The distinction between these levels is very simple and clear. However, understanding which digital startups to follow can be quite challenging for those who do not have any prior experience with the industry. We want to talk about the biggest crypto market trends in 2024 that revolve around L1 networks and their significance for the future of blockchain technology as a whole.
What is a layer 1 crypto?
Some of the companies in this particular sector have infrastructures that act as foundations of various contemporary online infrastructures. They provide the necessary digital infrastructure, development, and deployment frameworks, and guarantee the immutability of transactions ensuring that upper levels can work without any issues and rely on the robustness of the underlying technology.
Typically, promising L1 architectures allow for the issuance of smart contracts to power decentralized apps and the existence of tokenized assets of all kinds. Bitcoin and Ethereum are the two most prominent L1 digital assets that have been instrumental in the growth and expansion of the whole industry. While the former is often recognized as the main driving force of the whole ecosystem, the latter is cited as the best digital infrastructure for developers to deploy their Dapps and other interesting software solutions.
Here are some notable advantages of these baseline architectures:
- Security and immutability. You cannot build a sturdy house on a shaky ground. The robustness of the digital infrastructure is ensured through consensus mechanisms. The Bitcoin architecture uses PoW (proof-of-work) where users spend enormous computational resources to add new data to the ledger. Ethereum switched to PoS (Proof-of-stake) to allow stakers to bid on the opportunity to receive a reward and make a change in the digital ledger. High hash rates in PoW consensus ensure the security and robustness of the data stored on-chain.
- Democratization of finance. Many enthusiasts are quite vocal about their reasons for supporting the development of the industry as a whole. The best layer 1 blockchain networks prioritize community-driven governance. They appear transparent and fair because they are. Participants of the economy make decisions about monetary policies and future development plans. This democratic approach allows for a steady pace of development with each next step planned in advance after heated debates among educated community members.
- Scalability and high performance. Despite big promises from the best layer 2 crypto coins to solve issues related to limited throughput, L1s still have to continue improving the foundational technology to ensure growth and adoption. The current pace of improvement leaves many wanting. For example, Ethereum's average block time decreased by just 4 seconds in one year and dropped from 17 to 13 seconds. While impressive in isolation, it is a very low metric compared to traditional settlement systems that can process operations in fractions of a second. Nevertheless, current and planned L1 expansions aiming at improving performance metrics look promising.
- Growing interoperability. The flexibility and robustness of L1 infrastructures provide ample room for consistent interoperability improvements. Some solutions are even lower than the initial foundation of the industry. Polkadot is known as a level zero architecture because it serves as something that unifies technologies from the bottom-up allowing developers to build tools to increase interconnectedness, swap assets without any hassles, and quickly transfer data.
Due to the critical role of the best layer 1 crypto projects, their strength defines the market sentiment. For example, one of the most prominent technical indicators in our speculative market is Bitcoin dominance. It measures the size of the BTC market cap and compares it to the sum of evaluations of the next 50 biggest coins. All foundational structures that form the basis for the industry in its current form have a level of importance hard to overestimate.
Layer 1 vs. Layer 2 blockchain
There is a reason why many L2 tokens are less valuable than l1 crypto tokens. Upper levels are often limited in functionality and ultimately depend wholly on the stability and popularity of underlying L1 networks. This dependence dramatically decreases the potential of many L2 tokens to take off and dominate the market. Nevertheless, they are hugely important and provide meaningful utility which often even the finest of the contemporary technological solutions lack.
Here are some differences between L1 and L2 that you should be aware of:
- Base and scale. L1s are foundational protocols that allow for all operations to be directly recorded in the ledger of the main net. On the contrary, L2s hope to unlock the scalability potential of the underlying architecture through solutions like the Lightning Network and Optimistic Rollups.
- Transaction speeds. Everything on the base level is considerably slower compared to L2 which often uses off-chain and side-chain infrastructures to expedite all procedures. Note that Bitcoin and Ethereum are often considered as value storages while L2 tokens are prized for their utility.
- Cost of moving assets. When working within the Bitcoin or Ethereum architectures, operational costs can reach crazy numbers. For example, in 2021 gas fees on Ethereum reached $70. L2 solutions reduce fees and attract users by offering more efficient on-chain economics.
- Security and immutability of data. As mentioned previously, layer 2 coins derive their security and safety from the underlying digital environment. It is the reason why the best layer 1 crypto in 2024 is still Bitcoin. It is the most secure protocol using the PoW consensus mechanism.
- Smart Contract deployment. Many L2 DeFi platforms cannot issue smart contracts directly on the mainnet. They are limited to interacting with the underlying blockchain making them quite limited in terms of what they can do for users.
- The last word. The problem with many L1s is that they settle all asset movements and carve them into digital stones. They offer only the finality of all operations with results recorded in the mainnet ledger later on without any additional functionality. It is the reason why many enthusiasts prefer holding their capital in assets deployed directly on the first, initial level.
For many users of cryptocurrencies, the functional difference between the two levels does not exist. Average users still send assets to secure addresses, enjoy the same level of security, and do not have to think about interoperability and scalability. However, retail investors should be aware of the dependence of the second architecture built on its foundation.
How to choose a Layer 1 blockchain for investment
Finding the right digital asset to invest in can be challenging even for experienced veterans who know everything about the industry and can name all L2 protocols deployed on all existing mainnets from the top of their heads. The variety of tokens in the b from the top of their heads. The variety of tokens available to retail traders is mind-boggling. Sorting through the rich catalog of available coins can take weeks and then some.
Despite the oversaturation of the market, you can still make informed decisions based on your investment preferences and risk style. Below are some factors to consider when choosing from top layer 1 crypto coins:
- Investment lifespan. If you want to use your money and make it work, our industry does not leave you much choice in terms of long-term investments. Bitcoin and Ethereum always pop up in any conversation about which financial instruments should be targeted by conservative investors. People who do not have decade-long investment plans may consider Polkadot, Cardano, and Avalanche as viable targets for capital allocation. Each improvement of these networks bumps the price of corresponding tokens.
- Risk style. Retail traders with high-risk tolerance can make riskier bets and look into Tron, Toncoin, Kaspa, or Hedera. These are tokens of baseline architectures that attract developers by offering convenient tools and easier access to infrastructure ensuring faster deployment cycles and excellent methodologies for rapid expansion and improvement of performance metrics. On the other hand, prices for these coins may fluctuate wildly. Conservative investors should pick something that has more stability. Again, Bitcoin and Ethereum work well as targets for people with low-risk tolerance.
- Long-term aspirations. It is important to buy digital assets issued by reliable and already tested by time startups that have solid roadmaps and achievable goals. Cardano failed to deliver impressive results over its entire existence despite promising them consistently. On the other hand, its rival Ethereum managed to clear some important milestones like improving throughput and switching to PoS without any issues. Some emerging layer 1 blockchain in 2024 does not have a clear path to widespread adoption, large scale, and infrastructural capacity to host a diverse infrastructures withotu any central authority.
- Ethical preferences. The Proof-of-Work consensus mechanism is harmful to the environment. The amount of power it requires to work is just staggering. If you think about ecology and the effect of your investments on Mother Nature, it is a good idea to stick to systems that operate with the PoS mechanism which is drastically better for the environment.
- Investment method. Active retail traders should focus on strategies they know well. DCA buying is a great way to acquire assets at a discounted price. Those who prefer running a crypto trading bot to execute strategies like DCA should target assets with a bigger potential for long-term appreciation and high liquidity (Bitcoin is a perfect example). On the other hand, retail investors interested in staking should focus on Ethereum, Cardano, and other PoS ledgers.
Pick the perfect fit for your portfolio based on personal preferences, risk tolerance, ethics, and other factors, but don’t forget to do your due diligence and research each token before investing.
The list of layer 1 crypto projects to keep track of in 2024
While the selection of L1 protocols is much narrower than L2s, you can still spend a lot of time researching each and every one of most promising speculative assets in this particular sector. We have several candidates for your portfolio below.
Bitcoin — still the biggest and scariest
$BTC is the face of whole industry. This token is the golden standard against which all other coins in the market are constantly compared. Despite facing many “Bitcoin killers” during the last decade, it remains on top of the proverbial food chain and dominates the market with an impressive $1.32 trillion market cap at the time of writing.
Bitcoin is certainly the best target asset for conservative investors who want to run a DCA buying strategy and accumulate appreciating resources for long-term holding. Bitcoin is the oldest and the best by many metrics L1 in the whole industry and has the biggest potential to achieve widespread adoption in the near future.
Ethereum — the pioneer of smart contracts
This digital environment invented the idea of smart contracts, micro software programs that can be used for all sorts of purposes by developers of Dapps. Right now, Ethereum is the largest host of democratized ecosystems like DeFi projects. As the leader of the sector, Ethereum provides the necessary digital infrastructure for decentralized exchanges, lending services, and more.
The switch to the proof-of-stake consensus mechanism introduced the concept of staking to the community of retail investors who previously did not see any value in actually holding digital assets due to high volatility. With the introduction of PoS, many conservative investors started allocating capital in ETH stakes.
Cardano — the main rival of Ethereum
One of the missions of the Cardano layer 1 network is to outperform Ethereum on all possible levels. It has been unable to do so for many years. Nevertheless, it is still a versatile decentralized environment that has a strong focus on academic research and scientifically sound development processes. Native smart contracts allow for more complexity compared to other systems and ensure that developers have their hands free when building solutions on the mainnet.
As one of the most promising foundational frameworks, it also strongly emphasizes the importance of democratic governance with fully decentralized yet transparent decision-making. If you want to support innovation, investing in ADA can be a great way to give Cardano a much-needed boost.
Avalanche — fast and furious
$AVAX is doing quite fine and hovers just above the $1.28 billion market cap at the time of writing. Many hopeful optimists believe that Avalanche has the biggest potential to quickly outpace competing peers that also hope to capture some of the market share thanks to its high throughput and low latency. The Avalanche architecture is capable of communicating with other ledgers, supports smart contracts, and has a dedicated community.
The digital environment promises to scale quickly and deliver an excellent experience to Dapps developers. The trajectory of the development seems to be appropriate. Nevertheless, it is a startup with some shaky foundation that you should approach with caution.
Solana — another Ethereum killer
Just like Cardano, the developers of Solana are aiming at Ethereum and want to take its spot in the market and industry. Solana has high throughput numbers, low operational costs, and a strong on-chain economy. The ecosystem is growing rapidly with new development teams joining regularly to create unique DeFi solutions that ensure faster lending, secure money transfering, and more.
The unique Proof-of-History consensus mechanism ensures high operational speeds and quick resolution of conflicts while providing a high level of security and data stability. The SOL token has a respectable $68 billion market cap and is ranked 4th among the most popular and possibly best by market cap and trading volume.
How to invest in the top layer 1 crypto projects
While it is possible to use a wide variety of investment techniques to allocate capital directly in target digital assets issued by L1s, there are two most prominent ways to do so:
- Buying tokens. Active retail trading is quite easy with the advent of automation. You can set up an AI crypto bot that will arbitrage your favorite tokens or buy them during opportune moments to reduce average acquisition costs. You can also adhere to a simple DCA strategy and buy manually. What is important is that you must hold coins since investments in L1 tokens must be long-term.
- Staking tokens. Earning passive income with staking is a new opportunity for retail investors interested in exciting, novel types of capital allocation. Several prominent players in the industry among L1s decided to use PoS and allow users to stake their tokens for a chance to receive a reward. Cardano and Ethereum are prime examples of such architectures.
Regardless of which method seems preferable to you, it is important to do your due diligence and research target assets that you like. While they serve as foundational blocks of the industry, some of them are in a better shape and position to bring you high returns. Pick assets that have a bright future, robust existing infrastructure, and a sound roadmap.