The Key Question of Blockchain Scalability: Layer 1 Upgrades or Layer 2 Solutions?

Why Are Blockchain Networks Facing Scalability Issues?

While blockchain technology ensures security, transparency, and decentralization, it encounters a paradoxical problem: its success creates its own issues. As network popularity increases, transaction speeds slow down, and fees rise. Main Layer 1 networks like Bitcoin and Ethereum can process only 15-30 transactions per second, whereas centralized systems like Visa can handle up to 24,000 transactions per second.

The “Blockchain Trilemma” defined by Vitalik Buterin explains this situation: decentralization, security, and scalability cannot all be fully achieved simultaneously. Crypto projects must balance these three aspects. At this point, two different solutions emerge: strengthening the network itself or building new systems on the layer above.

What’s the Difference in Real Life? Layer 1 vs Layer 2 Comparison

Layer 1 (Base Network): Bitcoin, Ethereum, and similar networks validate and execute all transactions according to their protocols. Security is high, but speed is limited. Improving the network requires changing protocol rules—which necessitates voting and consensus among network members. Ethereum 2.0’s transition to Proof of Stake is an example of such a reform.

Layer 2 (Overlay Layer): Lightning Network, Rollup technologies, and sidechains (sidechains) operate on top of Layer 1 networks. They perform most transactions in this layer while remaining connected to the main network for security. Speed increases significantly, fees decrease, but some use cases may be limited.

###What Are Sidechains? How Do They Differ from Layer 2?( Sidechains are independent blockchains linked to the main blockchain. They have their own consensus mechanisms and rules. An example is the relationship between Ethereum and Polygon: Polygon has its own protocol and does not rely entirely on Ethereum’s security. The advantage is greater flexibility; the disadvantage is slightly reduced security.

Difference between Sidechain and Layer 2: Layer 2 solutions handle transaction validation responsibilities in Layer 1 and fully take over the security of the main network. Sidechains are partially independent—faster and cheaper, but security responsibilities are higher.

As of June 2023, the total value of assets locked in the decentralized finance sector on the Polygon network is approximately $1.3 billion. This demonstrates that sidechains are truly effective at scale.

Layer 1 Solutions: How Does the Network Strengthen Itself?

Sharding )Sharding(: Dividing the blockchain data into smaller parts to process each in parallel. Zilliqa operates with this technology. Result: transaction speeds can multiply.

Consensus Mechanism Changes: Ethereum’s transition from Proof of Work to Proof of Stake falls into this category. Proof of Stake uses less energy and accelerates processing. Cardano )Ouroboros PoS( and Algorand )safe PoS( have followed similar paths.

SegWit )Segregated Witness(: Bitcoin’s 2017 update separated digital signatures from transaction data, effectively increasing block size. Result: more transactions per block.

)Are Layer 1 Solutions Good or Bad?###

Advantages:

• Permanent solution: the network enhances its own architecture
• Decentralization is preserved: no intermediary systems
• Lower transaction fees, as network capacity genuinely increases

Disadvantages:

• Miners/validators may lose income (The transition from PoW to PoS experienced this issue)
• Individual node storage requirements increase, risking centralization
• Changes are slow due to the need for network consensus

Layer 2 Solutions: Fast but Complex

Rollups: Aggregate transactions off-chain, compress them, and send a proof to the main chain. Examples include Arbitrum and Optimism. They take over Ethereum’s security, while increasing speed by 100x and significantly reducing fees.

State Channels: Two parties can perform unlimited transactions, with only the start and end recorded on Layer 1. Lightning Network is such a solution for Bitcoin—micro-payments can occur almost instantly.

Sidechains: As mentioned above, projects like Polygon fall into this category. They are more flexible but carry greater security responsibilities.

###Are Layer 2 Solutions Good or Bad?(

Advantages:

• Tremendous speed increase )100x-1000x faster(
• Significant fee reductions
• No need to modify Layer 1; can be implemented immediately
• Various technology options )each failed rollup, state channel, sidechain, etc., provides learning opportunities(

Disadvantages:

• Fragmentation risk: each Layer 2 has its own network, making asset transfer between them complex
• Liquidity distribution: when funds are locked in different Layer 2s, a unified market cannot form
• User participation is challenging: users need to know which Layer 2 to choose

How Will Ethereum 2.0 Change the Future?

Ethereum 2.0 aims to increase its transaction capacity to up to 100,000 per second—much more than the current 30. It will incorporate sharding technology into the main network.

However, an important point is that Ethereum 2.0 will not render Layer 2 solutions useless. On the contrary, Layer 2 solutions will remain necessary for more complex decentralized finance applications. The boundary between sidechains and Layer 2 may blur—hybrid systems could emerge.

Who Uses Which Solution?

Gaming Sector: Polygon has been providing dedicated support to game developers since 2021. Why? NFT trading and in-game transactions are expensive on Layer 1 but affordable on Polygon.

Micro Payments: Strike app and THNDR Games offer mobile payments and gaming experiences on the Lightning Network. Spending a few cents per transaction can happen almost instantly.

Decentralized Finance: Projects like Compound and Aave operate on Polygon. Liquidity pools are more efficient here.

Stablecoins: DAI )$1 level( operates on Ethereum smart contracts, but faster transfers are possible on Layer 2.

Future: Hybrid or Single Solution?

The future of blockchain scalability will likely include both Layer 1 upgrades and Layer 2 solutions. Ethereum 2.0 will strengthen Layer 1, while projects like Arbitrum, Optimism, and Polygon will continue on Layer 2.

The long-term goal is to improve )composability among Layer 2 solutions. The debate between sidechains and Layer 2 shows that every technological option has its strengths. Perhaps hybrid protocols combining the best features of both will become the mainstream solution in the future.

There is no single, powerful solution yet to fully resolve blockchain scalability issues. But technologies like sharding, Proof of Stake, Rollups, and sidechains working together are paving the way for cryptocurrencies to become truly usable.

In conclusion, Layer 1 and Layer 2 solutions are not in competition but are developing as complementary approaches. Both are essential to making blockchain technology practical and accessible. Therefore, projects investing in both will form the most important infrastructure of the crypto ecosystem in the coming years.