What are the pain points in the development of BTCFi L2/L1?

Author: Jan Source: X, @busyforking

First exclude three options that I think are not pain points:

1. Too many projects distract attention and resources——This is a normal phenomenon for a prosperous ecosystem. No one complains about too many projects on ETH/SOL. No matter how many projects there are, you have to learn to distinguish signals from noise.

2. No masterpiece——The Lightning Network can be called a masterpiece, but the Lightning Network often gives people the illusion that "it has been developed for so long and it is just like this." This illusion arises because we can easily ignore the limitations of Bitcoin Script and the caution of Bitcoin developers. Bitcoin L2 can just solve these problems. On the one hand, L2 can provide more powerful contract capabilities, and on the other hand, it is also a good test field. Why is the Lightning Network a masterpiece? Because it represents a completely different technical route and has advantages in privacy, throughput, response time, cost and so on. The Lightning Network still has many challenging problems to overcome, but its potential is so high that it is worth investing energy and resources to overcome the challenges.

   Secondly, looking at the more basic level, UTXO itself is a subversive architecture. Subversive means that it is difficult to understand and build, which will hinder the development of the ecosystem and it will be difficult to produce a landscape of "masterpiece explosion". But as long as time is long enough, anything that grows on a new "digital terrain" will have a strong local color, such as the cash-like properties of UTXO assets that are completely different from ERC20, client side validation, UTXO sharing protocol, etc. Bitcoin's own status is also enough to support the growth of an independent ecosystem. Therefore, I think it is only a matter of time before more masterpieces appear, and the flexibility provided by L2 will accelerate this process.

3. Lack of money and resources to promote——Obviously not true, the Bitcoin/Lightning Network ecosystem has enough investment.

Lack of consensus may be the biggest problem. First of all, from the perspective of the entire crypto industry, there is no understanding and consensus on the UTXO architecture. "It is impossible to develop dApp without smart contracts on the UTXO chain" is still a common misunderstanding. If there are no smart contracts, how to do L2? It is easy to conclude that Bitcoin L2 is all scam.

Secondly, even within the Bitcoin ecosystem, opinions are very divided: fundamentalists believe that we only need BTC, and everything else is scams, and any changes to the Bitcoin chain are unnecessary. Progressives believe that it is necessary to improve the Bitcoin chain, at least to make BTC more powerful, but there are huge differences on "how much improvement is reasonable?" The most radical progressives believe that more assets and even contract capabilities should be supported through soft-forks, while conservative progressives believe that only minimal changes should be made to enhance BTC itself, while not bringing unnecessary scenarios (such as new assets, MEV) to pollute the Bitcoin chain. L2 progressives believe that Bitcoin L2 should be made more secure through soft-forks to make L2 possible.

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Third, there is no consensus on how "Bitcoin L2" should be defined. A strict definition would require that L2 cannot have its own tokens, and L2 transactions should ultimately be based on Bitcoin L1. A looser definition such as sidechain would relax the requirements for L2 consensus and only hope to achieve a secure 2-way peg (aka cross-chain bridge). In fact, neither of these can be done today due to the limitations of Bitcoin Script capabilities, and it is impossible to ensure that L2 users can safely withdraw to L1. A further loose definition only requires a secure BTC->XXX 1-way peg. Under this definition, Ethereum may be the Bitcoin L2 with the largest TVL (I'm not sure but I'm too lazy to check the data. It takes some time to analyze it carefully, because wbtc is not a secure 1-way peg that meets this definition). The definition of progress + leniency will broaden the horizon - if Bitcoin L1 has not only BTC, but also other UTXO assets, then is the chain that can achieve secure 2-way peg for UTXO assets issued on Bitcoin L1 Bitcoin L2? The loosest definition is to completely abandon the idea of ​​L1 security as an anchor, starting from the BTC currency attribute, and regard the Bitcoin chain as M0, and any place where BTC is used is M1, M2,... Then CEX is also Bitcoin L2. This definition is surprising or even ridiculous at first glance, but I think it is very meaningful - at least it can remind us that if we cannot create a better and more decentralized Bitcoin L2, then CEX will be the de facto Bitcoin L2. Which future do you prefer?

Probably because of these reasons, the industry's views on how the Bitcoin ecosystem should develop are very divided. But this split may also be just a normal phenomenon in the early stage of the ecosystem plus Bitcoin's bottom-up culture. I believe that consensus will emerge and form slowly over time, because we believe in rough consensus and running code.

I personally prefer "moderate" progressivism - the Bitcoin chain needs to enhance its contract capabilities through soft-fork, and the purpose of the enhancement should be to facilitate the implementation of CSV-type assets and lightning networks. The reason is simple:

1. L1 needs to serve L2, whether it is a programming model or an economic model;

2. Bitcoin L1 is a very good asset issuance/storage platform. This scenario can not only maximize the benefits of Bitcoin chain security investment, but also is a way to solve the bug of L1's economic model based on handling fees. The CSV asset protocol takes up the least space on the chain, and is the most economical and healthy for Bitcoin L1;

3. The Lightning Network is the most mature Bitcoin L2 at present, and other Bitcoin L2s are just assumptions. Any modification to the Bitcoin protocol for a hypothesis is irresponsible to Bitcoin's $1 trillion market value. Under this scale, mempool improvements are appropriate, OP_CTV may be appropriate, OP_CAT may be excessive, and ZK primitive or the covenant added for rollup is obviously excessive.

This is why CKB chose to expand the UTXO model, introduce states and RISC-V virtual machines, and bind UTXO assets on CKB to Bitcoin L1 UTXO through RGB++. For Bitcoin, which is in the process of mild improvement, CKB can be a good supplement to Bitcoin, enhancing the capabilities of UTXO assets on Bitcoin, enhancing the capabilities of the Lightning Network, adding liquidity to the Lightning Network, and giving full play to the potential of the UTXO model. We hope that through CKB we can accumulate more experience in UTXO L1/L2 protocols, and eventually contribute these experiences back to Bitcoin to help Bitcoin protocol improvements find a safe route.