The scalability problem in the blockchain refers to the decrease in the transaction capacity in the blockchain with the increase of users participating in the blockchain. The decrease in processing capacity results in a decrease in the transaction speed of the blockchain and an increase in transaction costs. Layer solutions involve improvements to the network to address the scalability problem and increase the transaction capacity of the blockchain.
Layer 1 refers to the basic blockchain. A cryptocurrency at the Layer 1 level is the main cryptocurrency of the blockchain created for use on the blockchain. Bitcoin was the first cryptocurrency developed and is the most popular Layer 1 cryptocurrency today.
Layer 2 refers to protocols and networks that run on other blockchains. A Layer 2 cryptocurrency runs on an already existing blockchain.
What are Layer 1 Solutions?
Layer 1 solutions are efforts to solve scalability problems in blockchains and make the system more scalable. Layer 1 solutions aim to make transactions in the blockchain faster and at a lower cost.
The most used solutions to improve the blockchain with Layer 1 solutions are consensus protocol modification and sharding.
Consensus Protocol Modification:
Consensus protocols are a set of algorithms used to validate blocks in a blockchain. Modifying a blockchain’s consensus protocol is a Layer 1 solution to solve the scaling problem in the network. The Ethereum 2.0 update aims to replace the consensus protocol on the Ethereum blockchain.
Sharding:
Sharding is the process of dividing the database used to solve the scaling problem in a blockchain. In sharding, blocks in the database are divided into transaction sets. The partitioned transaction sets are organized into parallel arrays. Multiple chunks in a parallel array can be processed at the same time. In this way, transactions can be performed faster than sequential transactions and performance in the network can be increased.
What are Layer 2 Solutions?
Layer 2 solutions are efforts to solve the scalability problem in networks running on other blockchains, without making changes to the main structure of the blockchain.
Layer 2 solutions do not directly affect the structure of a blockchain. Layer 2 solutions are also called off-chain solutions because they are not implemented on the main network of the blockchain.
What is a blockchain Layer 1 vs. Layer 2?
The term Layer 1 refers to the base level of a blockchain architecture. It’s the main structure of a blockchain network. Bitcoin, Ethereum, and BNB Chain are examples of Layer 1 blockchains. Layer 2 refers to networks built on top of other blockchains. So if Bitcoin is a Layer 1, the Lightning Network that runs on top of it is an example of a Layer 2.
Blockchain network scalability improvements can be categorized into Layer 1 and Layer 2 solutions. A Layer 1 solution will change the rules and mechanisms of the original blockchain directly. A Layer 2 solution will use an external, parallel network to facilitate transactions away from the mainchain. Source: https://academy.binance.com/en/articles/blockchain-layer-1-vs-layer-2-scaling-solutions.
The term “scalability trilemma” was coined by Ethereum founder Vitalik Buterin. It is a trade-off that blockchain projects must make when deciding on how to optimize their architecture, by balancing between three of the following properties — decentralization, security, and scalability. Eg. Bitcoin wants to optimize security and decentralization, which is why they end up compromising on scalability. Source: https://medium.com/the-capital/layer-1-vs-layer-2-what-you-need-to-know-about-different-blockchain-layer-solutions-69f91904ce40
What is ERC-721?
ERC-721 is an Ethereum token standard developed on the Ethereum blockchain that uses smart contracts on the blockchain. ERC stands for “Ethereum Request for Comments” in English
What is a Non-Fungible Token?
A Non-Fungible Token (NFT) is used to identify something or someone in a unique way. This type of Token is perfect to be used on platforms that offer collectible items, access keys, lottery tickets, numbered seats for concerts and sports matches, etc. This special type of Token has amazing possibilities so it deserves a proper Standard, the ERC-721 came to solve that!
ERC-721 is a token standard for creating immutable and unique tokens in smart contracts. Tokens created with the ERC-721 standard cannot be exchanged for any other token of its type. The ERC-721 standard is used to generate NFTs on the Ethereum blockchain.
How Does the ERC-721 Token Standard Work?
The ERC-721 standard was developed by William Entriken, Dieter Shirley, Jacob Evans, and Natassia Sachs on January 24, 2018, with the EIP-721 code proposal to improve where the ERC-20 standard falls short. EIP (Ethereum Improvement Proposal) refers to proposals for improvements to the Ethereum network. Every transaction made with a token with the ERC-721 standard is added to smart contracts. The ERC-721 standard uses smart contracts on the Ethereum blockchain. With the ERC-721 standard, transactions can only be made on the Ethereum blockchain.
ERC-721 and NFT Relationship
The ERC-721 standard is used to produce NFTs on the Ethereum network. With the ERC-721 standard, users can convert their digital artifacts into NFTs on the Ethereum blockchain and obtain ownership of their digital artifacts.
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