Layer 1 vs Layer 2 Cryptocurrencies: What’s the Difference?

This article explains how base chains and scaling networks differ and why that matters for anyone using blockchain today.

The main split is simple: one option changes a primary chain’s code to handle more activity, while the other moves work off the main book and posts summaries back for final validation. You will learn where transactions are processed, how security is kept, and why fees and speed vary across networks.

We use clear definitions here: the base chain executes and validates on the main ledger; the scaling network offloads and then settles back to that ledger. Examples include Bitcoin, Ethereum and Solana on the base side, and Arbitrum or the Lightning Network as off-chain approaches.

Expect practical guidance: when to favor the main chain for settlement and security, and when an off-chain route makes sense for cheaper, faster transfers.

What “layers” mean in blockchain architecture

Think of blockchain as a multi-story building where each floor handles a different job. Developers use this layered view to separate infrastructure, data, consensus, and apps so systems stay modular and easier to upgrade.

Common mapping:

• Layer 0 — infrastructure and networking.
• Layer 1 — the primary data chain, the canonical ledger.
• Layer 2 — networking and off‑chain scaling that posts summaries back to the base.
• Layer 3 — consensus helpers and coordination.
• Layer 4 — user-facing applications and services.

In practice, many people call the primary blockchain the base layer and call anything built to scale it a secondary network. That shorthand causes confusion about where funds move and which protocols protect them.

Mental model: the base layer is the final record; the secondary systems speed up throughput but still rely on the base for settlement in most cases.

For a clear primer on scaling and these roles, see this guide on blockchain scaling and an overview of off-chain approaches.

Blockchain scalability and why it matters for transactions

A network’s ability to scale shapes transaction speed, costs, and everyday usability. In practical terms, blockchain scalability means a network can handle higher transaction volume without long delays or big fees.

Congestion, throughput, and transactions per second on popular blockchains

When demand outpaces block capacity, congestion forms. Pending transactions queue up and users often pay higher transaction fees to get included sooner.

Developers cite transactions per second (TPS) to compare systems, but TPS is only one metric. Finality time, costs, and user experience also affect real-world performance.

Many public blockchains process around four to seven transactions per second, while Visa handles thousands per second. That gap shows why better scaling matters for mainstream use.

The blockchain trilemma: scalability vs security vs decentralization

The trilemma frames a hard tradeoff: boosting speed can weaken security or reduce decentralization. Different designs accept different compromises.

• Base-protocol upgrades change the core chain to raise throughput.
• Off‑chain approaches move processing off the main ledger and post summaries back.
• Choosing the right option depends on your priorities: cost, speed, or long-term security.

The key question is not which approach is best universally, but which best matches your security, cost, and performance needs.

Layer 1 vs Layer 2 Cryptocurrencies: the core differences

The clearest way to compare them is to follow a transaction from execution to permanent storage. That lifecycle exposes where work happens, who verifies it, and where the record ends up.

Where transactions are executed, validated, and stored

Base protocols execute and confirm transactions directly on the main ledger. Examples include Bitcoin, Ethereum, and Solana, which all write data on‑chain for finality.

Scaling networks run execution off the main ledger, then submit compressed proofs or summaries back to be validated and stored. This keeps the base layer as the ultimate source of truth.

How each approach increases network speed and processing capacity

On the base protocol, teams raise throughput by changing protocol rules—bigger blocks, faster times, or consensus upgrades.

Off‑chain approaches raise capacity by moving activity away from the main blockchain and reducing what must be posted back. That lowers fees and improves speed for users.

What “settlement on the main chain” means in practice

Settlement happens when the base ledger becomes the canonical record of balances and ownership, even if most actions ran elsewhere.

When evaluating a scaling network, check how it posts data back, which security guarantees it inherits, and the dispute path for fraud or rollbacks.

• Execution: where the transaction runs.
• Validation: who verifies correctness.
• Storage: where the permanent record lives.

For a practical primer on these tradeoffs and how off‑chain systems tie to the base layer, see this guide on what are layer1 and layer2 blockchains.

How Layer 1 blockchains scale on the base layer

Improving throughput at the base is about making the core blockchain do more work instead of shifting it elsewhere. That approach changes code and consensus so the main chain can handle higher demand while keeping final settlement on the base layer.

Consensus mechanism upgrades: Proof of Work vs Proof of Stake

Proof of Work selects miners by compute power. It is battle-tested but often resource‑intensive and slower for confirmation times.

Proof of Stake picks validators by stake. It usually improves processing efficiency and lowers energy use while aiming to retain strong security.

Protocol-level changes: block size, block time, and throughput

Teams tune block size and block time to raise throughput. Bigger blocks or shorter times speed transactions but can increase node hardware needs and press decentralization.

Sharding and parallel processing on the main blockchain

Sharding splits the ledger into parallel pieces so different nodes process different transactions. This multiplies capacity but adds complexity for cross-shard data and consensus.

Example: Ethereum’s Merge and what it enabled for future scaling

The Ethereum Merge (2022) moved consensus from PoW to PoS by uniting the Beacon Chain with the execution chain. This change reduced energy use and set up a roadmap for further scaling upgrades, like sharding and other protocol improvements.

• Tradeoffs: base upgrades are powerful but hard to coordinate and can take time to deploy.
• Why Layer 2 still matters: even improved base capacity may not meet peak demand, so off‑chain scaling solutions remain important.

How Layer 2 scaling solutions work on top of a Layer 1 network

Scaling solutions move high-volume work off the main blockchain so the base can stay secure and compact.

Core idea: secondary networks execute many transactions, then post compact proofs or summaries back to the base layer for final record keeping.

The user experience is simple: you transact quickly on the secondary system, then rely on the main chain for final settlement and guarantees. That split lowers transaction fees and improves speed for frequent activity.

State channels open a channel, allow instant transfers between participants, and close by submitting the final state to the main chain. They suit microtransactions and repeat payments.

Sidechains and nested networks run their own consensus to boost throughput. They bridge assets and may periodically anchor outcomes back to the base for added assurance.

Rollups batch many actions into a single on‑chain submission, shrinking on‑chain load while keeping most validation off the base.

As an example, the Lightning Network aimed to speed Bitcoin payments. Adoption and user experience limited its impact on average TPS, which shows design and uptake both matter.

For a clear comparison of rollups and sidechains, see rollups vs sidechains.

Smart contracts and protocols that power Layer 2 solutions

Smart contracts act as the automated backbone for many scaling networks. They are self‑executing programs on a blockchain that enforce rules automatically. Once deployed, their logic is transparent and immutable.

Why they matter: smart contracts coordinate deposits, validate state changes, and trigger settlements back to the base protocol. That automation reduces manual checks and speeds processing.

Cost and speed benefits: by batching and compressing many transactions into single commitments, these contracts lower transaction fees and improve perceived speed for users.

Integration can be complex. Bridges, differing network confirmations, and varied runtime settings create friction. Users must learn when a transfer is final versus pending settlement.

• Common challenges: wallet compatibility, cross‑network liquidity, and occasional downtime.
• Security note: final guarantees often come from the base chain, while some risk rests on contract correctness and operator assumptions.
• Practical tip: check audits, withdrawal paths, and dispute mechanisms before moving assets.

Pros and cons: Layer 1 vs Layer 2 for security, decentralization, and cost

Deciding which approach fits your needs means weighing clear tradeoffs. Some systems favor strong base guarantees and broad decentralization. Others favor faster processing and lower costs by moving work off the main chain.

Layer 1 tradeoffs: stronger base security vs slower transaction processing

Pros: Processing directly on the base layer gives top‑tier security and data integrity.

Wide adoption also boosts resilience and long‑term support from the community.

Cons: The tradeoff is limited scalability. Congestion can slow confirmations and raise transaction fees.

Layer 2 tradeoffs: scalability gains vs dependence on the main chain

Pros: Off‑chain scaling solutions offer major gains in scalability, speed, and lower per‑transaction cost. They can leverage the base for final settlement.

Cons: These networks add integration complexity and can introduce centralization points like sequencers or bridge operators.

Users rely on the main chain for dispute resolution, so outages or high fees on the base layer can still affect secondary workflows.

• Security guarantees: base validation minimizes extra trust assumptions.
• Performance: off‑chain systems boost speed and cut fees for high-volume activity.
• Operational risk: bridges, operators, and withdrawal delays create practical differences between networks.

Bottom line: choose the main chain for high-value settlement and maximum security. Choose scaling solutions when you need fast, low‑cost transactions at scale.

Choosing the right layer for your needs as a crypto user or builder

Match your use case to the network that best balances security, cost, and speed. Start by deciding how much value you place at risk and how often you will move funds.

When main settlement is the smart choice

Opt for the base chain when you need top-tier security, long-term custody, or broad liquidity. High-value settlement, permanent records, and strong decentralization favor this path.

Bitcoin and Ethereum serve well here. Solana also acts as a base protocol with a different performance tradeoff.

When off-chain scaling fits better

Choose secondary networks for frequent transactions that need low cost and fast feedback. Trading, gaming, and microtransactions benefit from lower transaction fees and higher throughput.

Keep in mind these systems still rely on the main blockchain for final settlement and can add UX complexity.

Real-world examples and builder considerations

Examples: Bitcoin and Ethereum are primary settlement chains; Arbitrum scales Ethereum; the Lightning Network targets Bitcoin payments. Adoption and tooling shape real performance.

• Decision factors: value-at-risk, required security, desired cost, expected volume, tolerance for complexity.
• Builder notes: check developer tooling, smart contract compatibility, and bridging/liquidity needs.
• Operational best practice: always know where funds reside, how withdrawals work, and which security model you accept.

Conclusion

Blockchain growth relies on a mix of main‑chain upgrades and add‑on networks that ease pressure on the ledger.

In short, changing the base protocol boosts on‑chain capacity, while secondary systems move many transactions off the ledger and settle summaries back to the main chain.

Scalability matters because it affects processing speed, transaction fees, and whether blockchain technology can handle mass adoption.

The tradeoff is clear: choices balance security, decentralization, and performance. Different projects prioritize different points along that spectrum.

Practical tip: evaluate any scaling solution by its settlement path to the main chain, its trust assumptions, and daily UX — wallet support, bridges, and cost.

Expect ecosystems to pursue both base upgrades and scaling solutions as demand grows.