Author:PeterG

1. Bitcoin ecosystem assets, led by Sats, are the first wave, setting off Fair Launch Community驱动、公平造富的财富神话 2、为构建比特币生态而生的新基建——BTC L2是第二波。BTC L1玩法太有限，必需更高性能、更具拓展性的BTC L2来构建生态。 3、基于BTC L2开始出现大量BTC生态应用，这是第三波。 目前正处于1-2阶段的过渡时期。

This article will try its best to avoid obscure professional terms and formulas, and strive to outline the overall picture of Bitcoin Layer2 ecology in an easy-to-understand way. At the same time, the author will analyze from the perspective of ecological landing, what type of BTC Layer2 is more likely to succeed? First of all, what is BTC Layer2? And what success factors should a BTC Layer2 that can be implemented have?

The essence and design principles of BTC L2

BTC L2 is essentially the same as ETH L2, both are decentralizedXiaobai NavigationCross-chain + a high-performance smartcontractThe core meaning of the network is that high-performance scenarios and applications that cannot be achieved on L1 can be switched to L2. Therefore, a feasible BTC L2 is essentially composed of two parts: the ability to cross-chain BTC on Bitcoin L1 to L2 in a decentralized manner, and then enable BTC on L2 to implement a series of complex smart contract application scenarios.

On the other hand, the mainstream L2 of ETH, whether ARB, OP or ZKsync, also follows the same design principles, and BTC L2 is no exception. Based on the above consensus, we can further conclude that a successful BTC L2 must at least follow the following design principles:

1. Will BTC cross-chain to L2 in a decentralized manner?

2. Can BTC L2 gain consensus and support from L1 mainnet users?

3. Is BTC L2 friendly enough for developers and users?

1. Will BTC cross-chain to L2 in a decentralized manner?

The first step for users to use L2 is to transfer assets from L1 to L2. Is this process decentralized and sufficient?Safety, which determines the asset scale of L2 and directly determines the life and death of L2. Before Bitcoin's Taproot upgrade, Bitcoin could not achieve true decentralized cross-chain. Most BTC running on other chains adopted centralized packaging or multi-signature solutions to achieve

For example, RenBTC uses multi-signature to achieve this (later stopped running due to team problems), while WBTC relies on the company BitGo for endorsement. The so-called BTC L2 that was born before 2021 did not achieve true decentralized cross-chain, so the BTC L2 ecosystem has not grown.

However, Bitcoin's Taproot upgrade in 2021 brought Schnorr signature and Musig2 aggregate signature technology, which laid the technical foundation for decentralized BTC cross-chain.

2. Can BTC L2 gain consensus and support from L1 mainnet users?

Since L2 is an extension of L1, L2 relies on L1. At the same time, L2 can also feed back and benefit L1. Whether the operation of L2 network is based on L1 main networkTokenGas is almost the only criterion for judgment.If the Layer2 network only uses L1 as a data backup layer, L2's economic system and GAS tax will not bring any benefit to L1 and will inevitably fail to gain support from L1.

This is no different from rebuilding a new L1, and the difficulty of success can be imagined. At present, the mainstream Layer2 of the Ethereum ecosystem uses ETH as GAS, while some projects in the Bitcoin ecosystem that claim to be BTC Layer2 do not use BTC as GAS. Therefore, none of them have achieved good development.

Therefore, whether BTC Layer2 uses BTC as GAS determines whether Bitcoin can be obtained.Communityconsensus and support.

3. Is BTC L2 friendly enough for developers and users?

The core significance of L2's existence is to help L1 expand its applications and scenarios, so that functions that were originally impossible to achieve in L1 can be easily and conveniently implemented in L2. Therefore, the development language and entry threshold of L2 should be as friendly as possible to developers and users.

If the design of L2 is too complicated or the entry threshold for developers and users is too high, it will be difficult for L2 to realize its true expansion value.

As we all know, smart contract developers in the entire Crypto field have grown and expanded in the EVM ecosystem. According to public data, there are about 400,000 smart contract developers in the world in 2022, of which 80% and above are EVM developers. Therefore, we see that most successful L1 and L2 are started in an EVM-compatible way, while most L1s that are not EVM-compatible face the problem of difficulty in expanding the ecosystem due to high migration costs for developers and users.

Therefore, whether it is Bitcoin Layer2 or Ethereum Layer2, whether it is compatible with EVM is not just a question of choosing a development language, but a strategic issue involving whether Layer2 can truly help Layer1 achieve ecological prosperity. Layer2 should consider how to quickly acquire developers and users, and should consider reality and implementation more, rather than blindly pursuing so-called native and showy skills.

Most successful Ethereum L2s have chosen to be compatible with EVM, while many Bitcoin L2s have been promoting so-called Bitcoin fundamentalism or so-called orthodoxy and refused to be compatible with EVM, instead adopting some more niche programming languages and development environments. This is one of the important reasons why Bitcoin L2 has not developed.

Based on the above BTC L2 design principles, let’s take stock of some of the current mainstream BTC L2s and compare the advantages and disadvantages of each.

Introduction to mainstream BTC L2 and the pros and cons of each party

Stacks Stacks

Stacks Stacks is positioned as the smart contract layer of Bitcoin, and its mainnet was launched in 2018. It uses the "pegging" method to achieve BTC cross-chain by issuing sBTC on the Stacks network, which is essentially a centralized mapping method; its network Gas uses its mainnetTokenSTX，而非BTC，矿工参与Stacks的网络挖矿会消耗质押的BTC来挖取其网络代币

Such a network design will not only fail to gain support from Bitcoin users, but will even generate great resentment; its ecosystem uses the relatively niche Clarity as a programming language, which also greatly limits the influx of developers. Its ecosystem has been developing for 5 years, but most projects have received mediocre responses or are stagnant, and the TVL of the entire ecosystem is currently less than 25 million US dollars.

Summary: According to the three principles of BTC Layer2 design, Stacks' Bitcoin cross-chain solution is still a centralized approach; Stacks network operation does not use BTC, has almost no benefit to Bitcoin Layer1, and it is difficult to obtain BitcoinCommunityIts network development language Clarity is relatively niche and difficult to attract developers. The ecosystem has not achieved large-scale development in the past five years.It turns out that Stacks’ design direction is not an ideal BTC Layer2 solution

Lightning Network

Lightning Network is the most "orthodox" Bitcoin Layer2. Its goal is to realize Bitcoin's "global payment". The core is to enable Bitcoin to achieve fast and convenient small payments on the second-layer network of Lightning Network. However, Lightning Network does not support smart contracts. Therefore, it is impossible to develop ecological applications related to Bitcoin on Lightning Network.

Currently, the number of BTC staked on the Lightning network is about 4,000. Perhaps in view of the success of the Ordinals protocol, the Lightning team recently proposed the Bitcoin asset issuance protocol of Taproot Assets. However, even if assets can be issued based on Taproot Assets and then circulated quickly on the Lightning Network, such a combination only provides a solution for the issuance and circulation of Bitcoin assets, and still cannot support complex applications.

Summary: Lightning Network is undoubtedly the most "orthodox" BTC Layer2, but its network does not support smart contracts.Its purpose is to expand Bitcoin's payment scenarios, so it is not a typical Bitcoin Layer2.

Currently, Lightning Network has staked 4,000 bitcoins, about 140 million US dollars. Although it has been running for 3 years, its ecological development is still in its early stages.

RSK

RSK is positioned as Bitcoin L2 that supports smart contracts. It uses Hash locks to transfer the mainnet BTC to the RSK network. However, Hash locks are still a centralized method and it is difficult to gain the trust of Bitcoin users. Therefore, the number of BTC that use RSK for cross-chain is very small. At the same time, the consensus algorithm of the RSK network is still POW. As a second-layer network, it still uses the poor-performing POW consensus mechanism, so its ecology is naturally difficult to develop.

Therefore, although the RSK mainnet was launched in 2018, its ecosystem has hardly developed at all. As one of the “Top Ten Projects” of that year, it has gradually been forgotten by people.

Summary: According to the three principles of BTC Layer2 design, RSK's Bitcoin asset cross-chain solution is centralized; RSK mainnet performance is poor, and ecological development is better than nothing. Facts have proved that RSK is not an ideal BTC Layer2 solution either.

Liquid

Liquid is Bitcoin L2 launched by Blockstream. In essence, Liquid is a Bitcoin sidechain. Liquid's service targets mainly institutions and asset issuers, providing asset issuance and circulation services based on Bitcoin sidechain to the B-side. Therefore, Liquid's Bitcoin cross-chain solution is relatively centralized, using 11 certified multi-signature nodes to host Bitcoin. Liquid's solution is similar to a consortium permission chain.

Since Liquid provides financial asset issuance services to institutions, it is more concerned withSafetyLiquid Network is a consortium chain solution that requires permission to access. As a Bitcoin sidechain network for B-side services, Liquid has its rationality. However, in order to gain the support and use of the Bitcoin community and crypto users, the decentralized and permissionless BTC Layer2 is a more promising direction.

Summary: Liquid is a Bitcoin sidechain for institutional services. It is essentially a permissioned consortium chain. Its service objects are mainlySafetyLiquid is not suitable for traditional institutions and asset issuers that have high requirements for security and privacy. Liquid’s main functions are concentrated on asset issuance and trading, and it is not friendly to complex smart contract functions.Therefore, Liquid’s service scope is relatively limited, which is fundamentally different from the mainstream decentralized BTC L2.

RGB

RGB is BTC L2 based on BTC UTXO and Lightning Network. RGB was proposed in 2018 and has been in a slow development stage due to the difficulty in implementing multiple technical points. The core design of RGB has three points: UTXO state compression and encapsulation, client verification, and bridging Lightning Network to run non-shared smart contracts.The most important thing about RGB that people regard as orthodox is that the data running on RGB will be compressed and encapsulated into each UTXO of Bitcoin.

That is, the core data running on RGB is attached to Bitcoin through UTXO.Blockchain，用比特币网络来保障资产的安全性，但是，这也是RGB一直未能实现的功能；即使该功能实现也依然面临两个问题，由于客户端验证资产时需要追溯每个资产上游的UTXO，这里涉及大量的数据验证，资产被转移的次数越多 ，验证难度和验证成本就越大；

Even if the assets can be verified, RGB’s smart contracts are not truly running on the chain. Each smart contract based on RGB cannot interact with each other and is independent. If two tokens issued based on RGB need to build a Swap, they cannot directly implement the Swap interaction like assets issued on the EVM, but need to be transferred to the Lightning Network for interaction. Its complexity can be seen.

Summary: According to the three design principles of BTC L2:

Layer2 needs to carry the historical mission of high performance, easy development and user-friendly. BTC Layer2 is directly oriented to applications and users, and cannot just stay at the so-called cool design concept. In this regard, RGB's architecture is undoubtedly inconsistent with the three principles of BTC Layer2, whether it is the unverified UTXO state encapsulation, client verification, or running non-shared smart contracts on the Lightning Network.

These undoubtedly bring huge entry barriers to developers and users on BTC Layer2. The user experience of building Bitcoin applications on such Layer2 can be imagined. Since its proposal in 2018, the development progress of RGB has been slow, which in some ways reflects the high complexity of RGB and the difficulty of its implementation. The entry barriers for future ecosystem developers and users can also be imagined.

BEVM

@BTClayer2 is a Bitcoin L2 that uses BTC as GAS and is compatible with EVM.BEVM的核心设计是基于BTC 2021年的Taproot升级，使用Musig2聚合签名来实现去中心化的BTC跨链，Musig2聚合签名算法是Taproot升级带来的，可以让1000个比特币轻节点组成去中心化的资产网络，通过该网络处理BTC资产的转移，从而保障BTC L2上的资产安全

At the same time, the BEVM network uses BTC as GAS, and all applications on Layer2 will use BTC as Gas; most importantly, BEVM is fully compatible with EVM, and applications such as DeFi and GameFi that can run on the EVM ecosystem can be seamlessly migrated to Bitcoin Layer2, and users can use mainstream cryptocurrencies.wallet(such as Metamask, OK Wallet, etc.) directly use BEVM ecological applications. In the future, BEVM will also be compatible with more non-EVM Layer1 networks

Thus, BTC and BTC chain assets can be extended to any chain, and the Bitcoin ecosystem can be expanded to the maximum extent. Currently, the BEVM pilot network has been launched, and there are nearly 10 applications in the ecosystem. For example, users can use the fully decentralized BTC DEX on BEVM, and users can deposit BTC/Sats and other assets as LPs and enjoy DEX benefits.

Summary: BEVM uses Musig2 aggregate signatures to implement BTC's decentralized cross-chain, uses BTC as GAS to gain consensus and support from the Bitcoin community, and is compatible with EVM, which can lower the entry threshold for smart contract developers and users. Therefore, it is more practical and in line with the three principles of BTC Layer2 design. However, unlike many BTC Layer2s that promote Bitcoin's orthodoxy,BEVM seems to be less "orthodox". BEVM does not make improvements on Bitcoin's limited block space or limited UTXO.Instead, we choose to introduce BTC directly into the mature EVM network in a decentralized way.This reduces the difficulty of expanding the Bitcoin ecosystem, which is the design highlight of BEVM. At the same time, it will also be labeled as not "orthodox" by some Bitcoin fundamentalists. However, in the BTC Layer2 track, whether "orthodoxy" is more important or developers and user experience are more important, I believe the market will give the final answer.

BitVM

BitVM is a BTC L2 solution proposed in 2023 and is still in the theoretical stage.The most discussed aspect of BitVM is its relatively “hardcore” technical implementation. Its core logic is to run fraud proofs similar to optimistic rollups on the BTC script. The so-called fraud proof means that when there is a dispute in an asset transaction, the user can initiate a report. If there is a problem with the transaction, the assets of the dishonest party will be lost.

Will be fined. Generally, the effective reporting period is within 7 days (similar to 7-day unconditional return). However, if the user initiates a report after 7 days, it will be invalid. Even if there is a problem with the asset transaction, it will be automatically saved inBlockchainThe smart contract layer of BitVM runs off-chain, and each smart contract does not share state; BTC cross-chain uses traditional Hash locks to anchor assets, and does not achieve truly decentralized BTC cross-chain

Summary: The design highlight of BitVM is to abstract the complex smart contracts under the chain into fraud proofs, and let these fraud proofs run on Bitcoin in the form of Bitcoin opcodes.BlockchainThere are still many different opinions in the Bitcoin community about whether this method can be implemented. However, compared with the three principles of BTC L2 design, BitVM's BTC cross-chain solution is still the old Hash lock, which has centralization problems.

Since its testable network has not yet been released, we cannot know what language it is developed in; given that its biggest design highlight is still in the theoretical stage, we adopt an observation status for BitVM.

Summarize

The article comes from the Internet:BTC ecosystem is transitioning from meme to new infrastructure, L2s opportunity analysis

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