Which Bitcoin Layer2 is the strongest?

Author: Day

Last year, due to the popularity of Layer2, everyone began to shift their attention from Ethereum to Bitcoin, especially institutions, which started investing in Bitcoin's ecological infrastructure. Recently, Bitcoin Layer2 projects such as BEVM and BOB have completed financing ranging from millions to tens of millions. In addition, the launch of Nervos' RGB++ and Seal's minting has caused a surge in interest in CKB (CKB, translated as Common Knowledge Base, is the first-layer network of Nervos Network, responsible for storing all transaction data and smart contracts) for Bitcoin Layer2.

Today, let's learn about Bitcoin Layer2-related content. Currently, there are many Bitcoin Layer2 solutions on the market, which can be simply divided into four categories: Bitcoin sidechains, UTXO+ client verification, Roullp, and Taproot Consensus. This article is divided into two parts, and today we will introduce the first two categories.

01 Goals of Bitcoin Layer2

As a leading cryptocurrency, holding Bitcoin can outperform 95% of assets in a market cycle. However, people are still not satisfied with the current situation and hope to give Bitcoin more. Compared to other public chains, Bitcoin has issues such as slow transaction speed, long confirmation times, expensive transaction fees during congestion, and limited smart contract functionality, making it unable to directly build complex applications, among other problems.

Bitcoin Layer2 is an additional layer built on top of Bitcoin, aiming to improve transaction speed, reduce transaction costs, and increase scalability. It achieves these goals by processing transactions off-chain and storing intermediate states. This can speed up transaction confirmation, reduce transaction fees, and increase the capacity and throughput of the entire system. Layer2 aims to improve the performance of Bitcoin, making it more suitable for a wide range of applications.

02 Bitcoin Sidechains

Bitcoin sidechains are independent blockchain systems connected to the Bitcoin main chain, generally connected to the main chain through a two-way cross-chain bridge. They allow users to lock Bitcoin on the main chain and then conduct transactions and operations on the sidechain.

Through sidechains, users can achieve more flexible and diverse functions, such as supporting payments with other cryptocurrencies, stateful smart contracts, faster settlements, and higher privacy. However, sidechains face issues such as the need for a separate set of validation nodes, the need for the sidechain to validate transactions on its own, and problems related to insufficient nodes, centralization, and inability to inherit Bitcoin's security. Here are some representative projects of sidechains:

• Stacks

Stacks is positioned as the smart contract layer for Bitcoin, aiming to introduce smart contracts and DApps to the Bitcoin system, and connecting itself to the Bitcoin main chain through a unique Proof of Transfer (PoX) consensus mechanism. Stacks allows developers to build smart contracts and DApps. In Stacks' technical architecture, there are core layers and subnets to choose from. The core layer has a high degree of decentralization but lower throughput, while the subnets have a lower degree of decentralization but can achieve higher throughput.

Stacks uses the Clarity smart contract language to create DApps, implements Nakamoto upgrades to improve network performance, allows Stacks to not only settle Bitcoin transactions but also achieve 100% resistance to Bitcoin reorganization, and speeds up block generation. It issues stablecoins based on SBTC to increase DeFi composability. Stacks aims to achieve high decentralization and scalability, and bring smart contract functionality and DApp capabilities to the Bitcoin system.

The Stacks ecosystem has been developing for 5 years, but most projects have received a lukewarm response or are in a stagnant state. The Nakamoto upgrade for Stacks has been in development for a long time and is expected to be launched on the mainnet at the end of the month. Its token, STX, is currently considered a leader in Bitcoin Layer2, with a market value close to 5 billion USD.

• RSK

RSK (Rootstock) is positioned as a Bitcoin Layer2 that supports smart contracts and focuses on DeFi. RSK does not have a native token and introduces RBTC as a payment for transaction fees, aiming to become a cornerstone of financial inclusion.

RSK utilizes merged mining, where Bitcoin block producers simultaneously mine Bitcoin and RSK blocks, to leverage Bitcoin's security to protect smart contracts and transactions. It is compatible with the Ethereum Virtual Machine (EVM), allowing developers to write smart contracts using Solidity and port Ethereum's DApps to RSK. In addition, RSK has established the RIF network, providing various infrastructure services such as DeFi, storage, domain name services, and payment solutions to meet user needs.

Currently, apart from RIF, there are no other prominent projects in the ecosystem, and its performance is relatively weak. RSK launched its third round of funding last month, with a total amount of 2.5 million USD.

• Liquid Network

Liquid is a Bitcoin sidechain and transaction settlement network launched by Blockstream. Its goal is to provide fast settlement, strong privacy, and digital asset issuance, serving institutions and asset issuers by providing asset issuance and circulation services based on Bitcoin sidechains, promoting faster Bitcoin transactions and tokenization of digital assets. Liquid focuses on simple protocols, security, and privacy. Similar to RSK, Liquid relies on federated multi-signature issuance anchors, with differences in decentralization levels. In addition, Liquid emphasizes security, while RSK focuses more on usability.

Due to its focus on serving institutions, Liquid is considered a federated chain, and it is not particularly friendly to smart contract functionality, mainly used for asset issuance and trading.

• Lightning Network

The Lightning Network is an off-chain scaling solution built on top of the Bitcoin network, aiming to improve the speed of Bitcoin transactions, but its network does not support smart contracts. It achieves fast and low-cost microtransactions by introducing second-layer payment channels. In the Lightning Network, participants can open a special payment channel and conduct multiple transactions within the channel without recording each transaction on the Bitcoin blockchain. The final transaction results are only submitted to the Bitcoin main chain for settlement when the channel is closed.

Through the Lightning Network, users can achieve almost instant payments without waiting for confirmation on the Bitcoin main chain. This greatly improves transaction speed and reduces transaction costs. The Lightning Network uses smart contract technology and multi-signature mechanisms to ensure the security of transactions between participants.

The Lightning Network's applications include microtransactions and gaming, providing users with a convenient, fast, and low-cost payment method, and providing developers with a platform to build applications based on the Lightning Network.

On April 3, Coinbase partnered with Lightning Network payment solution provider Lightspark to integrate Bitcoin Lightning Network for all its customers. Currently, the capacity of the Lightning Network payment channels is close to 320 million USD.

Overall, the second layer of Bitcoin sidechains consists of relatively "old" projects, and despite being in development for a long time, the actual progress is somewhat unsatisfactory in terms of technology and implementation.

03 UTXO+ Client Verification

UTXO+ Client Verification is a Bitcoin UTXO account model expansion solution (UTXO: Unspent Transaction Output, which can be simply understood as unspent funds), which attempts to conduct off-chain ledger calculations based on Bitcoin UTXO and ensure the authenticity of the ledger through client verification. The goal of this solution is to preserve the original features of Bitcoin while achieving second-layer ledger sharing and security.

However, the implementation of this solution is actually very difficult. This is because Bitcoin's design does not support complex calculations, making it very complex to integrate additional tasks into the UTXO model. This solution emphasizes the native nature of Bitcoin, but may overlook feasibility and practical operational difficulties.

Currently, most projects in this field are still in the white paper stage and have not made much progress. The following are representative projects:

• RGB

RGB is a Bitcoin Layer2 solution that aims to build on the Bitcoin UTXO model and the Lightning Network. Its goal is to compress and encapsulate data into each UTXO of Bitcoin and ensure asset security through client verification.

The design concept of RGB is to bind off-chain RGB transactions with Bitcoin transactions' UTXO. It combines the proof of RGB transactions and asset ownership sealed in Bitcoin's UTXO with the operations and control of Bitcoin's UTXO. However, RGB's development progress is slow due to the high implementation difficulty of multiple technical points involved. Although RGB is considered a orthodox solution, its implementation difficulty and functional limitations have led to slow development progress.

• RGB++

The RGB++ protocol is a protocol proposed by Nervos at the beginning of the year, inspired by the RGB protocol. Its main idea is similar to RGB, conducting calculations, execution, and transaction verification off-chain, and then settling on the Bitcoin chain. The difference is that RGB++ adopts a different approach in the verification of transactions and assets.

Nervos leverages the advantages of the same POW+UTXO structure as Bitcoin and combines it with innovative "homomorphic mapping" technology to successfully replace RGB protocol's client verification with CKB. In this way, Nervos has extended the functionality and flexibility of the RGB protocol while maintaining the same level of security as Bitcoin. This migration has not made too many sacrifices for privacy and has provided users with more ways to use and manage digital assets. By reusing Bitcoin's security, RGB++ can obtain Turing-complete smart contract execution capabilities.

This makes CKB the execution layer and DA data layer for RGB++ assets, and it can support not only the RGB++ protocol but also other Bitcoin Layer1 assets such as Runes and Atomical, as long as they are based on the UTXO accounting model.

Recently, CKB has gained high popularity. Here, I will also briefly introduce UTXO Stack, developed by a company incubated by the Nervos ecosystem fund. UTXO Stack is a Bitcoin Layer2 issuance platform based on the UTXO model, aiming to help developers quickly build Bitcoin Layer2 chains based on the UTXO architecture. It provides a modular toolkit that allows developers to easily build their own second-layer chains and integrate them into the Nervos ecosystem.

UTXO Stack natively supports the RGB++ protocol and utilizes CKB as the data availability layer, bringing more application scenarios and development opportunities to the Bitcoin ecosystem. This architecture allows RGB++ protocol and UTXO Stack to work together, providing strong technical support for the development of the Bitcoin ecosystem.

• BitVM

BitVM is a conceptual solution for a Bitcoin virtual machine proposed by Robin Linus, the head of the ZeroSync project. It aims to enhance the programmability of Bitcoin, allowing developers to run complex contracts on the Bitcoin network without changing Bitcoin's basic rules and consensus mechanism. It is still in the theoretical stage.

BitVM provides a method to implement complex contracts on the Bitcoin network while maintaining the security and decentralization of Bitcoin. It provides developers with more programming capabilities and innovation space by introducing new virtual machine concepts and roles. To increase flexibility, BitVM needs to move most of the computation off-chain and only submit relevant proofs to the chain. Its core idea is to abstract complex smart contracts as fraud proofs and execute these proofs on the Bitcoin script. Users can initiate challenges when asset transactions are in question and verify the authenticity of transactions through fraud proofs.

Currently, the practical feasibility and technical details of BitVM are still controversial and require further observation and research.

04 Conclusion

The above is today's content. Although everyone is optimistic about the future development of Bitcoin Layer2, the older projects in the Bitcoin Layer2 space are in a lukewarm state. New projects, due to technical complexity, are mostly in the white paper stage, and there is still some distance to go before actual implementation.

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