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In-depth discussion on the past, present and future of BTC Layer2
Original post by: Glimmer @Glimmerllx, William, Hankester @0x;Hankester
Mentors: Jademont, Elaine, Bill @Waterdrip Capital
Bitcoin (Bitcoin), referred to as BTC, is an open-source encrypted currency system based on the decentralized consensus of blockchain and using peer-to-peer network communication. It is jointly maintained by computer networks and nodes distributed all over the world. The white paper of BTC; was released by Satoshi Nakamoto on the; 2008; 10; month; 31; day, after which the 2009; year; 1; month; 3; day, the consensus chain of BTC; produced the first block . However, with the growing prosperity of the encryption community and ecology, the early "BTC" technology has been unable to meet users' needs for the scalability of the cryptocurrency system. Direct improvement; BTC; the complexity of the underlying protocol is high and the resistance of the community is high, which will increase; BTC; the risk of the system, leading to hard forks and community splits. A more suitable solution is "BTC Layer 2", which is to build a new layer based on "BTC" without making changes to "BTC" to be compatible with "BTC" while meeting users' needs for scalability. This paper conducts a survey on "BTC Layer 2", comprehensively expounds the current situation, problems of "BTC", technical solutions and advantages and disadvantages of "BTC Layer 2", and looks forward to its future.
BTC; Technical Brief
The core of BTC is distributed ledger technology, which uses blockchain to store transaction data. The blockchain is based on a hash pointer linked list structure. Each section of the linked list is a data block, which contains the hash value, transaction data, time data, mining parameters and protocol version information of the previous block. In the BTC network, the writing power of the new blockchain, that is, the bookkeeping right, is obtained by nodes following the proof of work mechanism (Proof of Work, PoW) and relying on computing power competition. After the node that has obtained the bookkeeping right successfully writes a new block, it will receive a certain amount of Bitcoin tokens as a reward, so this process is also called mining.
BTC; block data structure, image source:
BTC; image source of bookkeeping workflow:
BTC; adopts a transaction-based ledger scheme based on transfer records, only records transfer information in the blockchain, and does not maintain account balances. Therefore, in order to prevent double-spending attacks, the node needs to maintain a set of unspent transaction output data (Unspent Transaction Outputs, UTXO) locally, and the source of funds needs to be provided when the account is transferred, so that the node can verify the legitimacy of the transaction.
Single account; UTXO; schematic diagram, image source:
BTC; uses asymmetric encryption and hashing algorithms to organize accounts, secure and verify transactions. An account includes account private key and account public key. The account private key is a randomly generated private key, and the account's public key is generated by processing the private key through elliptic curve multiplication. In addition, the address of the account is generated after processing the public key with a hashing algorithm. After the transaction is signed by the private key, it is broadcast to the nodes through the peer-to-peer network. The node uses the corresponding public key to verify the transaction, and after the verification is successful, the transaction is packaged in a new block.
BTC; signature and verification of account private key and public key, image source: Nakamoto, Satoshi. "Bitcoin whitepaper."
The consensus mechanism of BTC is; PoW. All nodes each construct a new block header such that its hash value is less than or equal to a given target value. The node that first finds the eligible block header has the right to bookkeeping for the next block. By adjusting the size of the target value, the block generation time can be indirectly adjusted. The larger the target value, the simpler the mining and the shorter the block generation time; the smaller the target value, the harder the mining and the longer the block generation time. BTC; expects the block time of each block to be; 10; minutes, therefore, BTC; every; 2016; blocks will re-adjust the target value, that is, adjust the mining difficulty.
Proof Of Work; process example, image source:
BTC; current situation and problems encountered
BTC; is the first digital currency system widely recognized by the global cryptocurrency community. Since; 2013;, the market value of BTC has accounted for more than half of the total market value of cryptocurrencies throughout the year, and it is a well-deserved leader in cryptocurrencies.
BTC; market value ratio, source:
For a long time, BTC; has been sought after by users for its pioneering status and high security. However, with the growth of cryptocurrency users, BTC; Asset diversity and application diversity are increasing demands. In the long run, the ratio of BTC's market value to the total market value of cryptocurrencies is slowly declining. Compared with the prosperous ecology of Ethereum, Solana, low fees and high TPS (Transactions Per Second) and other public chains with their own merits, BTC seems to have no other core competitiveness except popularity and security, and faces the following problems:
BTC; commission, source:
Improved;BTC;resistance and;Layer 2;scheme
Technical Difficulty: The problems encountered by BTC; come from the fact that the old technical solutions cannot meet the current needs. Even if fine-tuning is performed directly on; BTC;, the problems cannot be completely solved, but new problems will be derived. If "BTC" is expanded, and each block is increased from "1;M" to "100;M", and "TPS" is increased to "700;", it will result in new generation of nearly;5;T; large and small ledger data every year , raise the threshold for operating nodes, affect the degree of decentralization of the system, and increase system risk. Even without considering the size of the ledger data, according to the median Internet bandwidth; 13 Mbps, the size of each transaction in the block is; 250 B; to calculate, BTC; TPS; the upper limit is; 13; Mbps/8; Mb /250 B ≈ 6815;, unable to compete with public chains such as; Polkadot, Solana; that can support tens of thousands or even hundreds of thousands of; TPS;. Bitcoin Cash (BCH) expands the block size of;BTC;, which increases the block size of;BTC;, however, the BCH; risk. In 2019, in order to fight against attackers who exploited the "BCH" code vulnerability, the BCH; mining pool launched a "51%; attack to modify transaction data.
Community Resistance: Between security and scalability, BTC; the community prioritizes security. BTC; The core developers are cautious about technical risks, so they are very conservative in the suggestion of direct expansion of BTC; The simplest extension, is to increase; BTC; the size of each block. Since 2015, the proposal to increase the block capacity of BTC has gained support from many users, miners and developers. By increasing the block capacity, users can obtain faster transaction speeds, and miners can charge more transaction fees. However, some developers headed by Wladimir van der Laan, head of the BTC developer team, do not agree with this expansion method, and support solutions such as Segregated Witness and Lightning Network. The debate on block expansion led to the split of the BTC community, and finally, after the introduction of isolation upgrade technology in BTC, some people rejected this technology upgrade, resulting in the hard fork of BTC in August, 2017. ;BCH. BCH; After the hard fork, the upper limit of the block was increased to; 8; M, and then increased to; 32; M, the average; TPS; around; 120; In addition, the BCH community split again in 2018 due to differences in the technology upgrade route, and hard forked out of BSV (Bitcoin Satoshi Vision). This fork caused the total computing power of the BCH network to plummet, and it has not reached the level of computing power before the fork. BSV; block size limit has been increased to; 4; G, but lack of miners and users, far less than; BTC; security.
BTC; fork history, image source:
BCH; history of the total computing power of the entire network, image source:
Layer;2 scheme: In fact, directly modifying; BTC; has high complexity and community resistance, and the more accepted scheme by the community is based on; BTC; building a new layer, which is compatible and does not affect; BTC; At the same time, the above problems are solved. BTC; has extremely high security, using; BTC; as the core layer, relying on; BTC; block data and using; BTC; script program, developers can build compatible; BTC; A large number of transactions are executed outside of "BTC", and only the final state data is written into "BTC". This type of scheme is called "BTC Layer 2".
BTC; The goal and development history of the second layer
BTC Layer;2 refers to the second-layer expansion technology of Bitcoin (BTC). This type of technology aims to increase the transaction speed of Bitcoin, reduce handling fees, increase scalability, and solve a series of problems faced by "BTC".
Layer;2; development goals:
**Improve transaction speed:**Layer;2;Try to improve the transaction speed of Bitcoin by optimizing the transaction processing method, batch process transactions under the chain, and use the latest technology to synchronize and verify each transaction under the chain, so that Expand the application and promotion of Bitcoin on a global scale.
**Reducing transaction costs: **Layer;2;By batch processing transactions under the;BTC;chain, only the final state after the transaction is completed is written into;BTC;, the intermediate transactions and states in the final state and the initial state are then There is no "BTC" synchronization under the chain, which reduces the transaction fee and reduces the burden on the underlying blockchain of Bitcoin.
**Increase scalability: **Layer;2; The introduction of technology aims to alleviate the scalability problem of Bitcoin's underlying blockchain, making it more capable to cope with future transaction volume growth.
In recent years, Layer;2; is one of the most important investment themes in the "crypto" industry, but in most scenarios it specifically refers to Ethereum's "Layer;2" expansion plan, however, BTC;'s expansion plan is much earlier Since the Ethereum expansion proposal came out, even Ethereum was created because the;Vitalik Buterin;to;BTC;improvement proposal was rejected.
In 2012, the concept of Pegged Sidechains was first proposed, derived from Two-way Peg, which allows assets to be seamlessly transferred between the two chains. This proposal laid the foundation for later sidechain technology.
In 2014, Blockstream was established and began to research and develop side chain technology to improve the scalability of Bitcoin.
In 2015, the Lightning Network white paper was released, and Tadge Dryja and Joseph Poon were the authors of the white paper. Lightning Network is a solution that separates small transactions from the main chain. By creating a two-way payment channel, there is no need to record intermediate transactions on the blockchain, only the final state needs to be recorded on "BTC".
Since the design of "BTC" is relatively simple and does not have flexible scalability, it is difficult for the early "BTC Layer; 2" scheme to be embedded in Bitcoin, so it did not cause great repercussions.
Until "2017", SegWit (Segregated Witness) was upgraded and activated, which solved the problem of transaction plasticity in the Bitcoin blockchain and provided the possibility for the development of Layer;2 technology.
Since 2018; developers have gradually begun to deploy Lightning Network nodes and gained certain users and support. According to bitcoinvisuals; website statistics, as of; 2023; year; 6; month; 4; day, the number of lightning network nodes has exceeded; 1; The capacity exceeds; 5000; bitcoins, and the value exceeds; 1; million US dollars.
Recently, the emergence of the BRC-20; token standard has further enriched the related ecology of Bitcoin, and at the same time allowed the "BTC Layer; 2;" to enter the public eye. There are quite a few projects building "BTC Layer;2", the most well-known being the Lightning Network.
Lightning Network
The Lightning Network was first proposed in 2015 by Joseph Poon and Thaddeus Dryja in their white paper. The Lightning Network uses micro-payments channel technology to place a large number of transactions outside the Bitcoin blockchain, and only put key links on the chain for confirmation. The transaction process is analogous to the following: a user who needs to trade opens a room for offline transactions. When entering the room, the user pledges the currency to obtain a bill, and uses the new bill to distribute the pledged currency of both parties. After the transaction is completed, when the room is out, the transaction is settled. The latest note redemption currency.
Technical Introduction of Lightning Network
In order to construct a safe and reliable micropayment channel, Lightning Network adopts Recoverable Sequence Maturity Contract (RSMC) and Time Lock Contract (Hashed Timelock Contract, HTLC) as key technologies.
RSMC; provides pledge and settlement functions, that is, a multi-signature wallet fund pool. Both parties to the transaction pre-deposit a part of the funds into the fund pool. In the initial case, the distribution plan of both parties is equal to the pre-stored amount. Every time a transaction occurs, it is necessary to jointly confirm the fund distribution results generated after the transaction, and sign at the same time to invalidate the old version of the distribution plan. When any party needs to withdraw cash, he can write the transaction result signed by both parties to the blockchain network to be confirmed. From this process, we can see that the "BTC" transaction is only required when withdrawing cash. The party who first initiates the withdrawal is 1000 blocks later than the other party, and the other party can refute within this time window.
The transaction process of Lightning Network, image source:
HTLC; establishes a trading channel for both parties, analogous to a trading room, sets a validity period, and automatically settles when the validity period expires. At the same time, "HTLC" also agrees on cross-channel transaction rules to facilitate transaction routing: in the Lightning Network, the establishment of transaction channels requires cost, and there may be no existing transaction channels between any two users. At this time, transactions with other people can be used Channels act as intermediaries for transactions.
Payment channels and routing of the Lightning Network, image source:
However, the early Lightning Network had the following problems:
In fact, early versions of the Lightning Network required users to run full-node wallets or use fully-custodial wallets due to the aforementioned issues. Full-node wallets require users to manually manage temporary private keys and channel status, and the transaction experience is not good. And fully managed wallets, such as Chivo used in El Salvador, have a low threshold for use, and the custodian automatically replaces the user's operations, but the custodian has control over the user's account private key, and the security is worrying. With the continuous development of the Lightning Network by developers, the above problems are gradually being solved, and a Lightning Network with more complete functions and supporting facilities have been developed, such as; OmniBOLT; and the "OBAndroid" Lightning Network Wallet developed by its team.
OmniBOLT Omni; means complete and all, and; BOTL is the abbreviation of Basis of Lightning Technology. OmniBOLT; based on; BTC; and; Omni Layer, proposes a complete set of lightning network protocol, while expanding the lightning network payment; BTC; function, it can also be based on; Omni Layer; issue and trade diversified assets, and support automation The market maker mechanism (AMM: Automated market makers) allows users to use the fund pool of the payment channel as liquidity on the Lightning Network to build and use decentralized exchanges. OmniBOTL; has a grand vision, but at present, the technology is complex, involving multiple protocols and systems, and there may be risks of vulnerabilities, and more time is needed to test its security.
OmniBOLT; protocol architecture, image source:
OBAndroid is a full-featured Lightning Network full-node mobile wallet. In this wallet, while the user has the right to control the private key, it can automatically monitor transactions, quickly synchronize full-node data, and support cloud and local backup channel status. In addition, OBAndroid; also supports; Omnilayer; assets through; OmniBOTL; for transactions. OBAndroid; makes the trading experience of the Lightning Network acceptable to users, and lowers the threshold for using the Lightning Network.
OBAndroid; full node wallet, image source:
Other; BTC Layer 2; Items
Besides the Lightning Network, there are other; BTC Layer 2; projects in development:
Syscoin is forked by the SYSLab team; BTC; source code for development, aiming to take advantage of the security of "BTC;" compatible with the Ethereum ecosystem. Currently, the SYSLab; team has launched; NEVM (Network-Enhanced Virtual Machine), a virtual machine built using the security of "BTC;'s PoW; and compatible with Ethereum smart contracts. In addition, the SYSLab; team also plans to launch projects such as; ZK; and; Optimistic; Rollup, Proof of Data on the chain; Validium; and other projects. Syscoin; project information is scarce, and it is difficult to evaluate its advantages and disadvantages technically, but its source code library is updated frequently and is still under stable development.
Syscoin; roadmap, source:
RGB (Really Good for Bitcoin) is a;BTC;smart contract system integrated with Lightning Network, proposed by;Giacomo Zucco; and;Peter Todd;in;2016;. RGB; leverages; BTC; to maintain censorship resistance and combat double spend attacks. In;RGB;, all token transactions and verification work are placed off-chain, and only the party receiving the payment needs to perform client verification. The client checks the source of funds of the payer in "BTC", and after confirming that it is a valid transaction, directly modifies the "UTXO" of both parties without writing the transaction data into the blockchain, which has the feature of protecting privacy. In addition, the client can directly introduce the function of the smart contract to judge the rules of the transaction, and because the global state consensus is not required, the data of the smart contract does not need to be uploaded to the chain, and the privacy feature can also be guaranteed. RGB; The community has developed a Turing-complete smart contract virtual machine; AluVM (algorithmic logic unit VM), which has very good scalability, security and privacy protection.
Comparison of transactions on RGB; and transactions on; BTC;, source:
AluVM; comparison with other programming modes, source:
BTC Layer;2;Summary and Outlook
Although Bitcoin is the world's earliest, safest, most well-known and highest-valued blockchain network, its ecological development has continued to deepen. For example, the channel capacity of its largest second-layer network, the Lightning Network, continues to grow, the Taproot; upgrade improves the efficiency and privacy of Bitcoin, and the; Taro; protocol introduces stablecoin payments and on-chain native to the Lightning Network; NFT. However, compared with the number of Bitcoins on the Ethereum chain, the Bitcoin capacity of the Lightning Network is relatively low, and due to the full node data synchronization and channel state management, the use threshold of the Lightning Network is high, and the user scale is not as good as that of Ethereum, but This status quo may indicate huge growth potential. With the further development of Lightning Network-related ecology, similar; OmniBOLT; improved version of Lightning Network protocol and lower usage threshold; OBAndroid; wallet continuous development, so that Lightning Network finally has good security Sexuality, scalability and ease of use, accepted by users, may make the market value of "BTC" to a higher level.
At the same time, we also need to pay attention to the development of other "Layer 2" projects, such as the "RGB" scheme with natural privacy protection and the "Syscoin" compatible with the Ethereum ecology. These projects are not as famous as the Lightning Network, but they can also solve the problems faced by "BTC", and have advantages that other solutions cannot match. However, compared with the second-layer extension projects of Ethereum, these projects are not well-known enough, and they have received less investment, and they do not get the support of the "BTC" core development team like Lightning Network. Their expansion of "BTC" will most likely be successful Later than the expansion of Ethereum, such as the "Rollup" scheme of "Syscoin". In terms of "Layer 2" ecology, it seems that the Ethereum ecology has a better virtuous circle and is more favored by investors.
In the future, we may see accelerated expansion of the Bitcoin ecosystem. As the Lightning Network infrastructure improves and attracts more and more attention, projects based on the Lightning Network are similar; OmniBOLT and RGB can benefit from it, gaining a better development foundation, more users and even more investment. And "Syscoin" compatible with Ethereum such as "BTC Layer 2" projects will also benefit from the rapid development of Ethereum's second-layer ecology and accelerate the progress of its roadmap. In addition, the discussion on the "BTC" expansion scheme has not stopped: John Light; proposed in "2022" based on Bitcoin; zk-rollups; two-tier network may bring more functions to Bitcoin , higher scalability, and better privacy while maintaining its decentralized nature; the company led by ex-Twitter; CEO Jack Dorsey; The Bitcoin ecosystem will open up a new track outside of payment, DeFi, NFT; and other fields to cover more users.
[;1;] Nakamoto, Satoshi. "Bitcoin whitepaper." URL: . org/bitcoin. pdf-(: 17.07. 2019) (;2008).
[;2;] Poon, Joseph, and Thaddeus Dryja. "The bitcoin lightning network: Scalable off-chain instant payments." (;2016).
[;3;] “Lightning Network Client Architectures.” URL:;
[;4;] Lin, Jian-Hong, et al. "Lightning network: a second path towards centralisation of the bitcoin economy." New Journal of Physics 22.8 (;2020): 083022.
[;5;] Increased ;BTC; block size discussion: