Lesson 4 — Layer 1: The Four Major Crypto Networks

In this lesson, we will understand Layer 1 blockchains. We will focus on four of the most important networks: Bitcoin, Ethereum, Solana and BNB Chain.

1. What Does Layer 1 Mean?

Layer 1 means the main blockchain network itself. It is the base network where transactions are processed and recorded.

Bitcoin, Ethereum and Solana are examples of Layer 1 blockchains. Each network has its own rules, technology, users and native cryptocurrency.

2. Why Do We Need Layer 1 Networks?

A blockchain needs a base network to record transactions, maintain security and allow applications or users to interact with the network.

Different Layer 1 networks are designed with different priorities. Some focus more on decentralization and security. Others focus more on speed, scalability or applications.

3. Layer 1 vs Layer 2

A Layer 2 is a system built on top of a Layer 1 blockchain. Its purpose is generally to process transactions more efficiently while using the underlying Layer 1 for security or settlement.

A simple way to understand this is: Layer 1 is the main blockchain, while Layer 2 is an additional network built to help the main blockchain handle more activity.

4. Bitcoin — BTC

Bitcoin is the original major Layer 1 blockchain. It was launched in 2009 and introduced the idea of decentralized digital money.

Bitcoin's main focus is secure and decentralized transfer and storage of value.

Bitcoin uses Proof of Work. Miners use computing power to help secure the network and process transactions.

Bitcoin has a maximum supply of 21 million coins. This limited supply is one of the reasons many investors consider Bitcoin a scarce digital asset.

Bitcoin is often compared with digital gold, although it is important to remember that Bitcoin is still a relatively new and highly volatile asset.

5. Ethereum — ETH

Ethereum is another major Layer 1 blockchain. Its native cryptocurrency is Ether, or ETH.

Ethereum is different from Bitcoin because it was designed not only for transferring value but also for running programmable applications.

These applications use smart contracts. Smart contracts are programs that run according to rules recorded on the blockchain.

Ethereum became the foundation for many areas of crypto, including decentralized finance, NFTs, token applications and many Layer 2 networks.

Ethereum uses Proof of Stake to help secure its network.

6. Solana — SOL

Solana is a Layer 1 blockchain designed for high-speed and high-throughput transactions.

Its native cryptocurrency is SOL.

Solana focuses on processing a large number of transactions with relatively low transaction costs.

This has helped Solana develop a large ecosystem of decentralized applications, trading platforms, digital assets and other blockchain applications.

Solana uses a Proof of Stake based consensus system together with technologies designed to improve transaction processing and network performance.

7. BNB Chain — BNB

BNB Chain is a major Layer 1 blockchain ecosystem closely associated with the Binance ecosystem.

Its native asset is BNB.

BNB Chain supports smart contracts and decentralized applications. It is also widely used for transactions, DeFi applications and other blockchain services.

BNB Chain is compatible with the Ethereum Virtual Machine, which makes it easier for developers familiar with Ethereum technology to build and deploy applications.

8. How Are These Four Networks Different?

Bitcoin is mainly known for decentralized digital money and its role as a scarce digital asset.

Ethereum focuses strongly on smart contracts and programmable blockchain applications.

Solana focuses strongly on high-speed and high-throughput blockchain applications.

BNB Chain provides a large smart-contract ecosystem closely connected with the Binance ecosystem.

These networks therefore compete in some areas, but they also have different strengths and use cases.

9. What Should an Investor Look At?

When looking at a Layer 1 as an investment, do not look only at the current price of its cryptocurrency.

Look at the network's users, transaction activity, applications, developer activity, ecosystem growth, token supply, valuation, security and decentralization.

Also ask an important question: Does the network have real users and real activity, or is its value mainly based on market speculation?

Key Takeaway

Layer 1 is the base blockchain network. Bitcoin, Ethereum, Solana and BNB Chain are four major Layer 1 ecosystems, but they have different designs and purposes.

As an investor, understanding the difference between these networks is more important than simply looking at which coin has gone up the most.