Bitcoin Layer2 Development Prospects Outlook

With the advent of the Ordinal protocol, Bitcoin has welcomed a new asset type - inscriptions. This native asset issuance method quickly gained market favor, giving rise to more protocols such as BRC20, Atomical, Runes, etc., and led to the creation of well-known inscriptions and numerous Bitcoin native NFTs.

The Bitcoin ecosystem is once again welcoming spring, attracting a large amount of funds, users, and developers. However, with development, people realize the limitations of Bitcoin as Layer 1. On one hand, Bitcoin does not support smart contracts, making it difficult to expand into richer application scenarios. On the other hand, performance and miner fees pose significant obstacles to the further development of the ecosystem.

This wave quickly spread to the Bitcoin scalability track, initiating the Bitcoin Layer2 craze. Some old scalability solutions have been revisited, and new Layer2 projects are continuously emerging. Among them, Merlin Chain, as a star project, saw its TVL reach 3.5 billion dollars after staking was launched.

However, after the listing of the Merlin token MERL, it quickly dropped over 80%, and the TVL also saw a significant decline. This has raised doubts about Bitcoin Layer2: is it a narrative of real potential, or just a fleeting hype topic?

Looking back at the journey of Ethereum's scalability, it has gone through three stages: learning and exploration, breaking through bottlenecks, and flourishing diversity. From state channels, Lightning Network to Plasma, and then the emergence of Rollup technology, Ethereum Layer 2 has finally gotten on track and is experiencing an explosion. Currently, there are more than 50 Layer 2 projects, and development has entered a thriving stage.

The development of Bitcoin Layer 2 has also not been smooth sailing. As early as 2015, there was a white paper for the Lightning Network, but it was only a payment protocol. Subsequently, solutions such as Liquid Network, RSK, and RGB emerged, but all had varying degrees of issues. It wasn't until recently that emerging projects like BEVM and Mezo brought new breakthroughs.

BEVM achieves a trustless BTC network solution through Taproot Consensus, while Mezo builds Layer2 using tBTC as a foundation. These innovative attempts bring new possibilities for the development of Bitcoin Layer2.

Looking to the future, Bitcoin Layer 2 needs more projects with characteristics of "decentralization", "native" and "greater security" to emerge, as well as a continuous injection of innovation from both established players and new blood. Only by forming a diverse ecosystem can BTC Layer 2 usher in a true spring.

Despite currently being in a tough uphill period, the magic box of this trillion-dollar track has already been opened. As long as we move in the right direction, the Bitcoin ecosystem is likely to usher in a true explosion, rather than just a fleeting hype. We need to hold onto our expectations while maintaining patience and perseverance.