Developers are working on building various Layer 2 projects on top of the Bitcoin base layer. This article introduces early and recent Layer 2 projects of Bitcoin. The information is sourced from an article written by Cregis Research and compiled, translated, and written by Block Beats.
Table of Contents
Why does Bitcoin need Layer 2?
Early Layer 2 Projects of Bitcoin
(1) Lightning Network
(2) Stacks
(3) Rootstock
(4) Liquid Network
New Layer 2 Projects of Bitcoin
(1) BEVM
(2) B2Network
(3) Dovi
(4) Map Protocol
(5) MerlinChain
(6) Bison
Next Step for the Bitcoin Ecosystem: Smart Contract Market
(1) BitVM
(2) RGB
Conclusion
In 2023, Bitcoin scripture brought new vitality and possibilities to the Bitcoin ecosystem. Then in early 2024, Bitcoin reached a historical high of $73,000 and the Bitcoin halving event, attracting market attention once again.
The proven security and network effect of Bitcoin have attracted many developers who view Bitcoin as the blockchain base layer. These developers are working on building various Layer 2 projects on top of the Bitcoin base layer. In this article, we will introduce early and recent Layer 2 projects of Bitcoin.
According to the “scalability trilemma”, decentralized networks find it difficult to simultaneously achieve decentralization, security, and scalability. The Bitcoin network has over 75,000 core nodes, making it extremely decentralized and recognized as the most secure blockchain. However, the Bitcoin network can only process 3-5 transactions per second, making it unable to scale. One potential solution to the scalability issue is Bitcoin Layer 2 technology, which aims to improve Bitcoin’s scalability to handle a large number of transactions without reducing transaction speed or increasing transaction fees.
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Currently, the total value locked (TVL) of Bitcoin’s Layer 2 (L2) projects is only a small fraction of Bitcoin’s market value. The total TVL of the four most well-known L2 projects is approximately $700 million, accounting for only about 0.15% of the entire L2 market. This indicates that Bitcoin’s Layer 2 ecosystem is still in its early stages, especially compared to the Layer 2 market on other blockchains.
However, the situation is quietly changing. The Lightning Network continues to grow steadily, Stacks is committed to major upgrades to drive the development of the Bitcoin smart contract market, and Rootstock is also continuously upgrading. Currently, the existing L2 solutions on Bitcoin have different goals, some aiming to improve Bitcoin’s network scalability, while others aim to enhance its expressive programmability.
The Lightning Network, as a second-layer solution for Bitcoin, aims to address Bitcoin’s scalability issues and increase transaction throughput while reducing transaction fees. Users can conduct off-chain transactions through payment channels, avoiding the competition for block space on the Bitcoin blockchain or waiting for L1 consensus, thereby improving efficiency. When users decide to settle transactions conducted through payment channels, they can choose to close the channel and aggregate off-chain activities to the Bitcoin network for settlement. The Lightning Network currently has a total value locked of:
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The design of the Lightning Network enables it to facilitate over 40 million transactions per second, much higher than other blockchains and traditional payment channels. Additionally, the Lightning Network significantly reduces transaction fees, with low base fees and rates. As the usage of the Lightning Network increases, these fees continue to decrease.
More users and businesses are starting to adopt the Lightning Network to reduce transaction costs and improve the usability of Bitcoin. Government and corporate integration also promote the application of the Lightning Network, such as the Salvadoran government adopting Bitcoin as legal tender and being compatible with the government-commissioned ChivoWallet. Companies such as Twitter and CashApp have also added support for the Lightning Network on their platforms.
The market has a positive outlook on the future prospects of the Lightning Network, with many projects and investors dedicated to building L2 networks. For example, Block, a Bitcoin startup company under Jack Dorsey, has launched a new venture capital entity called “c=” that focuses on providing new financing tools and services on the Lightning Network. Meanwhile, companies like Spiral are developing Lightning Network development kits (LDK) to improve the user experience of the Lightning Network and increase its appeal to mainstream users. Additionally, the Lightning Network core team, Lightning Labs, has launched the “Taro” upgrade to leverage the Taproot upgrade of Bitcoin to bring new assets to the Bitcoin network, enabling users to issue and transfer synthetic assets, tokens, and NFTs on Bitcoin.
Finally, companies like Zeebeedee and Strike are negotiating with different countries for fiat on-ramps to attract more users to join the Lightning Network and provide international remittance services, expanding its use cases.
Stacks calls itself “Bitcoin Layer” which means it is a second-layer solution that runs on the Bitcoin blockchain. Although it is not a sidechain, it leverages the security of Bitcoin and incentivizes miners and transaction processing through the introduction of the STX token and a consensus mechanism called PoX. Stacks allows developers to build various DApps, especially in the DeFi and NFT fields. Stacks currently has a total value locked of:
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Now, Stacks introduces sBTC, an asset pegged to Bitcoin, allowing users to transact with sBTC equivalent to Bitcoin on the Stacks layer. This will further drive the development of DeFi and NFT use cases on Stacks and potentially unlock capital within the Bitcoin ecosystem. Additionally, Stacks is undergoing an upgrade called Nakamoto to fully leverage the security of Bitcoin for transaction confirmation on the Stacks layer.
Recently, there has been increased interest in Stacks due to discussions on Ordinals and Runes and the role of Stacks in expanding Bitcoin use cases. Founder Muneeb Ali has also actively participated in top cryptocurrency-related podcasts. Investors may be preparing for the upcoming Stacks upgrade, and everyone is closely watching the impact of sBTC and its potential on Bitcoin.
Rootstock (RSK) is an EVM-compatible sidechain for general-purpose Bitcoin smart contracts. It adopts a unique variant of Bitcoin’s Nakamoto consensus called DECOR+ to merge mine with Bitcoin. SmartBitcoin (RBTC) is the native currency within RSK, pegged 1:1 with Bitcoin, used for paying transaction fees. Rootstock currently has a total value locked of:
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RSK connects to Bitcoin L1 through Powpeg, allowing BTC to be transferred between the two chains. Powpeg was initially managed by an alliance responsible for managing a multisignature wallet, and RSK further increased the decentralization of Powpeg. However, Powpeg still requires a certain level of trust as BTC withdrawal requests need at least 51% of alliance members’ signatures. Currently, nine members support Powpeg.
One of RSK’s key advantages is its virtual machine (RVM) compatibility with Ethereum Virtual Machine (EVM), which means RSK’s smart contracts can be written in the Solidity language. Sovryn is a well-known RSK project, serving as a non-custodial smart contract platform for Bitcoin lending and leveraged trading. RSK recently announced the removal of the supply cap for RBTC, expanding RBTC’s supply to be equivalent to BTC, which is 21 million coins. This move is significant for Bitcoin DeFi as the previous supply limit of RBTC restricted activities on RSK. Removing the supply cap may attract more developer attention and encourage them to build more DApps on RSK.
For any new DApps launched on RSK, we should closely monitor their development as RSK provides a strong foundation for enabling DeFi on Bitcoin.
Liquid Network is an L2 sidechain that enables settlement and issuance of digital assets such as stablecoins, security tokens, and other financial instruments on top of the Bitcoin blockchain. Unlike other L2 solutions, Liquid Network is relatively more centralized and secures itself through a consortium consensus mechanism managed by 60 members. The task of these members is to validate blocks and add transactions to the Liquid Network sidechain.
Similar to RSK, Liquid Network has a token called “L-BTC” pegged 1:1 with BTC. At the time of writing, the circulating supply of L-BTC tokens is approximately 3,534. The token is primarily used for the Lightning Network, providing higher transaction speed and throughput compared to the Bitcoin main chain. Additionally, Liquid Network users can utilize their L-BTC for other Liquid Network-supported applications such as lending or purchasing security tokens.
BEVM was established in 2023 and is a decentralized Bitcoin L2 compatible with EVM. Based on technologies such as the Schnorr signature algorithm brought by the Taproot upgrade, BEVM allows BTC to be cross-chain transferred to the second layer in a decentralized manner. Since BEVM is compatible with EVM, all DApps executed in the Ethereum ecosystem can be deployed on the BTCLayer 2 and use BTC as Gas.
On November 29, 2023, BEVM released a whitepaper. Currently, BEVM has launched a testnet called ChainX. According to the 2023 annual data of BEVM testnet, the total transaction volume is 2.77 million, the total number of active addresses is 55,000, the TVL reaches 119.56 BTC (about $5.09 million), and the total bridge capacity for roundtrips between Ethereum L2 is $11.53 million. Recently, BEVM testnet launched the first Mnemonic Protocol called Bevscriptions, processing 3 million transactions within 6 hours, with a TPS of approximately 150.
In December 2023, BEVM initiated the first Odyssey event, which has now concluded. BEVM founder Gavin (@gguoss) stated that the second phase is expected to start on January 15 and will invite 10-20 ecological projects to participate. The second phase will not use the name “Odyssey” but instead use the name of the city where the first BTC block mined by Satoshi Nakamoto is located, “Helsinki.”
Currently, the BEVM ecosystem includes over 20 projects such as BTC full-chain DEX OmniSwap and decentralized signature protocol BoolNetwork.
B2Network was established in 2022 and is a Bitcoin Layer 2 network developed based on ZK-Rollup, compatible with EVM, allowing seamless deployment of DApps by Ethereum ecosystem developers. The network participated in the ABCDE Bitcoin ecosystem project roadshow in November 2023 and ultimately received investment. According to ABCDE, the core members of B2Network’s technical team come from Ethereum, Bitcoin, andMainstream Web3 open-source communities such as n, Cosmos, and Sui have received multiple grants for support. These teams specialize in Web3 infrastructure products such as blockchain Layer 1, Layer 2, cross-chain, and account abstraction, and have mature engineering capabilities.
On December 18, 2023, B2Network announced the launch of the Alpha Testnet MYTICA for its partners and developers and openly recruited ecological developers. Partners and developers can deploy DApps on the B2Network testnet. The cross-chain protocol Meson of the ecological project of the network has been deployed on the B2Network Alpha Testnet with stablecoin USDC. Meson is a cross-chain protocol that focuses on speed, stability, security, and low transaction fees, supporting the free circulation of mainstream digital assets such as ETH, BNB, USDC, USDT, and more than 30 mainstream public chains in B2Network.
Dovi was founded in 2023 and is a Bitcoin Layer 2 compatible with EVM smart contracts. In November 2023, Dovi officially released its whitepaper, introducing technologies that integrate Schnorr signatures and MAST structures to improve transaction privacy, optimize data size, and verification process. In addition, Dovi has implemented a flexible framework for issuing various types of assets other than Bitcoin, achieving cross-chain asset transfers.
KuCoinLabs announced strategic investment in Dovi in December 2023, and its native token DOVI was listed on the KuCoin trading platform on December 12 of the same year. The distribution of DOVI tokens adopts a fair release model, and within 4 hours of listing, all 15 million tokens have been claimed. As of January 15, the fully diluted market value of DOVI is approximately $9.4 million. Currently, users can stake DOVI on the official website to earn rewards.
According to the Dovi official website, the next step is to release the testnet, establish a developer community, and ecosystem support, and launch Dovi V1. This initiative will help further develop the Dovi ecosystem and attract more developers and users to participate.
MAPProtocol is a promising project, especially in terms of solving cross-chain interoperability. By leveraging the security of Bitcoin, MAPProtocol provides a seamless interaction with other blockchain assets and users, which will enhance the security and interoperability of the entire blockchain ecosystem.
The recent strategic investments from DWFLabs and WaterdripCapital undoubtedly provide strong support for the project’s development, indicating market recognition and expectations for the project.
The burning measures of MAP and MAPO tokens not only help reduce the circulating supply of tokens and increase their scarcity but also contribute to the value of the tokens. The current fully diluted market value is approximately $260 million, which shows market recognition of the potential value of MAPProtocol, and with the development and adoption of the project, this digital currency is expected to further grow.
Overall, MAPProtocol’s innovation in cross-chain interoperability and the investment support it has received lay a solid foundation for its future development.
MerlinChain is a Bitcoin Layer 2 network that supports multiple types of native Bitcoin assets and is compatible with EVM. It is launched by the well-known BRC-420 Blue Box and Bitmap development team. According to the official website and some research reports, Merlin is a Bitcoin Layer 2 solution that integrates ZK-Rollup network, decentralized oracle, and on-chain BTC anti-fraud module.
From the MerlinChain official website, we can see the attributes of its Bridge, which can transfer assets on BTC to the Layer 2 network, thereby reducing transaction costs. It is a typical representation of solving pain points.
This solution, which integrates ZK-Rollup, oracles, and anti-fraud modules, is expected to bring more innovation and development to the Bitcoin ecosystem, providing a more efficient and secure trading experience and attracting more users and developers to participate.
Bison was founded in 2023 and is a Bitcoin-native zk-rollup aimed at improving transaction speed while achieving advanced functionality on native Bitcoin. Developers can use zk-rollup to build innovative DeFi solutions such as trading platforms, lending services, and automated market makers.
Bison also participated in the ABCDE Bitcoin ecosystem project roadshow. According to the introduction, the Bison solution utilizes zero-knowledge proofs and Ordinals for fast and secure transactions. All data is anchored back to Bitcoin to enhance security. Bison can achieve 2,200 transactions per second, with costs only 1/36 of Bitcoin.
The Bison team includes contributors to Starknet’s own code, which means the team has rich blockchain technology experience and expertise and has the ability to develop efficient and secure solutions. With the continuous development of Bison in the Bitcoin ecosystem, it is expected to bring more innovation and convenience to Bitcoin users and developers.
For years, Bitcoin has been facing various challenges, including a lack of developer tools, slow and cumbersome infrastructure, and relatively limited innovation compared to smart contract platforms such as Ethereum, BNBChain, and Solana. However, the recent situation seems to be changing.
Developers can finally showcase their skills within the Bitcoin ecosystem and are pushing updates at an unprecedented pace to drive the development of Bitcoin. And all of this is driven by natural demand. This is the key, when an ecosystem faces real, natural user needs, these needs inherently drive innovation and product development, forming a virtuous cycle, and the situation will improve rapidly.
On October 9, Robin Linus, the project lead of ZeroSync, released a paper on BitVM. In simple terms, BitVM is a virtual machine for the Bitcoin network, which achieves Turing completeness without changing the consensus rules of the Bitcoin network through off-chain execution and on-chain verification.
BitVM has significant differences compared to Ethereum’s smart contracts. While Ethereum smart contracts can support multi-party transactions, BitVM’s design can only support two-party transaction exchanges. Most of BitVM’s transaction processing is done off-chain, minimizing the impact on the underlying Bitcoin blockchain. In contrast, EVM is an on-chain engine where all operations are performed in the native environment of Ethereum. BitVM is an optional additional engine for the Bitcoin blockchain, and its own operations do not require BitVM. Without EVM, there would be no Ethereum.
BitVM’s functionality is achieved through the Bitcoin Taproot upgrade. BitVM primarily relies on the taproot address matrix (taptree), which is similar to binary circuitry instructions. In this framework, the spending condition instructions of UTXOs in each Script script are treated as the smallest program unit, generating 0 or 1 through specific code in the taproot address, forming the taptree. The execution result of the entire taptree is the textual effect of binary circuitry, equivalent to an executable binary program. The complexity of the program depends on the number of taproot addresses combined, the more addresses, the richer the pre-set instructions in the Script, and the more complex programs taptree can execute.
Most of BitVM’s processing is done off-chain, and off-chain processed transactions are bundled into batches and published to the underlying Bitcoin blockchain, using a validity confirmation model similar to the one used in optimistic rollups. At the same time, BitVM uses a model that combines fraud proofs with query-response protocols to handle and verify transactions between two parties (prover and verifier). The prover initiates the computation task and sends it to the verifier through the channel established between them, then the verifier confirms the validity of the computation. Once verified, the transaction is added to the organized batch for release to the underlying Bitcoin blockchain.
RGB is maintained and updated by the LNP/BP Association and is a smart contract system that supports the Bitcoin network and the Lightning Network. The RGB protocol proposes a more scalable, privacy-focused, and future-oriented solution, with the cornerstone being the concept of client-side validation and single-use seals introduced by Peter Todd in 2017.
The core idea of RGB is to use the Bitcoin blockchain only when necessary, utilizing proof-of-work and network decentralization to achieve double-spending protection and censorship resistance. The verification work for all token transfers is removed from the global consensus layer and placed off-chain, verified only by the client of the receiving payer.
So how does it work? In RGB, tokens essentially belong to a Bitcoin UTXO (whether an existing UTXO or a temporary one), and to transfer tokens, you need to spend this UTXO. When spending this UTXO, the Bitcoin transaction must include a commitment to a message, which is the RGB payment information, defining inputs, where these tokens will be sent to which UTXO, asset IDs, quantities, spent transactions, and other additional data that need to be attached.
The specific payment information of RGB tokens is transmitted off-chain through dedicated communication channels and verified by the client of the recipient, ensuring it does not violate the rules of the RGB protocol. In this way, blockchain observers will not be able to obtain any information about RGB user activity.
However, verifying the received payment information alone is not enough to ensure that the sender really owns the assets they are sending to you. Therefore, to make the received transactions final, you also need to receive the entire transaction history about these tokens from the sender, from the current one all the way back to the initial issuance. By verifying the entire transaction history, you can ensure that these assets have not been inflated, and all spending conditions attached to the assets have been satisfied.
Bitcoin Layer 2 is an important component of modern Web3 development. If Bitcoin wants to maintain its position as one of the major blockchain networks, it needs a way to process transactions quickly and cost-effectively. Fortunately, many developers have decided to tackle the scalability challenges of Bitcoin, so there are many different Bitcoin Layer 2 solutions to choose from when people want to reduce transaction costs and expand Bitcoin’s functionality.
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