Top 5 Things to Check Before Investing in a Layer 1 Protocol

Monday 01 March 2021, 6:13 PM AEST - 1 month ago

Individuals who may have dabbled in crypto-tech for any significant length of time would have probably come across the concept of layer 1 protocols at some point or the other. In this regard, one can think of a layer 1 solution as being the basic architectural framework of any blockchain ecosystem, with examples including prominent digital assets such as Bitcoin, Ethereum, EOS, Litecoin, etc.

Additionally, as the blockchain industry has continued to evolve at a rapid pace, an increasing number of players, both from the retail as well as institutional space, have started to adopt various layer 1 protocols. This has resulted in several issues/limitations associated with these platforms — such as poor transaction speeds, low network efficiency — coming to light and becoming increasingly more glaring. That being said, presented below are a few technical facets of any layer 1 system that everyone should carefully examine before making a significant investment in them.

1. Scalability

The first thing to consider when going big on a project is whether or not it possesses the ability to scale as the need arises. In the context of a blockchain system, the term scalability essentially refers to a project being able to process an increasing number of transactions (referred to as the TPS rate) as and when the number of users on the network starts to grow.

The problem has increasingly grabbed the attention of crypto enthusiasts across the globe, especially as Ethereum — widely considered to be one of the worlds premier crypto platforms — has continued to suffer from scalability-related issues over the last couple of years. And while the projects dev team has continually stated that once ETH 2.0 goes live in its entirely, it will mitigate any such issues, the fact of the matter remains that the platforms native transaction fees recently soared to its all-time high (ATH) on January 4, 2020.

The main thing to look for in the context of scalability is the concept of Linear Scalability. Most layer 1 protocols have an upper TPS limit which implies that if adopted they will be capped at processing only up to that maximum amount of TPS. This automatically limits the level of adoption and growth of these protocols from the get-go. Linear Scalability however describes a protocols capability to process more TPS as the network grows, making it theoretically infin ...

Read full story on NewsBTC

Disclaimer: The content and views expressed in the articles are those of the original authors own and are not necessarily the views of Crypto News. We do actively check all our content for accuracy to help protect our readers. This article content and links to external third-parties is included for information and entertainment purposes. It is not financial advice. Please do your own research before participating.