Bitcoin Layer2 Development Prospects: Future Opportunities and Challenges from Ethereum's Experience

With the birth of the Ordinal protocol in 2023, Bitcoin welcomed a brand new asset type - "inscriptions". This native asset issuance method quickly gained market popularity, leading to the emergence of protocols such as BRC20, Atomical, Runes, as well as well-known inscriptions like ORDI, SATS, and numerous Bitcoin native NFTs.

The Bitcoin ecosystem has once again flourished, attracting a large amount of funds, users, and developers. However, as the number of assets increases, people are gradually realizing the limitations of Bitcoin as Layer 1. On one hand, Bitcoin itself does not support smart contracts, making it difficult to expand into richer application scenarios. On the other hand, Bitcoin's performance and miner fees have become significant obstacles to the further development of the ecosystem.

Against this background, the Bitcoin scaling track has gained attention, and Bitcoin Layer 2 has become a new hot area.

Bitcoin Layer2 Development Status

The representative projects of Bitcoin Layer 2 currently include:

• Merlin Chain: Launched in February 2024, it reached a TVL of 3.5 billion USD, but both the coin price and TVL plummeted after the listing.

• Lightning Network: The earliest Bitcoin Layer 2 payment protocol, but does not support smart contracts.

• Liquid Network: A sidechain that uses a two-way pegging technology, but is relatively centralized.

• RGB: Supports smart contracts, but there is still a distance to practical applications.

• Stacks: supports smart contract development, but the recent upgrade has been postponed.

• BitVM: Similar to Ethereum's Optimistic solution, but smart contracts run off-chain.

Overall, Bitcoin Layer 2 still faces technical bottlenecks and insufficient decentralization, and no widely recognized excellent solution has emerged.

Learn from the Development of Ethereum Layer 2

The development of Ethereum Layer 2 can be divided into three stages:

1. Learning and Exploration Phase: Attempting solutions like state channels, lightning networks, sidechains, etc., but all have their limitations.

2. Breakthrough Stage: The emergence of Rollup technology solved key issues such as data availability, leading to the rapid development of projects like Optimism and Arbitrum.

3. Blooming Stage: More teams join Layer2 development, one-click chain issuance tools like OP Stack emerge, and the Layer2 ecosystem thrives.

The key to the success of Ethereum Layer 2 lies in balancing decentralization and native characteristics to achieve a level of security and decentralization widely accepted by the market.

The Future Development Direction of Bitcoin Layer 2

Promising Bitcoin Layer 2 solutions in the future should possess the following characteristics:

• Higher degree of decentralization
• Stronger data availability
• Higher security

Emerging projects worth paying attention to include:

• BEVM: A trustless network solution based on Taproot Consensus.

• Mezo: Connects Bitcoin and Ethereum DeFi using tBTC as the foundation.

These projects have brought new technical paths and innovative ideas to Bitcoin Layer 2.

Conclusion

Despite the current challenges facing Bitcoin Layer 2 development, I believe that with more innovative solutions emerging, the future will see a true explosion. The magic box of this trillion-dollar track has already been opened, and we need to maintain patience and perseverance, looking forward to a new chapter in the Bitcoin ecosystem.