Bitcoin and cryptocurrency has become one of the major point in my life. The community often wonder about how bitcoin can scale to become a mainstream currency.
The inherent network speed and fees might be considered expensive and slow for small transactions, but this will be offset by the developments build on the different layers of bitcoin. Eg Layer 2. Layer 3.
Here is my interpretation of how the different layers can help improve the network, and lead us to mainstream adoption.
Layer 1: Money (bitcoin) in it’s most primitive state, in its inherent infrastructure. In this layer, we transact by sending bitcoin from our cold wallets to wallets. As we do so, we incur the network fee and slow confirmation time – hardly usable to buy a cup of coffee.
To better understand, I will write a set of analogy in the world today for each layers.
Analogy of layer 1: Money, coins and Bills in the most primitive state. To give you $10, I would have to physically go to your location to pass you the $10.
Layer 2: Individual Ecosystems formed, build on top of first layer. Till date, we have seen numerous platforms such as Crypto.com offering bitcoin as a means of payment. Payments within Crypto.com ecosystem does not mean bitcoin have to be transferred physically, it is merely a debit/credit off balance and ledger accounts. This provide better transaction speed and save on network cost.
Analogy of Layer 2: Similar to an entity like a bank (a new ecosystem). I can now bank transfer from my bank to you, but we must be of the same bank family to process the transaction. The $10 does not have to be physically delivered to your account, it is merely a debit/credit on the bank’s ledger
Layer 3: Ecosystems get integrated, allowing easier facilitation of transfer across different platforms. With multiple ecosystem being developed in layer 2, there will be a grand scheme where these ecosystem will be integrated so that users can spend their bitcoin universally.
Analogy for Layer 3: Similar to PayNow/Visa/Mastercard, I can now send $$ across any banks (all the different ecosystem)
Essentially each layer make transaction easier. No hassle of technical knowledge of how money transfers, public private keys etc
Also the layers make lesser transaction cost because money isnt really being transferred physically. Its just numbers on a ledger.
Hopefully this helps you to better understand the different layers of bitcoin. If you have more insights on this, do feel free to comment and share with me your views.
Towards a decentralized future.
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