Understanding Blockchain Layer 1: The Essential Foundation of dApps

Before Web3 platforms in sectors such as decentralized finance (DeFi), gaming finance (GameFi), and non-fungible tokens (NFTs) reach cryptocurrency users, they have to first be built as a decentralized application (dApp) on a Blockchain Layer 1, which serves as the foundational infrastructure of the entire chain. This is why Layer 1 cryptocurrencies have experienced the strongest growth and are consistently recognized by investors.

How Blockchain Layer 1 Works

In the blockchain world, dApps refer to applications that operate in a decentralized manner, unlike Web 2.0 apps, which are centralized. These apps are built for emerging sectors such as DeFi, GameFi, or NFTs. One fundamental difference between Web 3.0 and existing systems is the ability for the user to earn tangible assets by participating.

When developing these dApps, developers do not need to create a new blockchain from scratch. Instead, they can use an existing blockchain, saving time and costs while benefiting from support from the blockchain’s developers. One example is Ethereum, which is the most widely-used blockchain. Over the years, DeFi platforms originally built on Ethereum such as UniSwap and Aave have established their respective reputations and value on this chain. Through the computing power of the Ethereum Virtual Machine, dApps have been built to work by executing smart contracts through this software. 

Smart Contracts enabled dApps to function without needing a central authority. This allows users or communities to collaborate on platform development without intermediaries by simply logging into the platform using their unique wallet that can only access that particular blockchain. For example, when you perform a function on a dApp, such as making a move on a game or swapping a token, you’ll need to “sign” on a popup window to confirm the transaction. That is a smart contract.

How Competitive is the Blockchain Layer 1 Market?

Blockchain Layer 1 acts as the infrastructure for dApps. Therefore, to attract developers to use a specific blockchain, the platform must offer compelling advantages, such as low transaction fees or gas fees, along with faster transaction speeds. These features, along with unique characteristics that competitors cannot replicate, help strengthen the ecosystem. 

Which Coins Belong to Blockchain Layer 1?

Coins within this group can be used to pay transaction or gas fees, as well as to vote on policies that drive changes within the blockchain. As more people use a specific blockchain, the demand for that blockchain’s coin rises, potentially increasing its value.

The coins in this category start with Ethereum, the pioneer blockchain for dApps since the ICO era. Other notable competitors that boast faster speeds and lower fees include Cardano (ADA), Polkadot (DOT), Solana (SOL), Avalanche (AVAX), The Open Network (TON), Near Protocol (NEAR) and more.

How to Analyze Coins in Blockchain Layer 1?

When analyzing which blockchain will attract more users, various factors must be considered, including the number of dApps in the system and on-chain transaction data. One key metric is Total Value Locked (TVL), which indicates the value of investments made through dApps on a blockchain.

Other indicators include revenue and fees generated on the blockchain, which reflect the level of activity within the dApp. More activity leads to higher demand for the blockchain’s coins. Additionally, analyzing tokens created on the blockchain or popular dApps in the market can help determine their potential.

Coins in the Blockchain Layer 1 category are highly attractive to cryptocurrency investors due to their stability. However, competition is fierce. To successfully analyze and invest in these coins, one must consider a range of factors.

References

• https://cointelegraph.com/learn/articles/a-beginners-guide-to-understanding-the-layers-of-blockchain-technology  
• https://www.investopedia.com/what-are-layer-1-and-layer-2-blockchain-scaling-solutions-7104877  

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