Source: Vernacular Blockchain
Last year, due to the popularity of inscriptions, everyone began to shift their attention from Ethereum to Bitcoin, especially institutions, which began to spend money to lay out the Bitcoin ecological infrastructure. Recently, Bitcoin Layer2 such as BEVM and BOB have completed financing ranging from millions to tens of millions. In addition, the recent launch of Nervos' RGB++ and the casting of Seal have made the popularity of Bitcoin Layer2 CKB (CKB, translated as public knowledge base, is the first layer of the Nervos Network, responsible for storing all transaction data and smart contracts) soar.
Today, let's learn about Bitcoin Layer2. There are many Bitcoin Layer2s on the market. We simply divide them into four categories, namely Bitcoin sidechain, UTXO+client verification, Rollp and Taproot Consensus. This article is divided into two parts, and today we will introduce the first two categories.
01 The goal of Bitcoin Layer2
As the leader of crypto, holding Bitcoin can outperform 95% of assets in one round of market, but people are still not satisfied with the status quo and hope to give Bitcoin more. Compared with other public chains, Bitcoin has problems such as slow transaction speed, long confirmation time, expensive transaction fees when congested, and limited smart contract functions, and cannot directly build complex applications.
Bitcoin Layer2 is an additional layer built on top of Bitcoin to increase transaction speed, reduce transaction costs, and increase scalability. It achieves these goals by processing transactions and saving intermediate states off-chain. 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 and make it more suitable for a wide range of applications.
02 Bitcoin Sidechain
Bitcoin sidechain is an independent blockchain system connected to the Bitcoin main chain, generally an independent blockchain connected to the main chain through a two-way cross-chain bridge. It allows users to lock Bitcoin on the main chain and then trade and operate on the sidechain.
Through the sidechain, users can achieve more flexible and diverse functions, such as supporting other crypto asset payments, stateful smart contracts, faster settlement and higher privacy. However, because the sidechain requires a set of independent verification nodes and needs to verify transactions by itself, it will face problems such as too few nodes, centralization, and inability to inherit Bitcoin security. Here are some representative projects of sidechain development:
Stacks is positioned as the smart contract layer of Bitcoin, aiming to introduce smart contracts and Dapps to the Bitcoin system, and connect 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 the technical architecture of Stacks, there are core layers and subnets to choose from. The core layer has a high degree of decentralization but a low throughput; while the subnet has a low degree of decentralization but can achieve higher throughput.
Stacks uses the Clarity smart contract language for creating Dapps, and performs Nakamoto upgrades to improve network performance. The Nakamoto upgrade allows Stacks to not only settle Bitcoin transactions, but also achieve 100% Bitcoin reorganization resistance and speed up block production. Issue stablecoins based on SBTC to increase DeFi composability. Stacks aims to achieve high decentralization and scalability, and bring smart contract functions and Dapp capabilities to the Bitcoin system.
The Stacks ecosystem has been developing for 5 years, but most projects have received mediocre responses or are stagnant. Stacks' Nakamoto upgrade 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 the leader in Bitcoin Layer2, with a market value of nearly 5 billion US dollars.
RSK (Rootstock) is positioned as a Bitcoin Layer2 that supports smart contracts and focuses on DeFi. RSK has no native token and introduces RBTC as a payment for transaction fees. Its goal is to become the cornerstone of financial inclusion.
RSK uses the security of Bitcoin to protect smart contracts and transactions by merging production blocks, that is, Bitcoin block producers mine Bitcoin and RSK blocks at the same time. It is compatible with the Ethereum Virtual Machine (EVM). Developers can use Solidity to write smart contracts and port Ethereum's Dapp to RSK. In addition, RSK has also established the RIF network to provide various infrastructure services such as DeFi, storage, domain name services and payment solutions to meet user needs.
At present, apart from RIF, no other ecological projects have emerged, and the performance is relatively weak. RSK launched the third batch of funding plans last month with a total amount of US$2.5 million.
Liquid is a Bitcoin sidechain and transaction settlement network launched by Blockstream. Its goal is to provide functions such as fast settlement, strong privacy and digital asset issuance. The service targets institutions and asset issuers, provides asset issuance and circulation services based on Bitcoin sidechains, and promotes faster Bitcoin transactions and digital asset tokenization. Liquid focuses on simple protocols, security and privacy. Liquid is similar to the RSK mentioned above in that both rely on alliance multi-signatures to issue anchored tokens, but the degree of decentralization is different. In addition, Liquid focuses more on security, while RSK focuses more on usability.
Liquid is considered a consortium chain because it is a side chain for institutional services. In addition, it is mainly used for asset issuance and trading, and is not friendly to smart contract functions.
The Lightning Network is an expansion solution built on the Bitcoin network, designed to increase the speed of Bitcoin transactions, but its network does not support smart contracts. It enables fast and cheap small payments by introducing a second-layer payment channel. In the Lightning Network, participants can open a special payment channel and conduct multiple transactions inside the channel without recording each transaction on the Bitcoin blockchain. Only when the channel is closed will the final transaction result be submitted to the Bitcoin main chain for settlement.
Through the Lightning Network, users can make almost instant payments without having to wait for confirmation from the Bitcoin main chain. This can greatly increase the speed of transactions and reduce transaction fees. The Lightning Network uses smart contract technology and a multi-signature mechanism to ensure the security of transactions between participants.
Application scenarios of the Lightning Network include small payments and games. It provides users with a convenient, fast, and low-cost payment method, while also 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 the Bitcoin Lightning Network for all its customers. Currently, the US dollar capacity in the Lightning Network payment channel is nearly $320 million.
Overall, the second layer of the Bitcoin sidechain track is some relatively "old" projects, and although it has been done for a long time, the actual progress is actually unsatisfactory, and it is relatively backward in terms of technology and implementation.
03 UTXO+Client Verification
UTXO+Client Verification is a scaling solution for the Bitcoin UTXO account model (UTXO: Unspent Transaction Output, which can be simply understood as unspent receipts). It attempts to perform 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 retain the original characteristics of Bitcoin while achieving second-layer ledger sharing and security.
But in fact, the implementation of this solution is very difficult. Because Bitcoin is not designed to support complex calculations, it becomes very complicated to integrate additional tasks into the UTXO model. This solution emphasizes the originality of Bitcoin, but may ignore the feasibility and difficulty of actual operation.
Currently, most projects in this track are still in the white paper stage and have not made much progress. The following are representative projects:
RGB is a Bitcoin Layer2 solution designed to build on the Bitcoin UTXO model and Lightning Network. Its goal is to compress and encapsulate data into each UTXO of Bitcoin and ensure asset security through client verification.
RGB's design idea is to bind off-chain RGB transactions to the UTXO of Bitcoin transactions. It combines RGB's asset ownership and status with Bitcoin's UTXO operations and control by sealing the proof of RGB transactions and asset ownership in Bitcoin's UTXO. However, RGB's development progress is slow because the multiple technical points involved have high implementation difficulty.Although RGB is considered an orthodox solution, its implementation difficulties and functional limitations make its development progress slow.
RGB++ protocol is a protocol proposed by Nervos Co-founder at the beginning of the year inspired by RGB protocol. Its main idea is similar to RGB, which is to calculate, execute and verify transactions off-chain and then settle on the Bitcoin chain. The difference is that RGB++ adopts a different idea in the verification of transactions and assets.
Nervos takes advantage of the same POW+UTXO structure as Bitcoin, and combines the innovative "isomorphic mapping" technology to successfully replace the client verification of the RGB protocol with CKB. In this way, Nervos expands the functionality and flexibility of the RGB protocol while maintaining the same security as Bitcoin. This migration does not sacrifice too much privacy, and provides users with more ways to use and manage digital assets. While reusing Bitcoin security, RGB++ can obtain Turing-complete smart contract execution capabilities.
In this way, CKB becomes the execution layer and DA data layer of RGB++ assets, but it can not only support the RGB++ protocol, but also support other Bitcoin layer-1 assets, such as Runes and Atomical, as long as they are based on the UTXO accounting model.
CKB has been very popular recently, and here is a brief introduction to UTXO Stack, which is developed by a company incubated by the Nervos Ecological Fund. UTXO Stack is a Bitcoin Layer2 issuance platform based on the UTXO model, designed to help developers quickly build a Bitcoin Layer2 chain based on the UTXO architecture. It provides a set of modular toolkits that allow developers to easily build their own second-layer chains and integrate them into the Nervos ecosystem.
UTXO Stack also natively supports the RGB++ protocol, while using CKB as the data availability layer, bringing more application scenarios and development opportunities to the Bitcoin ecosystem. This architecture enables the RGB++ protocol and UTXO Stack to cooperate with each other, providing strong technical support for the development of the Bitcoin ecosystem.
BitVM is a Bitcoin virtual machine concept solution proposed by Robin Linus, the head of the ZeroSync project. It aims to enhance the programmability of Bitcoin, enabling developers to run complex contracts on the Bitcoin network without changing the basic rules and consensus mechanism of Bitcoin. It is still in the theoretical stage.
BitVM provides a way 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. In order to improve flexibility, BitVM needs to transfer most of the computing process to the off-chain and only put the relevant proofs on the chain. Its core idea is to abstract complex smart contracts into fraud proofs and execute these proofs on Bitcoin scripts. Users can initiate reports when there is a problem with asset transactions and verify the authenticity of transactions through fraud proofs.
At present, the actual feasibility and technical details of BitVM are still controversial and need further observation and research.
04 Summary
The above is today’s content. Although everyone is optimistic about the future development of Bitcoin Layer2, the old Bitcoin Layer2 projects are currently in a tepid state. As for new projects, due to the complexity of technology, most of them are in the white paper stage and are still some distance away from being truly implemented.
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