21: Bitcoin’s Layers

Remember when we discussed the Blockchain Trilemma in “3: The Blockchain Trilemma” which outlined how every blockchain could only pick 2 out of the 3 to fully address/prioritize?

Maybe you wondered what happened to the concern/vertex that wasn’t picked?

Well, the answer is that it is addressed in a different “layer.” The base layer of a blockchain is called L1. The layer on top is called, the L2/Layer 2, as you might guess.

For a visual, here’s a quote from Michael Saylor:

“You’re going to want to build your buildings on a solid footing of granite, so bitcoin is made to last forever — high integrity, very durable.”  — Michael Saylor, CEO of MicroStrategy

In the case of Bitcoin, Bitcoin is incredibly secure and incredibly decentralized. However, an L2 is needed to address the issue of scalability. This L2 is called the Lightning Network (we will go more in depth later).

Here’s some numbers:

• Bitcoin L1 transactions per second (tps): 7~

• Ethereum tps: 20,000~ but 100,000~ (soon?)

• Visa tps: 24,000~

• Lightning Network tps: 1,000,000~

*As an aside, with these numbers in mind, it’s a good time to mention that Bitcoin uses 56x less energy than the entire traditional banking system combined and can process 41x~ more tps than Visa.

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Now, you might wonder if there are more layers? The answer is yes. To be honest, don’t hold me to the break down that follows, but here is a rough allocation:

L1: Bitcoin Network

• “base layer, or the underlying infrastructure of a blockchain. Also known as the main network or “mainnet,” it not only defines the core rules of the ecosystem, but can also validate and finalize transactions” - source

L2: Lightning Network, Liquid Network, Rootstock (RSK), Stacks 

• “reduce bottlenecks with scaling and data” - source

L3: (Lightning) Wallets

L4: Centralized Exchanges (can withdraw) e.g. Coinbase

L5: Centralized Exchanges (cannot withdraw, per say) e.g. Grayscale