Blockchain Scalability: Comparison Between Base Networks and Complementary Solutions

Why Transaction Speed Matters

Blockchain technology has revolutionized how we record, verify, and track information in enterprise networks. Its benefits are clear: increased security, irrefutable transparency, and reduced operational costs. However, there is a critical obstacle preventing widespread adoption: transaction processing capacity. While traditional systems execute thousands of operations per second, blockchain networks face significant bottlenecks. This is where two fundamental approaches emerge to solve this dilemma: optimizing the (Layer 1) base layer or building parallel solutions (Layer 2).

The Fundamental Blockchain Trilemma

Vitalik Buterin, creator of Ethereum, popularized a crucial concept: it is impossible to simultaneously achieve three essential characteristics—full decentralization, robust security, and high processing capacity. Any network must make trade-offs. Bitcoin prioritizes security and decentralization, sacrificing speed. Some emerging Layer 1 solutions seek balance, while others Layer 2 focus on performance, delegating security to the base network.

Understanding this reality is key to grasping why multiple solutions exist, not just a universal one.

Understanding Layer 1: The Foundation

What Defines a Layer 1 Network

A Layer 1 blockchain is a fully autonomous network that manages its own security, transaction validation, and data storage. Bitcoin and Ethereum are paradigmatic examples. All critical components—distributed consensus, smart contract execution, data availability—reside on it. When you transact directly on Bitcoin or Ethereum, you are interacting with the Layer 1.

The challenge is inherent: the more decentralized and secure, the slower it processes transactions. Bitcoin validates about ~7 transactions per second, Ethereum before Ethereum 2.0 processed around 30 transactions per second. This limitation led to the development of sophisticated optimization techniques.

Optimization Techniques Within Layer 1

Sharding: Divide and Conquer

Inspired by distributed database architectures, sharding fragments the network into smaller sections called “shards.” Each shard processes transactions simultaneously, in parallel, multiplying total capacity. If 64 shards operate in sync, the network can achieve 64 times more throughput. Zilliqa implements “transaction sharding,” grouping transactions into batches processed by different shards. The challenge? Ensuring efficient communication between shards without creating excessive latency.

Changing Consensus Mechanisms

Proof of Work (PoW), used by Bitcoin, requires massive computational power to validate blocks. Proof of Stake (PoS) replaces mining with validators who stake guarantees on the network. The result: energy consumption drops by 99% and processing capacity increases. Ethereum 2.0, after “The Merge,” adopted full PoS. Cardano implements Ouroboros PoS, Algorand uses Pure PoS, Fantom implements aBFT (Byzantine Fault Tolerance). All achieve higher throughput with less energy.

SegWit: Optimize Data Structure

SegWit (Segregated Witness) in Bitcoin does not directly increase capacity but improves it dramatically. By separating digital signatures from transaction data, it reduces the size of each transaction by ~65%. A 1 MB block can contain more transactions, speeding up settlement and lowering fees. It is backward compatible—old nodes continue to work.

Advantages of Layer 1 Solutions

No Separate Infrastructure

Unlike Layer 2, which requires additional chains or parallel systems, Layer 1 modifies the base protocol. This means no bridge complexity, no transfers between chains. Everything happens natively.

Full Security

All transactions leverage the network’s complete consensus power. There is no dependence on third parties or specialized validators. Decentralization is preserved.

Permanent Impact

Improvements at Layer 1 are structural. Once implemented, they benefit the network permanently. They reduce congestion sustainably and lower fees.

Real Limitations

Physical Node Constraints

Each network node stores the complete transaction history. As the blockchain grows, storage and bandwidth requirements increase. Not everyone can run a full node, reducing decentralization.

Shard Congestion

Sharding creates a new problem: transactions involving multiple shards require communication between them, causing latency. Confirming cross-shard transactions takes longer and consumes more bandwidth.

Miner Dilemma

Transitions from PoW to PoS eliminate mining demand. Validators earn rewards, but the mining ecosystem shrinks, potentially reducing security through distribution.

The Strategic Role of Layer 2

Central Concept

Any technology operating over a Layer 1 blockchain to add functionalities is considered Layer 2. It does not replace the base but complements it. Layer 2 processes transactions off-chain and periodically “liquidates” the result on Layer 1, inheriting its security.

This contrasts with sidechains, which have independent security (often weaker).

Main Architectures

Rollups: Data Compression

Rollups execute hundreds of transactions off-chain, then send a single “compressed package” to Layer 1. This reduces confirmed data by 10x to 100x. There are two types:

• Optimistic Rollups: Assume transactions are valid by default. If someone disputes, the network verifies. Arbitrum and Optimism use this.
• ZK Rollups: Generate cryptographic proofs that transactions are valid before submitting, eliminating the need for a dispute period.

State Channels

Two users “open a channel” off-chain. They perform as many transactions as they want between each other, recording only the initial and final balances on Layer 1. Bitcoin’s Lightning Network exemplifies this perfectly: instant micropayments with minimal fees. Strike, a cross-border payments app, uses Lightning to send money in seconds.

Sidechains

Independent blockchains connected via a bidirectional “bridge.” They can optimize for specific use cases—speed for gaming, privacy for finance, zero cost for DeFi. Polygon PoS, Skale, and RSK are examples. Users must trust the security of the sidechain, not just Layer 1.

Concrete Examples

Arbitrum

Based on Ethereum, uses Optimistic Rollups to process transactions 10x faster with 90% lower fees. Its native token, ARB, governs the platform as a DAO. Hosts hundreds of dApps.

Optimism

Also Layer 2 of Ethereum with optimistic rollups. Its ecosystem hosts 97 protocols—Uniswap, Synthetix, Velodrome—with over $500 million in total value locked. Adding the network to MetaMask is trivial.

Lightning Network

Transforms Bitcoin from a slow currency into peer-to-peer digital cash. Merchants accept BTC without waiting 10 minutes—Lightning confirms in seconds. Strike allows sending USD to any phone globally, with fees lower than traditional banks.

Polygon

Positions itself as the “internet of blockchains”—multiple chains compatible with Ethereum exchanging value freely. Its total DeFi value reached ~$1.3 billion in June 2023. Compound and Aave run on it. NFT trading occurs with minimal fees. Polygon Studios (founded July 2021) transitions games from Web 2 to Web 3.

Advantages of Layer 2

Explosive Performance

Layer 2 transactions are confirmed in milliseconds, not minutes. This enables applications previously impossible—frequent trading, real-time gaming, continuous micropayments.

Lower Costs

Without processing the entire transaction on Layer 1, fees plummet. Operations costing $10-50 on Ethereum cost cents on Arbitrum or Optimism.

Inherited Security

Layer 2 does not create new security; it reuses Layer 1. All transactions can be verified on the base, preserving guarantees.

No Loss of Functionality

dApps run identically on Layer 1 and Layer 2. Complex smart contracts, advanced DeFi, everything works. Just faster and cheaper.

Critical Disadvantages

Liquidity Fragmentation

When users distribute capital across multiple Layer 2s, markets become thin. Ethereum needs concentrated liquidity for robust DeFi. Spreading it across Arbitrum, Optimism, Polygon reduces overall liquidity.

Limited Interoperability

A dApp on Arbitrum cannot directly call a dApp on Optimism. It requires a bridge, adding latency and risk. This hampers composability, a pillar of DeFi.

Operational Complexity

Users need to move tokens between Layer 1 and Layer 2. It requires multiple transactions, different wallets, understanding how bridges work. Friction is high.

Dependence on Layer 1

If Layer 1 becomes congested, Layer 2 also suffers—it cannot settle transactions quickly. Layer 2 is only as fast as its base allows.

Direct Comparison: Layer 1 vs Layer 2

The uncomfortable truth? Both are necessary. Layer 1 provides the reliable foundation. Layer 2 multiplies utility. It’s not or/or, but and/and.

The Transformative Impact of Ethereum 2.0

Ethereum 2.0 marks a critical inflection point. Its full transition to PoS and implementation of sharding promises 100,000 transactions per second—not 30. This would solve many Layer 1 issues.

But it does not make Layer 2 obsolete. Why? Limited composability. Even with Ethereum 2.0, different chains do not interact seamlessly. Layer 2s still offer room for experimentation and specific optimizations.

Ethereum 2.0 reduces urgency, but does not eliminate the need.

Practical Applications Transforming Sectors

Decentralized Finance (DeFi)

MakerDAO creates DAI—a stablecoin backed by Ether—via Ethereum smart contracts. The system works, but fees eat into margins on small trades. Polygon enables the same functionality at 100x less cost. Compound and Aave replicate on Layer 2, expanding access.

Payments and Remittances

Lightning Network turns Bitcoin into a payment currency. Merchants accept BTC without waiting 10 minutes—Lightning confirms in seconds. Strike allows sending USD to any phone globally, with fees lower than banks.

Gaming and NFTs

Polygon Studios catalyzes the transition of games. Reduced latency and minimal costs enable viable in-game economies. Buy a skin for 0.5 MATIC (~$0.25) instead of $5. NFT trading on Polygon costs cents, enabling markets that were impractical on Layer 1.

Continuous Innovation

Next generations explore hybrid approaches—combining Layer 1 and Layer 2 optimally. LayerZero, for example, allows apps to leverage multiple chains simultaneously, choosing where to execute each function.

Future Outlook

Inevitable convergence. Layer 1 networks will continue optimizing—sharding, improved consensus, reducing bloat. Layer 2 will proliferate—each optimized for specific use cases.

The average user? Won’t know which layer they operate on. Unified interfaces will abstract complexity. They will choose based on desired speed/cost, not technical architecture.

Mainstream adoption requires this: invisible technology, intuitive performance, negligible costs. Blockchain is heading in this direction. Layer 1 provides an unbreakable foundation. Layer 2 multiplies its utility. Together, they form an ecosystem close to solving the trilemma—decentralization, security, and scalability coexisting.

We are still at the beginning of this journey. Possibilities seem infinite.