Is Bitcoin Layer2 going to be a thing of the past?

I have been paying attention to the Bitcoin Layer2 track since August 2023, and it has been more than a year. Like most people, the entire Bitcoin Layer2 track currently gives me the feeling that: It is very lame, and it feels like it is going to die!

In order not to offend anyone, I will not name them one by one.

I feel that the current status of Bitcoin Layer2 is: those that have been listed have poor performance, and those that have not been listed have a mediocre development.

Is the Bitcoin Layer2 track really going to die? ‍‍‍‍

I have been trying to find the real reason for all this:

For example, is it that the investment institutions are not luxurious enough?

Of course not, many BTC Layer2 projects have also received investments from leading institutions such as MultiCoin and Polychain.

Is it that the project team will not make trouble?

Of course not, many BTC Layer2 project teams are known for being able to make trouble.

If it is not a problem of institutional endorsement and team ability to do things, there must be a deeper reason!

I have been thinking about it!

Until recently, I saw BEVM (the team has always been good at technological innovation, but the ecological situation is also lagging) released the latest technical framework white paper Super Bitcoin, from which I seem to have found the answer.

This white paper is very interesting, and the whole paper talks about one word: shared Bitcoin consensus security.

The slogan proposed is: Bitcoin Layer2 that cannot share Bitcoin consensus security must die!

Very cruel!

But it makes sense!

The Super Bitcoin white paper also proposes: The reason why Ethereum Layer2 was established is because Ethereum Layer2 can share Ethereum's consensus security, and people play Ethereum Layer2 based on their trust in the Ethereum network.

However, almost all Bitcoin Layer2s do not share Bitcoin's consensus security. They are basically a multi-signature wallet plus an independent consensus chain, which has nothing to do with Bitcoin, let alone sharing Bitcoin's consensus security.

Therefore, for a new chain that is called Bitcoin Layer2 but has nothing to do with Bitcoin consensus, users have no trust and consensus basis at all, and the market certainly does not buy it!

I think it's very interesting, so I studied it in depth, and now I share some of the results of the research with you!

First, let's clarify a few concepts.

What is consensus security? What is shared consensus security?

What is consensus security?

Consensus security refers to the security and validity of transactions in a blockchain network, where nodes use a consistent consensus algorithm. For most blockchain networks, consensus security means that most nodes in the network need to reach a consensus on transactions through some form of verification mechanism to resist external attacks or tampering.

It can be said that consensus security is the core of blockchain, and consensus security is the highest level of security, because consensus security is the maintenance of network security by all chain nodes at the consensus level.

Each independent public chain has its own consensus security mechanism, such as Bitcoin's POW mechanism, Ethereum's POS mechanism, TRON's DPOS mechanism, Solana's POH mechanism, etc.

However, the consensus security of a public chain has no essential relationship with the mechanism used, but only with the cost of destroying the consensus of the network.

For example, to destroy the consensus of Bitcoin, you need to master 51% of the Bitcoin computing power to launch an effective attack on the Bitcoin network. At present, the total Bitcoin computing power of the entire network is about 725EH/s, so you need to master at least 370EH/s (51%) of the computing power scale to launch an effective attack on Bitcoin. According to the current market price of Bitcoin computing power, the cost of Bitcoin computing power of 370EH/s exceeds 150 billion US dollars, plus the corresponding electricity bill, the total is far more than 200 billion US dollars.

Public chains with POS mechanisms such as Ethereum can estimate their consensus security (that is, the cost of attack) by "the total value of node staked tokens." For example, the total amount of Ethereum POS nodes pledged is about 35 million, with a current value of about 90 billion US dollars. Therefore, the cost of attacking the Ethereum network is about 46 billion US dollars.

According to the data, the cost of attacking the Bitcoin network consensus is more than 4 times that of the Ethereum network consensus. Therefore, the security of the Bitcoin network consensus is much greater than that of Ethereum! ‍‍

Compared with other POS chains, for example, FDV is less than 10 billion and the pledge rate is less than 20%, then its "total value of node pledged tokens" is less than 2 billion US dollars, and the attack cost is only 1.1 billion US dollars. Its consensus security is relatively low.

Through the most intuitive "attack cost theory", a clear judgment can be made on the consensus security of all public chains.

From the data, the Bitcoin network is undoubtedly the most secure blockchain!

So, what is shared consensus security?

Shared consensus security means that some blockchains (mainly subchains or Layer2) can use the consensus mechanism of the main chain to ensure their own security. This means that even if transactions are conducted on the second layer, side chain or parallel chain, users can still enjoy the security of the main chain level. For example:

1. Polkadot and Parallel Chains:

In Polkadot’s architecture, the main chain (Relay Chain) is responsible for providing global security, while each parachain ensures its own security by sharing the consensus mechanism of the main chain. Parallel chains can focus on their specific functions without sacrificing security because they rely on Polkadot’s main chain consensus. (Of course, the overall market value of DOT is about 6 billion US dollars, and the DOT pledge rate is about 58%, which is about 3.48 billion US dollars. The cost of its network attack is about 1.77 billion, and the network consensus security is relatively low. Therefore, even if we share the consensus security of Polkadot, it is not very meaningful. This is also one of the important reasons why the Polkadot ecosystem has been tepid.)

2. Ethereum and Ethereum Layer 2:

Ethereum's Layer 2 solutions, such as Optimistic Rollup and ZK-Rollup, record simplified transaction status on the Ethereum mainnet and use the main chain's security mechanism to ensure the transaction security of Layer 2. This means that although Layer 2 can handle a large number of transactions independently, its security still depends on Ethereum's consensus mechanism.

Through these examples, we can see that the core of shared consensus security is that it enables developers to create sub-chains or second-layer networks with independent scalability while maintaining the security of the main chain.

So, why does Bitcoin Layer2 have to share Bitcoin consensus security?

The reason is clear at a glance!

Because all mainstream Layer2s do not have their own independent consensus, they all rely on the consensus of the main network to exist. For example, Ethereum Layer2, whether it is Arbitrum, ZKSync or BASE, does not have its own consensus. The entire Layer2 network relies entirely on the official sequencer (that is, Sequencer, generally Layer2 has only one official sequencer) to sort to the main network, and ultimately relies on the main network to ensure the security and credibility of Layer2.

That is, Ethereum Layer2 all shares the Ethereum consensus security. The essence of users trusting Ethereum Layer2 is to trust the security of Ethereum, not Layer2 itself.

So, if a Bitcoin Layer2 cannot share the consensus security of Bitcoin, then it is not a real Bitcoin Layer2. Without the Bitcoin network to ensure security, Bitcoin Layer2 has no way to truly gain the trust of users and funds. (After all, users need to put real money into Layer2 to play, how can they participate without trust?)

This is the dilemma faced by all Bitcoin Layer2s at the moment.

There are two more sets of data to support this view:

First: TVL comparison between Bitcoin layer2 and Ethereum layer2

Currently, the TVL on Bitcoin Layer2 chain is about 1.45 billion US dollars, while the TVL on Ethereum Layer2 chain is about 36 billion US dollars (data from footprint.network). The difference between the two is more than 30 times. This means that the trust of funds in Bitcoin Layer2 chain is far lower than that of Ethereum Layer2.

Second: Comparison of the average market value of Bitcoin layer2 and Ethereum layer2

The average market value of Bitcoin layer2 is basically below 1 billion US dollars (most Bitcoin layer2s are currently valued at less than 500 million US dollars), while the market value of mainstream Ethereum layer2 is basically 5 billion or even 10 billion US dollars. The difference between the two is 5-10 times. This means that the capital market's confidence in the Bitcoin layer2 track is far lower than that of Ethereum layer2.

According to the above blockchain network consensus "attack cost theory", the consensus security of the Bitcoin network is more than 4 times that of Ethereum. Then, the theoretical valuation of Bitcoin layer2 should be more than 4 times that of Ethereum layer2, but now it is just the opposite!

Why?

The reason is: almost all Bitcoin Layer2 cannot share Bitcoin's consensus security. They all use a chain that has nothing to do with Bitcoin, plus a multi-signature scheme, and call it Bitcoin Layer2. Then they try to gain user trust through the Bitcoin Layer2 concept and airdrop expectations. However, the real data represents the true attitude of funds and users.

Bitcoin Layer2 that cannot share Bitcoin consensus security cannot gain user trust!

No wonder the entire Bitcoin Layer2 track is so weak, the reason is here!

So, is there really no Bitcoin Layer2 that can share Bitcoin consensus security?

There really is one!

That's the Lightning Network!

Without any token incentives, the Lightning Network can still keep 5,000 BTC in circulation on the network for a long time. This data has exceeded the vast majority of so-called Bitcoin Layer2 that rely on token incentives to attract BTC.

Why?

There is only one reason, that is: the Lightning Network fully shares the Bitcoin consensus security.

Everyone chooses to use the Lightning Network because they trust the security of Bitcoin and have the same security as Bitcoin. This is the root of the problem.

So, how does the Lightning Network achieve shared Bitcoin consensus security?

The principle is as follows:

State channels can be freely established between lightning network nodes (this state channel is a fast payment channel built on the Bitcoin chain, and the scheme was proposed by Satoshi Nakamoto). The opening of the channel involves creating a signature output on the Bitcoin blockchain, and closing the channel requires broadcasting the final state to the main chain. This is the core mechanism of the lightning network to share Bitcoin consensus security. If you compare carefully, you will know that the rollup scheme of Ethereum Layer2 draws on the concept of state channels of the lightning network)

Every time the channel state is updated, a new commitment transaction is generated. These transactions can be broadcast to the Bitcoin main network when necessary. The design of the commitment transaction ensures that even if one party of the channel does not cooperate, the other party can still close the channel and obtain the funds it deserves by broadcasting the latest commitment transaction. This mechanism directly relies on the consensus rules and security of Bitcoin, so that the security of the lightning network is actually guaranteed by the Bitcoin network, that is, it fully shares the consensus security of Bitcoin.

The lightning network, which can share the security of Bitcoin consensus, can attract more than 5,000 BTC to circulate in the lightning network for many years even without any token incentives. This is the sense of security that shared Bitcoin consensus brings to users.

Of course, the lightning network, Bitcoin Layer2, also has shortcomings.

That is, the lightning network only has payment scenarios and does not support more complex smart contract scenarios.

Super Bitcoin has grasped this point of the lightning network and proposed its own solution: that is, to use Bitcoin as the basic ledger layer and the lightning network as the only Bitcoin second layer, and then, by upgrading the point-like lightning network node to a chain node that supports smart contracts, the limitation that the lightning network can only do payments but not smart contracts can be broken, thereby realizing the further expansion of Bitcoin, that is, to achieve unlimited expansion of Bitcoin while ensuring the security of shared Bitcoin consensus.

Not only that, Super Bitcoin also shares Bitcoin consensus security with various Lightning Chains built on the Super Bitcoin modular Stack function through modular abstraction. This is Super Bitcoin's solution. If you want to know more details, you can study Super Bitcoin's white paper by yourself https://bevm-blog.webflow.io/post/super-bitcoin-a-value-internet-sharing-bitcoins-consensus-security

To sum up:

By studying the importance of "sharing Bitcoin consensus security" to Bitcoin Layer2, I found the deep reason why the current Bitcoin Layer2 track is so weak - there is no shared Bitcoin consensus security!

If Bitcoin Layer2 is to usher in real development in the future, it really must return to Bitcoin and study how to share Bitcoin consensus security. As the only Bitcoin Layer2 that can share Bitcoin consensus security, the Lightning Network is indeed of great reference significance. If you really want to develop a Bitcoin expansion plan, returning to Bitcoin and continuing to expand in the direction of sharing Bitcoin consensus security (such as based on the Lightning Network) may really be the only way out at present.