Bitcoin Layer2s: A Quick Overview

The Bitcoin blockchain is just getting its deserved recognition and use even though its very existence started Decentralization.

The Ordinals craze and Rune frenzy brought a lot of people (and their money) to the blockchain.

There's one major reason why Bitcoin lagged behind other blockchains in use and popularity, this is it's lack of scalability despite being the most secure blockchain.

For a long time, the blockchain wasn't used for much other than payments. And even that was quite slow.

The inability to build on the most secure blockchain came up in developer and DAO conversations over the years, and the actual products where slowly crept on us till it burst in a frenzy early this year.

Majority of these products? Bitcoin Layer2s.
Or incubators and launchpads for said layer2s, Cross chain bridges, side chains to launch applications…every which way to scale the Bitcoin blockchain.

Layer2s are required to scale, they are protocols that are built on top of the blockchain’s main layer. They are used to ‘scale’ the main layer's capacity to process transactions, they do this by processing larger amounts of transactions off the main chain and sending only the processed batches to the main chain for settlement.

The Bitcoin blockchain is no different. This blockchain is perhaps the one that needs layer 2s the most, sometimes processing only 7 transactions per hour. This creates congestion, very slow processing time, and high fees.

The point of Bitcoin layer2s is to solve it's scalability problem, so that it can perform more operations. The blockchain was the first mover but was created with Peer to peer transfer of value in mind, and back then it didn't need to be fast or handle a lot of transactions. It's still, till date, the most secure Proof of Work (PoW) blockchain network.

There's another way Bitcoin L2s are different;
Other than improving its efficiency and speed, these Layer 2s also allow for applications to be built and used on the blockchain. This is due to the execution layer that gives the network virtual machine - like abilities, giving it the capability to run smart contracts and current applications.

The Technology
Bitcoin Layer 2s use varying technology to allow for applications to be built for several uses. Cross chain Bridges, payment platforms, NFTs etc are some examples. Here's a list of layer2s technology used to scale.

Roll ups: like the name implies, this technology rolls up (bundles) several thousand transactions together after processing and sends it to the main layer as a single transaction for final confirmation. This way Rollups increase processing speed and lower fees. There's two types.
Optimistic Rollups - These allow for a 7 days period for anybody to question the validity of a transaction with a fraud-proof, before it's sent to the main layer.

ZK Rollups - These ensure that each transaction data is valid using Zero knowledge validity proofs before sending the data to the main chain. There's no waiting period.

State channels: The state of every network is ever changing because they are constantly being updated with transaction data. State channels capitalize on this and function in the communication layer between wallets.
How it works:
Wallet A initiates a transaction to send some Bitcoin to wallet B.
A multisig wallet is created to hold the Bitcoin along with a new channel.
This channel allows them to record information exchanged between them, like change in balances, as state changes.
When the transaction(s) is done, the channel is closed, the last state is fowarded to the main layer as one transaction.
State channels allow for multiple transactions between two wallets to be processed as one thereby reducing gas fees.

Sidechains: These can be said to be solely responsible for applications on Bitcoin blockchain. They can run advanced protocols like NFTs and run smart contracts. They are standalone networks with their own architecture, but they still bridge into the main blockchain for easy asset transfer. An example is Polygon.

Sidechains are different in that they do not always inherit the security of the main network and can choose to create theirs.

The Genesis: Lightning Network
Launched in 2015 and relaunched in 2018, though not as profound as Ethereum’s virtual machine, the lightning network was enough to handle the transactions then, and it was the only way to handle payments on the Bitcoin Blockchain.

The Lightning Network used state channels to record and sign off on transactions. What makes it special is its blockchain as an arbiter feature that makes it possible for transactions to happen off chain while relying on blockchain enforceability.

Most Popular Bitcoin layer2s

Stacks: This is the most popular Bitcoin layer2. Stacks, which used to be known as Blockstack, is a Layer 2 solution designed to bring smart contracts, NFTs, DeFi, and DApps to the Bitcoin blockchain. With Stacks, you get the speed and responsiveness of quick transactions while still enjoying the rock-solid security of Bitcoin, thanks to its 100% Bitcoin finality. It operates using Proof-of-Transfer (PoX) to settle transactions directly onto the Bitcoin network.

Merlin: Merlin Chain is an EVM-compatible chain that offers low fees and high scalability, ensuring swift transaction processing and better liquidity. It's committed to fair launches and community-driven innovations on Layer 2, bringing unique solutions to Bitcoin and its users. With the implementation of ZK-Rollup, Merlin Chain enhances efficiency and scalability. Sequencer nodes manage data transmission through decentralized Oracles, ensuring transparency and security. Plus, Merlin Chain supports popular Bitcoin protocols like BRC20, BRC420, Bitmap, Atomicals, Pipe, and Stamp, making it easy for a broad user base to engage on it.

SatoshiVM: this is a cutting-edge Layer 2 solution for Bitcoin that works with the Ethereum Virtual Machine (EVM) ecosystem and uses Bitcoin as its gas fee. This innovative platform connects EVM capabilities with Bitcoin, allowing developers to create assets and applications on the Bitcoin network like they easily do on Ethereum's. It supports smart contracts in several programming languages, including Solidity, Rust, and C++.

Mintlayer: Mintlayer is a Layer 2 protocol that uses Proof-of-Stake (PoS) to introduce smart contract capabilities to the Bitcoin blockchain. This layer aims to solve Bitcoin's scalability challenges and boost its functionality, supporting DeFi applications, decentralized exchanges (DEXes), stablecoins, and tokenization. Mintlayer operates as an independent blockchain, with its transactions anchored to each Bitcoin block.

Some Bitcoin Layer2s that are still building.

Dovi makes Bitcoin transactions more secure by using decentralized multi-signature transactions. It's designed to keep transactions efficient and discreet, cutting down on costs and improving scalability. By focusing on client-side verification and off-chain processing, Dovi ensures safer and smoother operations.

Liquid Network is a Layer 2 solution for Bitcoin that acts as a sidechain. It enables the creation of security tokens and other digital assets, allowing for quicker and more private transactions.

Rootstock (RSK) is a Layer 2 solution that speeds up transactions and makes them more affordable. It allows you to send Bitcoin to its network, converting it into Smart Bitcoin, or RBTC, which operates on Rootstock. You can also send this RBTC back to the Bitcoin blockchain, thanks to its sidechain feature. Rootstock leverages the Ethereum Virtual Machine (EVM) to run smart contracts and uses a merge-mining mechanism, so miners can mine both Bitcoin and Rootstock blocks at the same time.

There are much more Layer2s building and launching amazing things on the blockchain like BitVM that's launching Truly Open AI that will allow for AI models to be run on the Bitcoin blockchain for various Crypto applications and let users earn from it.

There's also Bitcoin staking with Babylon will allow holders to stake their coins and earn yield by staking their coins as they are used to improve security on other blockchain networks.

Final Thoughts
Bitcoin Layer 2s have exploded and now has the world playing catch-up. There are several projects now building on Bitcoin as a result of this and this has developers and VCs finally taking interest in the Bitcoin blockchain.
The real winners though, are the users. As the user experience and speed get better, it calls for more fast transactions and lower fees.