Layer 1 Blockchain (L1)

Technologies are often built in layers that build on top of each other starting with the most fundamental abstraction layer. A layer one blockchain is the bottom floor designed for other blockchains & crypto projects to be built on top of.

Layer 2 Blockchain (L2)

A layer two blockchain is built on top of another Layer one. A popular use case for an L2 is a side-chain that solves particular scalability problems for another blockchain by processing most transactions on the L2 and then combining them in a single transaction on the L1. See “Side-chains and Roll-ups below”.

Proof of Work (PoW)

The main claim of cryptocurrency is the ability to prevent double spending of assets using a decentralized consensus protocol. Bitcoin pioneered this by introducing PoW. PoW involves nodes on the network solving a difficult & time consuming cryptographic puzzle in order to mine (create) a new block on the blockchain. The major upside to PoW is its security because nodes need to expend resources to participate in the network. Network participants are economically incentivized when they mine a new block. The downside to PoW is that it has a negative affect on the climate by using natural resources (electricity).

Proof of Stake (PoS)

An alternative consensus mechanism to proof of work. Instead of solving a computational puzzle, mining is achieved by locking up capital in the network by staking its token. Validators who have staked the token are chosen at random to validate transactions and create new blocks. Malicious or incorrect behavior is disincentivized by slashing the validator’s stake. Staked tokens usually offer interest as a return for good behavior, much like how PoW mining offers an economic incentive. In other words, good actors are incentivized and bad actors disincentivized.

Byzantine Fault Tolerance

A condition of a distributed computing system where components may fail and there is imperfect information on whether a component has failed, for example a failed validation node on a blockchain.