Bitcoin ecology is rising, what Layer 2 projects are worth paying attention to?

Original author: Web3CN

Original source: web3 Chinese

In the past three months, the first batch of inscription projects such as Ordinals have driven the entire track to fire, and the increase in star tokens related to inscriptions has also continued to set new records, which has also spawned the popularity of SATS, RATS and even other public chain inscription concepts.

At the same time, Bitcoin Core developer Luke Dashjr’s fierce criticism of ORDI and other inscriptions has poured cold water on the entire inscription market, and at the same time made the market think and explore how to develop healthily and benignly between inscriptions and Bitcoin.

In this context, the wave of “L2” of the Bitcoin ecology seems to be unstoppable, especially L2 not only solves the much-criticized Bitcoin “spam transaction” problem, but also creates a series of Decentralized Finance applications such as Swap, lending, and liquidity mining with the help of Programmability, which has broad prospects, so what is the current development trend of the Bitcoin L2 track, and what are the early passwords that are worth paying attention to?

Bitcoin’s “L2” trend

With the continuous fire of the Bitcoin inscription track, manual participation in new inscription projects on the chain was quickly rolled into a red sea, from a narrative point of view, the inscription is indeed different from many previous large-scale investment and financing projects and the traditional narrative logic dominated by VC, giving more opportunities for the general public to participate in addition to OG and Whale.

But the Bitcoin network at the center of the inscription frenzy is also facing many problems, the most intuitive is “network congestion, fee surge” - because the inscription is similar to Non-fungible Token, allowing users to record various data to the Blockchain, but overall because Bitcoin’s transaction fees are paid according to the size of the data, inscription users tend to set relatively low transaction fees.

This also means that they are willing to wait longer for confirmation, which can easily lead to inscription transactions being replaced by more urgent Bitcoin transfers.

Against this backdrop, the flood of inscription transactions that are willing to queue up has squeezed the Bitcoin mempool (where all valid transactions are stored) that have not been officially added to the network.

According to crypto KOL bitrabbit.btc, Bitcoin has accumulated 87 million UTXOs in the past 14 years, but after the BRC20 began trading on April 24, it soared to 140 million in about 7 months - and of the more than 50 million UTXOs added, 40 million were very small transactions of 100-1000 Satoshi.

As you can see from the image above, since its launch in February 2023, the inscription has been a major consumer of BitcoinBlock space, and in February Bitcoin the mempool began to be fully loaded and continues to this day.

As a result, the Bitcoin network has been unable to clean its mempool, and as of the time of writing, it is at a historically high for BTC since data records began.

According to the actual situation of the current Bitcoin network, especially the Bitcoin network, in order to prevent dusting attacks, limit the Bitcoin transactions in a single UTXO to no less than 546 Satoshi, which means that the vast majority of the tens of millions of inscription transactions to be processed are actually equivalent to the garbage transactions of DDoS attacks, which may not be packaged and broadcast on the chain for a lifetime.

“Most of these small UTXOs will never be spent, but will lie in the BitcoinNode forever, causing tens of billions of dollars of wasted hardware and power resources to the BTC network for tens and hundreds of years to come.”

This is the main reason why Bitcoin client Bitcoin Core developer Luke Dashjr has publicly lashed out at ORDI, inscriptions, and BRC20 — “Inscriptions are using Bitcoin Core vulnerabilities to spam Blockchain.”

Therefore, under the momentum of the inscription market exceeding billions of dollars and the growth momentum is not abating, the inscription project issued by the traditional Bitcoin main chain will be limited by network congestion and accusations of “spam trading”, and the issuance model will become more and more unsustainable, which will be a key obstacle to limiting its further expansion.

The comparative advantages of the Bitcoin L2 track are highlighted - it not only solves the problem of network congestion and “garbage transactions” by packaging transactions to L2, but also creates a series of Decentralized Finance application scenarios for the Bitcoin ecosystem, including Swap, lending, liquidity mining, and staking, with the Programmability of new Smart Contracts.

Bitcoin L2 Project Inventory

In general, as building a thriving Decentralized Finance Application Layer on the current Bitcoin ecosystem has become a new hot narrative, Bitcoin L2 projects have become a key track to carry the new expectations of Bitcoin supporters, in addition to familiar old projects such as Stacks, RSK, and Liquid, new solutions such as BitVM and BEVM also provide new ideas.

Stacks: BitcoinSmart Contract layers

As the second layer of Bitcoin, Stacks is anchored to BitcoinBlockchain on the one hand, and on the other hand, as a stand-alone protocol, it introduces Ethereum-like Smart Contract functionality and permanently Settlement transactions on the BTC Blockchain as a Programmability for Bitcoin L2 unlocking Bitcoin, opening up new possibilities for applications such as Decentralized Finance and Non-fungible Token.

If you look at the overall system, Stacks actually has its own chain, compiler, and programming language, and runs in sync with Bitcoin to ensure its transaction and integrity.

However, because it uses a “peg” method to achieve BTC Cross-Chain Interaction - through the issuance of sBTC on the Stacks network, it is essentially a centralized mapping method, and there is a certain centralized single point risk.

At the same time, its network gas uses its MainnetToken STX instead of BTC, Miner the network that participates in Stacks will consume the staked Mining BTC to mine its network Token, and through this system, Miner earn STX coins and Transaction Fee transaction fees, while STX stakers earn Bitcoin, which will also cause Miner to hesitate to participate in the trade-off.

As of the time of writing, compared with the 200,000 daily active users of the popular ETH L2 Arbitrum, the gap is still large, and the response from both users and funds is mediocre.

RSK: Universal Smart Contract Platform Based on Bitcoin

RSK (Rootstock) is a universal Smart Contract platform secured by Bitcoin networks that makes all Ethereum applications compatible with BitcoinBlockchain by transferring their Smart Contract from Ethereum to RSK. Since RSK creates a new block approximately every 33 seconds, it is much faster than Bitcoin’s 10-minute block time, RSK can also process about 10-20 transactions per second, which is also more efficient than Bitcoin’s processing power of about 5 transactions per second.

Compared to other Bitcoin layering solutions, RSK’s most unique design is the merging Mining – RSK Blockchain uses the same PoW (PoW) Consensus Algorithm as Bitcoin, but Miner can generate Block faster than Bitcoin base layer. These RSK Blocks are mined through a process called Merge Mining.

Since the two Blockchain use the same Consensus, Miner can merge Mining and Mining for both the Bitcoin and RSK Blockchain, but consume the same Mining computing power for the Bitcoin and RSK, so the Computing Power Miner contribute can also mine the Block of the RSK, which allows the merging Mining to significantly increase the profitability of the Miner without having to invest additional resources.

The merge Mining allows RSK to validate transactions, generate Block, and send them to the Bitcoin, and through this Mining process, users can rest assured that RSK’s Smart Contract benefit from the security of the BitcoinBlockchain.

However, because RSK uses smartBTC (RBTC), that is, locks the Token issued by BTC at a ratio of 1:1 on Bitcoin and bridges it through the vault and Smart Contract on RSK, so the entire bridging process is still difficult to avoid Smart Contract security risks on RSK.

BitVM: A BitcoinSmart Contract Rising Star to be Verified

BitVM, on the other hand, aims to implement Turing CompleteBitcoin contracts without changing the operating code, and key innovations include:

Introduce state between different UTXOs or different scripts via Bit Commitments.

Verifiability via logic gates: The execution can be verified by deconstructing any problematic program in the virtual machine, and the validity of the execution can be verified by the prover. This ensures that any false claims can be quickly proven to be false.

Keeping the Bitcoin network lightweight: Similar to Optimistic Rollup on Ethereum, BitVM does not perform a lot of computation on Bitcoin. Instead, it minimizes on-chain activity and simply refutes incorrect execution, acting more as a solver and validator. Only the output of the BitVM program is used in Bitcoin transactions.

However, the current BitVM functionality is extremely limited, more just on paper, there is only one viable function called the zero check function, although the potential future use cases include a two-way peg with a sidechain to achieve scalability, but the implementation scheme is similar to the Rollup logic on Ethereum:

Run a fraud proof similar to OPR on the BTC script, that is, when an asset transaction is disputed, the user can initiate a report, if the transaction really has a problem, the assets of the dishonest party will be confiscated, the general effective reporting time is within 7 days (can be simply understood as an unconditional return within 7 days), but if the user initiates a report after 7 days is invalid, even if there is a problem with the asset transaction, it will be automatically saved on the Blockchain to continue running.

However, BitVM’s Smart Contract layer runs off-chain, and each Smart Contract does not share state, BTC Cross-Chain Interaction uses traditional hash locks for asset anchoring, which does not achieve a truly Decentralization BTC Cross-Chain Interaction and cannot avoid the asset security risks of centralized arbitration Node.

BEVM: Fully Decentralization Bitcoin L2 Solution

BEVM is a BTC Layer 2 that uses BTC as gas and is compatible with EVM, with the core goal of expanding the Smart Contract scenarios of Bitcoin, helping BTC break through the constraints of BitcoinBlockchain non-Turing Complete and non-supporting Smart Contract, so that BTC can build Decentralization applications with BTC as the native gas on BEVM.

When the user crosses the BitcoinMainnet BTC to the BEVM, the user’s BTC will enter 1000 Node-hosted contract Address, and then generate new BTC at a 1:1 ratio in the BEVM, that is, the BTC Layer2 network.

When a user issues an instruction to cross BTC from BEVM back to the Mainnet, the BEVM network Node will trigger the Mast contract, and the 1000 Nodes of the custodian asset will automatically sign according to the established rules, returning the BTC to the user’s Address, and the whole process will achieve complete decentralization and trustlessness.

This also means that all transactions are transferred from the Bitcoin main chain to the Layer 2 network, and since the BEVM is fully EVM compatible, it can also easily enable BTC to implement various decentralization applications, empowering Bitcoin ecological sub-projects from L2:

Ethereum DApp developers can directly and seamlessly migrate to BEVM, and quickly build on-chain Decentralized Finance scenarios such as swap and even lending, Liquidity and pledge on BEVM, bringing more possibilities to the Bitcoin ecosystem, which is also the most Decentralization and convenient than the first two.

MAP Protocol: Bitcoin L2 network for peer-to-peer cross-chain interaction

MAP Protocol is a Bitcoin Layer2 network for peer-to-peer cross-chain interaction, which leverages Bitcoin’s security mechanisms to enable assets and users of other public chains to seamlessly interact with the Bitcoin network, thereby enhancing the security of the network and enabling BRC20 cross-chain interaction capabilities.

Compared with the Bitcoin main chain, MAP Protocol can provide lower gas transaction fees, even as low as 35% of the cost of Unisat and OKX Ordinals platforms.

Therefore, utilizing MAP Protocol’s Bitcoin L2 technology, users can trade inscribed BRC20 tokens on SATSAT with low gas and zero congestion, and can also Rollback to the Bitcoin main chain via Rolluper for trading on Unisat, OKX, and other Bitcoin L1 trading platforms.

Summary

As the broader Crypto Assets community recognizes the importance of Layer2 solutions in shaping the future of Bitcoin, it also means that the entire Bitcoin L2 track will usher in new development opportunities, and the entire Build cycle will be long, now is the time for early layout.

In particular, the most imaginative L2 solutions and a series of derivative application scenarios, such as Ethereum Layer2 solutions such as Arbitrum and Optimism in 2021, are destined to eventually run a batch of multi-billion dollar Bitcoin L2 leading projects.

Therefore, Bitcoin L2 as a new solution idea naturally has a new enough imagination space, is still in the early stage of the blue ocean, in the wealth password to be mined dividend period, worthy of long-term attention.

Therefore, the approval of the ETF is currently the biggest catalyst in the Crypto Assets market, promising huge upside potential and limited downside. Although there are some liquidity risks, ETFs may improve market conditions across the board if investors’ appetites increase significantly.

Source: Web3CN