Ethereum, smart contracts and altcoins
Altcoins: Layer 1 vs Layer 2
4 min
Beyond Bitcoin and Ethereum lie thousands of other cryptocurrencies, loosely called altcoins (alternative coins). A useful way to organise the most important ones is by which layer they operate on.
Layer 1: base blockchains
A layer-1 is a blockchain that is its own settlement layer with its own consensus and security — Bitcoin and Ethereum are the largest, and others (such as Solana, Cardano, Avalanche and many more) compete by making different trade-offs around speed, cost and decentralisation. Each typically has a native coin used to pay fees and secure the network.
The recurring theme is the trilemma from earlier: a chain that is faster or cheaper has usually traded away some decentralisation or security to get there. There is rarely a free lunch.
Layer 2: built on top
A layer-2 is a separate network that processes transactions off a layer-1 but inherits its security by settling back to it — the Lightning Network is Bitcoin's example, and rollups are Ethereum's main approach. Rollups bundle many transactions off-chain and post a compressed proof or record to Ethereum, giving much lower fees while leaning on Ethereum for final security.
A word of caution on the altcoin universe
There are tens of thousands of altcoins, and the large majority have little use, little liquidity, or fail entirely. The existence of a coin says nothing about its quality. Treat the long tail with deep skepticism; the categories that follow (stablecoins, memecoins, privacy coins) each carry their own distinct risks.
This content is for educational and informational purposes only and is not investment, financial, tax or legal advice. Trading and investing carry risk, including the possible loss of capital. Any performance shown by third-party tools is hypothetical and not a promise of future results. Do your own research and consider professional advice before making any decision.