitcoin uses proof-of-work, where nodes compete to solve complex mathematical puzzles every 10 minutes. The first computer to solve the puzzle gets to add the next batch of transactions and receives BTC as a reward. This approach creates computational security: attacking the network would cost more in electricity and hardware than any attacker could gain.

The trade-off is energy intensity. Bitcoin’s network consumes significant power because each node runs the same computational race independently.

Proof-of-Stake Systems

Newer Layer 1 blockchains like Ethereum and Solana use proof-of-stake, where validators lock cryptocurrency on the network to earn the right to validate transactions. If validators misbehave, they lose their staked coins through a process called “slashing”—a built-in penalty mechanism.

This approach uses far less energy than proof-of-work, but it introduces a different trade-off: validators with more cryptocurrency have more influence over the network.

How Layer 1 Blockchains Differ: Key Examples

Modern Layer 1 blockchains come with different design choices, and these choices directly affect how each network performs.

Bitcoin operates on proof-of-work and prioritizes security above all else. Its code takes six separate confirmations before finalizing transactions. Additionally, Bitcoin’s Layer 1 automatically reduces the new BTC supply every four years through an event called “the halving,” which creates a controlled inflation schedule.

Ethereum started as a proof-of-work Layer 1 similar to Bitcoin but underwent a major 2022 upgrade called “the Merge” to switch to proof-of-stake. This change reduced energy consumption by 99.95%. Ethereum’s Layer 1 also introduced dynamic token management—the blockchain automatically burns a portion of transaction fees to regulate ETH supply and prevent excessive inflation.

Solana competes on speed and cost. Its Layer 1 architecture can process up to 50,000 transactions per second, compared to Ethereum’s 12-15 TPS on its base layer. This throughput comes from optimized consensus design and parallel transaction processing.

Litecoin forked from Bitcoin’s code but tweaked the algorithm to enable faster block times and lower fees. Its Layer 1 still uses proof-of-work but prioritizes speed over Bitcoin’s security-first approach.

Cardano combines proof-of-stake with academic research principles. Founded by Charles Hoskinson (formerly of Ethereum), Cardano’s Layer 1 emphasizes peer-reviewed development and third-party application support.

The Core Challenge: Layer 1 Blockchains Face Real Limitations

Decentralization and security require strict rules. Layer 1 blockchains deliberately use rigid, deterministic code—everyone runs the same protocol, everyone validates the same rules. This rigidity provides predictability and prevents fraud, but it creates a problem that Ethereum co-founder Vitalik Buterin called the “blockchain trilemma”: you can’t simultaneously maximize decentralization, security, and scalability. You must sacrifice one.

Bitcoin prioritizes decentralization and security over speed. Ethereum prioritizes decentralization and security but struggles with transaction throughput. Solana prioritizes speed and low costs but concentrates more power among fewer validators.

Another Layer 1 limitation is poor interoperability. Since each Layer 1 has unique code and standards, moving cryptocurrency between different blockchains or using applications across multiple networks is technically difficult. Projects like Cosmos and Polkadot specifically address this “interoperability problem” by building bridges and cross-chain communication protocols.

New scaling solutions are emerging. Ethereum developers are working on “sharding,” which splits the blockchain into smaller data segments. This reduces the computational burden on each node, allowing the network to process more transactions without requiring every participant to store the complete ledger.

Layer 1 Versus Layer 2: Understanding the Hierarchy

As cryptocurrencies matured, developers realized they could build secondary systems on top of established Layer 1 blockchains. These Layer 2 solutions inherit the Layer 1’s security while adding new capabilities.

Layer 2 networks like Arbitrum, Optimism, and Polygon operate on top of Ethereum’s Layer 1. Users transfer assets to these Layer 2 systems to access faster speeds (sometimes 100x faster) and dramatically lower fees. When a user finishes their transactions on a Layer 2, the final settlement happens back on Ethereum’s Layer 1.

The key distinction: Layer 1 blockchains issue “coins” that are integral to their protocol (like BTC and ETH). Layer 2 projects issue “tokens” that exist only on top of Layer 1s (like Polygon’s MATIC and Arbitrum’s ARB). Coins are primary payment methods; tokens are add-on features.

This layered approach allows Layer 1 blockchains to maintain security and decentralization while Layer 2 solutions optimize for speed and cost. It’s become the standard architecture for scaling cryptocurrency networks.