From Lighting Network to Bison, Bitcoin Layer 2 track analysis

I. Introduction

In 2023, Bitcoin inscription will bring new vitality and possibilities to the Bitcoin ecosystem. Then, at the beginning of 2024, Bitcoin hit an all-time high of $73,000 and Bitcoin Halving events, which once again attracted the attention of the market.

Bitcoin’s proven security and network effects have attracted longest developers who see Bitcoin as the base layer of the Blockchain. These developers are working Bitcoin build long different Layer 2 projects on top of the base layer, and in this article we will introduce Bitcoin early and recent Layer 2 projects.

Why does Bitcoin need Layer 2?

According to the “scalability trilemma”, that is, it is difficult for a distributed network to balance decentralization, security, and scalability at the same time. The Bitcoin network has over 75,000 core nodes, making it extremely decentralized and recognized as the most secure Blockchain, but the Bitcoin network can only process 3-5 transactions per second, making it impossible to scale. One potential solution to the scalability problem is Bitcoin Layer 2 technology, which aims to increase Bitcoin’s scalability so that it can process a large number of transactions without dropping transaction speed or increasing transaction prices.

II. Bitcoin Layer 2 Early Construction Project

Currently, Bitcoin Layer 2 (L2) projects TVL only a fraction of the Bitcoin market capitalization. The total TVL of the four most well-known L2 projects is around $700 million, accounting for only about 0.15% of the overall L2 market. This shows that Bitcoin’s Layer 2 ecosystem is still in its infancy, especially when compared to Layer 2 markets on other Blockchains.

However, the situation is quietly changing. Lighting Network continues to rise steadily, Stacks is committed to major upgrades to drive the growth of the Bitcoin smart contracts market, and Rootstock is constantly upgrading. Currently, there are L2 solutions available on Bitcoin with different goals, some aimed at improving the scalability of the Bitcoin network, while others aim to enhance its more expressive programmability.

(1) LightningNetwork

As a layer-2 solution for Bitcoin, the Lighting Network aims to solve the scalability problem of Bitcoin, increase transaction throughput, and drop transaction fees. Through the payment channel, users can transact on off-chain, thus avoiding the need to compete for Block short on Bitcoin Blockchain or wait time for L1 Consensus, thus improving efficiency. When a user decides to complete a transaction through a payment channel, they can choose to close the channel and aggregate off-chain activity onto the Bitcoin network for settlement. Lighting Network’s current Total Value Locked:

The Lighting Network is designed to facilitate more than 40 million transactions per second, much higher than other Blockchain and traditional payment channels. In addition, the Lighting Network greatly drops transaction fees, with very low base fees and rates. As the use of the Lighting Network increases, these fees continue to fall.

More and more long users and businesses are adopting Lighting Network to drop Transaction Cost and improve the usefulness of Bitcoin. Integrations at the government and corporate levels have also driven the adoption of Lighting Network, such as the government of El Salva long which has set Bitcoin as a national legal coin and is compatible with the government-mandated ChivoWallet. Companies such as Twitter and CashApp have also added support for the Lighting Network to their platforms.

The market is optimistic about the future prospects of Lighting Network, and Xu long projects and investors are committed to building L2 networks. For example, Block, a Bitcoin startup owned by JackDorsey, has launched a new venture capital firm called “c=” focused on providing new funding tools and services on the Lighting Network. At the same time, companies such as Spiral are developing the Lighting Network Development Kit (LDK) to improve the user experience of the Lighting Network and increase its appeal to mainstream users. In addition, LightningLabs, the core team of the Lighting Network, launched the “Taro” upgrade to bring new assets to the Bitcoin network using Bitcoin’s Taproot upgrade, enabling users to issue and transfer synthetic assets, tokens, and NFTs on Bitcoin.

Finally, companies such as Zeebeedee and Strike are in talks with different countries about fiat on-ramp, with the aim of attracting more long users to the Lighting Network and offering international money transfer services to expand their use cases.

(2) Stacks

Stacks calls itself a “Bitcoin layer”, which means it’s a layer-2 solution that runs on Bitcoin Blockchain. Although it is not a sidechains, it takes advantage of the security of Bitcoin and incentivizes Miner and processing transactions by introducing STX Token and a Consensus Mechanism called PoX. Stacks allows developers to build a variety of DApps, especially in the Decentralized Finance and NFT space. Current Total Value Locked Value of Stacks:

Now, Stacks introduces sBTC, an asset pegged to Bitcoin that allows users to trade with sBTC equivalent to Bitcoin on the Stacks layer. This will help further drive Decentralized Finance and NFT use cases on Stacks and hopefully unlock capital within the Bitcoin ecosystem. In addition, Stacks underwent an upgrade called Nakamoto to fully leverage Bitcoin’s security to determine transaction confirmations on the Stacks layer.

Recently, interest in Stacks has increased significantly due to discussions about Ordinals and Runes and their role in increasing Bitcoin use cases. Founder MuneebAli is also actively involved in podcasts related to top Crypto Assets. Investors may be gearing up for the upcoming Stacks upgrade, with everyone keeping a close eye on sBTC and the impact it could have on Bitcoin.

(3) Rootstock

Rootstock (RSK) is an EVM-compatible sidechains that long wick candle to general-purpose Bitcoin smart contracts. It features a unique variant of the Bitcoin Satoshi Nakamoto Consensus called DECOR+, which allows RSK to merged mining with Bitcoin. SmartBitcoin (RBTC) is the native coin within RSK, pegged 1:1 to Bitcoin to pay transaction fees. Rootstock’s current Total Value Locked:

RSK is connected to Bitcoin L1 via Powpeg, allowing BTC to be transferred between the two chains. Powpeg was initially managed by a consortium responsible for managing longest signature wallets, and later RSK further increased Powpeg’s Decentralization. Still, Powpeg needs a certain level of trust, as BTC transfer requests need to be signed by at least 51% of the consortium members. Currently, there are nine members supporting the Powpeg.

One of the key advantages of RSK is that its Virtual Machine (RVM) is compatible with the Ethereum Virtual Machine (EVM), which means that RSK smart contracts can be written in the Solidity language. Sovryn is a well-known RSK project that is a non-custodial smart contracts platform that supports Bitcoin lending and margin trading. RSK recently announced the removal of the RBTC supply cap, which expands the supply of RBTC to the equivalent of BTC, which is 21 million. This move is significant for the Bitcoin Decentralized Finance, as the previously RBTC supply limits the activities carried out on the RSK. Removing the supply cap is likely to attract the attention of more long developers and push them to build more long DApp on RSK.

long wick candle we should keep a close eye on any new DApp launched on RSK, as it provides a strong foundation for achieving the goal of enabling Decentralized Finance on the Bitcoin.

(4) LiquidNetwork

LiquidNetwork is an L2 sidechains that can Settlement and issuance digital asset on top of Bitcoin Blockchain, such as stablecoin, security Token, and other financial instruments. Unlike other L2 solutions, LiquidNetwork is relatively centralized, securing itself through a consortium consensus mechanism managed by 60 staff members. The staff is tasked with validating blocks and adding transactions to the LiquidNetwork sidechains.

Similar to RSK, LiquidNetwork also has a Token called “L-BTC” that is pegged 1:1 to BTC. At the time of writing, the circulating supply of L-BTC Token is around 3534. This Token is mainly used for Lighting Network, and its transaction speed and throughput are relatively higher relative to Bitcoin mainchain. In addition, LiquidNetwork users can also use their L-BTC for other LiquidNetwork-enabled applications, such as lending or buying security tokens.

III. Bitcoin Layer 2 New Project

(1) BEVM

Founded in 2023, BEVM is an EVM-compatible Decentralization Bitcoin L2. Based on technologies such as the Schnorr Signature Algorithm brought by Taproot upgrades, BEVM allows BTC to move from Bitcoin Mainnet cross-chain to Layer 2 in a Decentralization manner. Since BEVM is EVM compatible, all DApps running in the Ethereum ecosystem can run on BTCLayer2 and use BTC as Gas.

On November 29, 2023, BEVM released a white paper. At present, BEVM has launched ChainX. According to the 2023 BEVM Pioneer Network annual data, its total volume is 2.77 million, the total number of active Addresses is 55,000, the TVL reaches 1.1956 BTC (about $5.09 million), and the total bridge capacity to and from Ethereum L2 is $11.53 million. Recently, BEVM launched its first inscription protocol Bevions, which processed 3 million transactions in 6 hours, with a tps of about 150.

In December 2023, BEVM kicked off its first Odyssey event, which is now over. Gavin (@gguoss), founder of BEVM, said that the second phase is expected to be launched on January 15, when 10-20 ecological projects will be invited. The name of the second phase of the event will not be “Odyssey”, but “Helsinki”, the first BTC Block that Satoshi Nakamoto dug up.

At present, there are long 20 ecological projects in the BEVM ecosystem, such as BTC full-chain DEXOmniSwap, Decentralization’s signature protocol BoolNetwork, etc.

(2) B²Network

Founded in 2022, B²Network is a Bitcoin layer 2 network developed based on ZK-Rollup, which is compatible with EVM and can enable EVM ecosystem developers to seamlessly deploy DApps. The network participated in ABCDE’s Bitcoin Ecosystem Project Roadshow in November 2023 and ultimately received investment. According to ABCDE, the core members of B²Network’s technical team come from mainstream Web3 Open Source communities such as Ethereum, Bitcoin, Cosmos, and Sui, and have received longer grant support. The team is good at Web3Infra products such as Blockchain Layer 1, Layer 2, cross-chain, and account abstraction, and has mature engineering capabilities.

On December 18, 2023, B²Network announced the launch of the Alpha Testnet MYTICA for partners and an open recruitment of ecosystem developers. Partners and developers can deploy DApps on the B²Network Testnet. Meson, the network’s ecosystem project cross-chain protocol has been deployed stablecoin USDC B²NetworkAlpha Testnet. Meson is a fast, stable, secure, and low-fee cross-chain protocol that supports the free circulation of mainstream digital asset such as ETH, BNB, USDC, and USDT between B²Network and long 30 mainstream public chains.

(3) Dovi

Founded in 2023, Dovi is a Bitcoin Layer 2 compatible with EVM smart contracts. In November 2023, Dovi officially released a white paper with an intermediary that integrates Schnorr signatures and MAST structures to improve transaction privacy, optimize data size, and verify processes. In addition, Dovi has implemented a flexible framework for various asset types beyond issuance Bitcoin, enabling the transfer of cross-chain assets.

KuCoinLabs announced a strategic investment in Dovi in December 2023, and its native Token DOVI was launched on the KuCoin trading platform on December 12 of that year. DOVI Token Distribution Adopts a Fair Release Model, and within 4 hours of launch, all 15 million Tokens have been claimed. As of January 15, DOVI had a fully diluted value of approximately $9.4 million. At present, users can stake DOVI on the official website to get rewards.

Dovi’s official website announced that the next step will be to release a testnet, build developer community and ecosystem support, and launch DoviV1. This initiative will help further develop Dovi’s ecosystem and attract more long developers and users to participate.

(4) MapProtocol

MAPProtocol is a promising project, especially when it comes to addressing cross-chain interoperability. By leveraging the security of Bitcoin, MAPProtocol provides a way for other public chain assets and users to seamlessly interact with the Bitcoin network, which will help strengthen the security and interoperability of the entire Blockchain ecosystem.

Its latest strategic investment from DWFLabs and WaterdripCapital will undoubtedly provide strong support for the development of the project, which demonstrates the market’s recognition and expectation for the project.

Regarding the burning of MAP and MAPO Tokens, this will not only help reduce the Circulating Supply of Tokens and increase the scarcity of Tokens, but also help increase the value of Tokens. The current fully diluted value is around $260 million, which shows market recognition of the potential value of MAPProtocol and is expected to rise further as the project grows and adoption increases.

Overall, MAPProtocol’s innovations in cross-chain interoperability and the investment support it has received have laid a solid foundation for its future growth.

(5) MerlinChain

MerlinChain is an EVM-compatible ZKRollup Bitcoin layer 2 network launched by the development team of the well-known BRC-420 Blue Box and Bitmap, which supports longest native Bitcoin assets. According to the official website and some research reports, Merlin is a Bitcoin Layer 2 solution that integrates the ZK-Rollup network, decentralized oracle and on-chain BTC fraud prevention modules.

From the official website of MerlinChain, you can see the properties of its Bridge, which can transfer the assets above the BTC to the layer 2 network, so as to drop Money Laundering, which is a typical representative of solving the pain point problem first.

This solution, which integrates ZK-Rollup, Oracle Machine, and fraud prevention modules, is expected to bring more long innovation and development to the Bitcoin ecosystem, provide a more efficient and secure transaction experience, and attract more long users and developers to participate.

(6) Bison

Founded in 2023, Bison is a Bitcoin native zk-rollup designed to increase transaction speed while enabling advanced features on native Bitcoin. Developers can leverage zk-rollups to build innovative Decentralized Finance solutions, such as trading platforms, lending services, and Automated Market Makers.

Bison also participated in the roadshow of the ABCDE Bitcoin ecological project, and according to reports, the Bison solution leverages zk-SNARKs and Ordinals for fast and secure transactions. All data is anchored back to Bitcoin for enhanced security. Bison is able to achieve 2,200 transactions per second, and its fee is only 1/36 of Bitcoin.

The Bison team includes Starknet’s own code contributors, which means that the team has extensive experience and expertise in Blockchain technology and has the ability to develop efficient and secure solutions. As Bison continues to grow in the Bitcoin ecosystem, it is expected to bring more long innovation and convenience to Bitcoin users and developers.

IV. Next step in the Bitcoin ecosystem: smart contracts market

Bitcoin has faced a variety of problems for longing years, including a lack of developer tools, a slow and clunky infrastructure, and seemingly limited innovation relative to smart contracts platforms like Ethereum, BNBChain, and Solana. Recently, however, the situation seems to have changed. Developers can finally showcase their skills within the Bitcoin ecosystem, where they work around the clock to push updates to advance Bitcoin faster than ever before. And it’s all driven by natural demand. That’s where the key is, when an ecosystem is confronted with real, natural user needs that inherently drive innovation and product development, creating a virtuous cycle where things improve quickly.

(1) BitVM

Robin Linus, the lead of the ZeroSync project, published a paper on BitVM on October 9. To put it simply, BitVM is the virtual machine of the Bitcoin network, which achieves the effect of Turing Complete without changing the Consensus rules of the Bitcoin network through off-chain execution and on-chain verification.

There is a big difference between BitVM and Ethereum smart contracts, Ethereum smart contracts can support longer (multi-party) transactions, but BitVM is designed to only support two-party transaction exchanges. Most of BitVM’s transaction processing takes place off-chain, minimizing the impact on the underlying Bitcoin Blockchain, unlike BitVM, which is a on-chain engine where all operations take place in the Ethereum’s native environment, and BitVM, which is an optional add-on engine for Bitcoin Blockchain that does not require BitVM for its own operations. In contrast, EVM is an integral part of Ethereum Blockchain, and without EVM, there is no Ethereum.

The functionality of BitVM is achieved through Bitcoin Taproot upgrades. BitVM mainly relies on the taproot Address Matrix (taptree), which is similar to the program instructions of binary circuits. Under this framework, the UTXO spending conditional instruction in each script is treated as a program minimum unit, generating a 0 or 1 through specific code in the taproot Address to form a taptree. The result of the execution of the entire taptree is a binary circuit text effect, which is equivalent to an executable binary program. The complexity of the program depends on the number of taproot Address combined, the more long the Address, the richer the preset instructions, and the more complex the program that taptree can execute.

Most of the BitVM processing takes place in the off-chain, off-chain processed transactions are bundled into batches and published to the underlying Bitcoin Blockchain, utilizing a validity confirmation model similar to that used in Optimistic-rollups. At the same time, BitVM uses a model that combines fraud proof with a challenge-response protocol to process and verify transactions between two parties (prover and validators). The prover initiates a computation task and sends it through a channel established between itself and the validator, and then the validator confirms the validity of the computation. Once verified, the transaction is added to the entire batch of collation for posting to the underlying Bitcoin Blockchain.

(2) RGB

Maintained and updated by the LNP/BP Association, RGB is a smart contracts system that supports the Bitcoin network and the Lighting Network. The RGB protocol proposes a more scalable, more private, and more future-proof solution, and its cornerstone is the concepts of client-sididation and single-use-seals proposed by Peter Todd in 2017.

The core philosophy of RGB is to use Bitcoin Blockchain only when necessary, i.e., to leverage PoW and network Decentralization to achieve double-spend protection and censorship resistance. Verification of all Token transfers is removed from the global Consensus layer, placed off-chain, and verified only by the client of the party receiving the payment.

So how exactly does it work? In RGB, basically tokens are vesting to a Bitcoin UTXO (whether it already exists or is temporarily created), and in order to transfer the Token, you need to spend this UTXO. When spending this UTXO, Bitcoin transactions must contain a commitment to a message that contains RGB payment information, which defines the input, which UTXO these tokens will be sent to, the id of the asset, the amount, the transaction spent, and other data that needs to be appended.

The specific payment information of the RGB Token is transmitted in the off-chain through a dedicated communication channel, from the payer to the recipient’s client, which verifies that it does not violate the rules of the RGB protocol. As a result, Blockchain observers will not be able to obtain any information about RGB user activity.

However, verifying the sent payment information is not enough to ensure that the sender actually owns the assets to be sent to you, so in order to ensure the finality of the outgoing transaction, you must also receive a history of all transactions for these tokens from the payer, from the current one all the way back to their original issuance. By verifying all the transaction history, you can be sure that these assets are not inflated, and all the spending conditions attached to the assets have been met.

Conclusion

Bitcoin Layer 2 is an important part of modern Web3 development. If Bitcoin wants to maintain its position as one of the major Blockchain networks, it needs a way to process transactions quickly and affordably. Luckily, Xu long developers decided to take on the Bitcoin scaling challenge, so when people want to drop Money Laundering and extend Bitcoin functionality, there are long different Bitcoin Layer 2s to choose from.