Layer 1 vs Layer 2: What's the Difference in Blockchain Architecture?
As of October 13, 2025, the total value locked (TVL) across all blockchains has surged to an impressive $155.56 billion. This figure, however, reveals a multi-layered ecosystem. It is dominated by Layer 1 (L1) blockchains, which hold a $137.7 billion TVL, commanding an 88.52% market share with $44 billion in 24-hour trading volume.
In contrast, the Layer 2 (L2) ecosystem accounts for the remaining 11.48%, with a $17.86 billion TVL and $5.24 billion in 24-hour trading volume.
This data highlights a crucial point: the crypto market is not a single entity but a layered architecture designed to solve critical challenges. Understanding the difference between L1s and L2s is key to grasping how blockchain is preparing for mass adoption.
Today, we'll deep-dive into the fundamental differences between Layer 1 and Layer 2 blockchains, how they work, and why this matters for the future of crypto. Let's get started!
What Are Layer 1 Blockchains?
Layer 1 blockchains are the foundational or base-level networks that form the core of a crypto ecosystem. Think of them as a main highway system; they are the main blockchain architecture, acting as the ultimate source of truth and settlement layer where all transactions are finalised.
Their primary responsibilities are to maintain the network's security, ensure decentralisation through a distributed network of nodes, and reach agreement on the state of the ledger via a consensus mechanism, with Proof-of-Work and Proof-of-Stake being the most common examples. Prominent Layer 1 blockchains include Bitcoin, Ethereum, and Solana. With their collective $137.7 billion TVL, they command an 88.52% market share, underscoring their dominance.
The main benefits of L1s are their high security and robust decentralisation. However, this strength comes with a trade-off known as the Blockchain Trilemma or Scalability Trilemma. Early L1s like Bitcoin and Ethereum prioritised security and decentralisation at the expense of scalability. This can lead to bottlenecks during periods of high demand, resulting in network congestion, slow transaction speeds (Bitcoin handles around 7 transactions per second, compared to Visa's 24,000 TPS), and high gas fees. These inherent limitations directly led to the development of Layer 2 solutions.
What Are Layer 2 Blockchains?
Layer 2 blockchains are secondary protocols or frameworks built on top of an existing Layer 1 blockchain. Their primary purpose is to solve the L1's scalability problem. Continuing the highway analogy, L2s are like express toll lanes or service roads built alongside the main highway to alleviate traffic.
The core concept is that L2s process transactions off-chain—away from the L1 mainnet—and then bundle them together before sending the final, compressed data back to the L1 for settlement. This is crucial: Layer 2s inherit the security and decentralisation of their parent L1 chain, rather than providing their own.
Well-known Layer 2 solutions include Arbitrum and Optimism, which scale Ethereum, and the Lightning Network, which scales Bitcoin. Their growing importance is clear from the data: with a $17.86 billion TVL, an 11.48% market share, and over $5.24 billion in daily trading volume, they are a vital part of the ecosystem. Their key benefits are dramatically increased transaction speeds, significantly lower fees, and reduced congestion on the main L1 network.
While there are different technical approaches, the main categories of L2 solutions include rollups (both optimistic and zero-knowledge), sidechains, and state channels.
Layer 1 vs. Layer 2 Blockchains: The Ultimate Comparison
The following table breaks down the key distinctions between the two layers, offering a clear comparison of the roles, features, and trade-offs of Layer 1 and Layer 2 blockchains:
| Factor | Layer 1 Blockchains | Layer 2 Blockchains |
|---|---|---|
| Definition | The foundational, base-layer blockchain protocol (e.g., Bitcoin, Ethereum). | A secondary framework built on top of a Layer 1 to improve scalability (e.g., Arbitrum, Lightning Network). |
| Purpose | To provide the core infrastructure for security, decentralisation, and final transaction settlement. | To scale the Layer 1 network by processing transactions off-chain, enabling faster speeds and lower fees. |
| Current TVL | $137.7 billion | $17.86 billion |
| Market Share (TVL) | 88.52% | 11.48% |
| 24-Hour Trading Volume | $44 billion | $5.24 billion |
| How They Work | Processes, validates, and finalises all transactions directly on its own blockchain (on-chain). | Bundles transactions off-chain and submits a compressed summary to the Layer 1 for final settlement. |
| Scalability | Limited by the Blockchain Trilemma. Can be scaled via on-chain methods like sharding or consensus upgrades. | High scalability. Achieved through off-chain solutions like rollups, sidechains, and state channels. |
| Speed | Slower, can become congested during high demand (e.g., 7-15 TPS for BTC/ETH). | Significantly faster, capable of processing thousands of transactions per second (TPS). |
| Efficiency | Less efficient due to the need for every node to process every transaction. | More efficient by offloading the transactional burden from the main chain. |
| Security | Sovereign; responsible for its own security through its consensus mechanism. | Inherits all security guarantees from its parent L1. Relies on the L1's validators/miners for protection. |
| Decentralisation | Generally higher, with a large, distributed network of validators or miners. | Can be less decentralised, sometimes relying on a smaller set of operators (sequencers) to order transactions. |
| Limitations | Faces the scalability trilemma, leading to high fees and slow speeds under heavy load. | Dependent on the underlying Layer 1 for security; introduces new complexities like bridges and sequencers. |
| Gas Fees | Higher and more volatile, often becoming very expensive during network congestion. | Significantly lower and more predictable, often just a fraction of Layer 1 fees. |
| Potential Risks | 51% attacks, network congestion leading to unusability, protocol bugs. | Smart contract vulnerabilities, bridge exploits, sequencer failure/censorship, data availability issues. |
A Symbiotic Relationship, Not a Rivalry
Layer 1 blockchains provide the essential foundation of security and decentralisation, which is non-negotiable for a trustless system. Layer 2 solutions then build upon this foundation to deliver the speed and low costs necessary for applications to scale and reach a mainstream audience.
The two blockchain layers are not competitors but rather partners in a symbiotic relationship. This layered, modular approach is widely seen as the most promising path for blockchain technology to solve the scalability trilemma and achieve global adoption without compromising its core principles.
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate. VALR (Pty) Ltd is a licensed financial services provider (FSP #53308).
Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.