Yesterday, the Arbitrum network stopped operating for about 90 minutes from 10:29 to 11:57. Why did Ethereum L2 go down?
Arbitrum’s official answer is:
Because of the surge in the number of users brought by the inscription protocol, Arbitrum's sequencer stopped working, which eventually led to the network downtime. Why can a surge in the number of users cause Arbitrum to downtime? There are more than 100,000 inscriptions on the Bitcoin chain, but there is no downtime? Because Arbitrum's sequencer is centralized, and there is only one official node running the network. Therefore, when this node (sequencer) has problems, the network will definitely downtime.
In fact, you can simply understand that the operation of the Arbitrum POS network ledger relies on the official nodes (sequencers), but why do users still dare to use it? Because Arbitrum's ledger will be rolled up (rolled up and compressed) and packaged to the Ethereum network, allowing the Ethereum network nodes to verify the ledger to ensure the security of the ledger. Ethereum L2 basically follows this idea. Whether it is OP-Roullp or ZK-Roullp, the ledger is packaged to the Ethereum main network, allowing the main network nodes to verify the second-layer ledger. The core goal of this is to make the second-layer ledger credible.
To use an indecent analogy: the son has no money, and his credit is worthless, so the son takes checks from his father as money to spend, and uses the father's credit to guarantee the son. Ethereum's second-layer ledger itself has no credit (sequencer is centralized, where is the credit?). The credit of the second-layer ledger is attached to the first layer of Ethereum, which is the current mainstream design of Ethereum L2. Of course, this design is currently the optimal solution, but there are several problems:
1. The second layer will have single point risks because the sequencer is centralized, for example, it is prone to downtime.
2. The assets on the second layer are not censorship-resistant and can be forcibly frozen. This is a problem faced by almost all Ethereum second layers!
Does the Ethereum Layer 2 network have such problems? Can Bitcoin Layer 2 solve these problems? What are the similarities and differences in design between Bitcoin Layer 2 and Ethereum Layer 2?
Before discussing this issue, we need to clarify a few issues:
1. What is Layer2? What is the essence of Layer2?
2. What are the design principles of Layer2? What are the similarities and differences in design between Bitcoin Layer2 and Ethereum Layer2?
3. The right path for Bitcoin Layer2
1. What is Layer2? What is the essence of Layer2?
The concept of Layer2 is well known because of the Ethereum ecosystem, but the concept of Layer2 is not original to the Ethereum ecosystem, but comes from Bitcoin. The original version of the code is retained in the Bitcoin 0.1 code, which was left by Satoshi Nakamoto. This code supports users to update transactions before the transactions are packaged and confirmed by miners.
If one user’s balance increases, the other user’s balance will decrease accordingly. Once the users complete the transaction, they can just transmit a transaction result to the main chain network and then close their payment channel.
Based on the "payment channel", the Lightning Network was later born. The Lightning Network is the earliest Layer2 of Bitcoin and the earliest and feasible Layer2 in the crypto world. Therefore, when we talk about what Layer2 is, we cannot only follow the lead of Ethereum Layer2, nor can we use the design of Ethereum Layer2 as the only criterion (after all, Ethereum Layer2 has basically determined the feasibility of the design direction of roullp after two years of development). Instead, we should see the essence through the phenomenon and understand what the essence of Layer2 is. Only in this way can we design a practical Layer2. Whether it is Bitcoin Layer2 or Ethereum Layer2, the background of their birth is that when the Layer1 main network cannot realize more complex and higher-performance application scenarios, it is necessary to jump from Layer1 assets to Layer2 for implementation. Ethereum needs Layer2 to expand its performance, and Bitcoin needs Layer2 even more.
For example, BTC can realize fast and efficient payment scenarios in the Lightning Network; ETH can cross to Arbitrum to achieve faster, lower-gas and more complex smart contract scenarios.
Therefore, whether it is Bitcoin Layer2 or Ethereum Layer2, their essence is the same, which is to allow Layer1 mainnet assets to cross to Layer2 to achieve more complex and high-performance application scenarios. Therefore, the essence of Layer2 is a decentralized cross-chain solution + a high-performance and trustless second-layer network. So, whether it is Bitcoin Layer2 or Ethereum Layer2, some basic principles must be followed in design:
1. It is necessary to realize that Layer1 assets can cross to Layer2 without trust. This is the most important first step.
2. The ledger of the Layer 2 network must be secure and trustless
Only when the above two conditions are met at the same time can it be a practical and fully decentralized Layer2.
2. What are the similarities and differences in design between Bitcoin Layer2 and Ethereum Layer2?
Now that we have figured out the essence of Layer2 and the basic principles of Layer2 design, let’s take a look at the similarities and differences between Bitcoin Layer2 and Ethereum Layer2 in actual design.
1. It is necessary to realize that Layer 1 assets can cross to Layer 2 without trust.
In solving this problem, Ethereum's approach is: Layer2 officials first deploy a smart contract for custodial assets on the Ethereum mainnet. When a user transfers ETH from the Ethereum mainnet to Layer2, the user's ETH is locked in the smart contract and generates new ETH on the Layer2 network at a 1:1 ratio. When the user issues an instruction to cross back to the mainnet, the ETH on Layer2 is destroyed, and the smart contract on Layer1 is triggered to unlock the ETH to the user. This is the cross-chain implementation method of Ethereum Layer1 and Layer2. It is implemented through Ethereum's smart contracts and Layer1 and Layer2 network communications, and can achieve trustlessness.
So, how does Bitcoin's Layer2 achieve trustless BTC cross-chain?
Before the Bitcoin Taproot upgrade in 2021, it was not possible to achieve fully decentralized BTC cross-chain. However, the Taproot upgrade brought Schnorr signatures and MAST contracts, making fully decentralized Bitcoin cross-chain a reality.
Schnorr signature is a signature algorithm that is more suitable for Bitcoin than elliptic curve signature (I didn’t say that. When Satoshi Nakamoto created Bitcoin, he actually wanted to use Schnorr signature, but Schnorr signature was not open source at the time. After Schnorr signature was open sourced in 2009, after 12 years of investigation and verification, Bitcoin Core finally introduced Schnorr signature into Bitcoin through Taproot upgrade in 2021. Ethereum has also always wanted to support Schnorr signature, but because upgrading the signature algorithm involves complex issues such as Ethereum’s account system, Ethereum has not been upgraded to Schnorr signature.)
The biggest feature of Schnorr signature is cluster signature, which can realize 1,000 Bitcoin addresses to sign and manage the same asset. It can not only realize the privacy of the signature, but also merge the data submitted by 1,000 signatures into one, completely solving the data accumulation problem caused by multiple signatures. Therefore, Schnorr signature can break through the original Bitcoin limit of up to 15 multiple signatures and realize completely decentralized signature management.
Mast contract, full name Merkle Abstract Syntax Tree, uses Merkle tree to encrypt complex locking scripts, whose leaves are a series of non-overlapping scripts. When spending, only the relevant scripts and the path from the script to the root of the Merkle tree need to be disclosed. Simply put, Mast contract is equivalent to the function of VM (smart contract-like function), which can execute established operations through instructions. For example, the combination of Mast contract + Schnorr signature can trigger Mast contract to let 1,000 nodes participating in decentralized asset management sign, so as to intelligently execute the entry, exit and expenditure of Bitcoin according to the rules established by the contract. There is no human intervention here, and it is completely based on contract execution, thus realizing the decentralized management of Bitcoin.
The organic combination of Schnorr signature + Mast contract can realize a completely decentralized BTC Layer2. For ease of understanding, we take the BTC Layer2 project BEVM as an example (BEVM is implemented using Schnorr signature + Mast contract) to see how the completely decentralized BTCLayer2 is implemented. When a user transfers BTC from the Bitcoin mainnet to BEVM, the user's BTC enters the contract address hosted by 1,000 nodes, and then, at the same time, new BTC is generated in BEVM, the BTC Layer2 network, at a 1:1 ratio. When the user issues an instruction to transfer BTC from BEVM back to the mainnet, the BEVM network node will trigger the Mast contract, and the 1,000 nodes that host assets will automatically sign according to the established rules and return BTC to the user's address.
The whole process is completely decentralized and trustless. From the above, we can see that by using the combination of Mast contract + Schnorr signature brought by Taproot, Bitcoin can also achieve completely trustless cross-chain like Ethereum Layer2, which is the most important first step to achieve a completely decentralized BTC Layer2.
2. The ledger of the Layer2 network must be secure and trustless.
The ledger of Ethereum Layer2 is managed by a sequencer. When processing transactions, the Layer2 ledger is packaged and uploaded to the Ethereum main network according to a certain ratio, usually a 10:1 ratio, and then verified by the Ethereum node. However, the Ethereum Layer2 sequencer (that is, the running node of the Layer2 network, usually there is only one official node) is completely centralized and is operated and controlled by the Layer2 official.
How can such a centralized design gain user trust? It is mainly through packaging the Layer2 ledger roullp to the Ethereum main network for miner nodes to verify. If the user does not trust the ledger, he can verify the ledger by initiating an off-chain report. Therefore, Op-Roullp is also called optimistic proof, which means that its trust assumption is to optimistically believe that the official will not do evil. If it does, it can be proved by reporting. These combined designs can basically ensure that the Layer2 ledger is credible.
However, this also leads to the single-point risk of the sequencer in Ethereum Layer2, and also leads to the fact that assets such as ETH on Layer2 are not censorship-resistant and can be forcibly frozen by external forces, because the ETH Layer2 sequencer is the official node itself and can be centrally controlled. This will also lead to an upper limit on the asset scale of ETH Layer2, because many large funds will not dare to enter due to the problem of non-censorship resistance. Imagine, if you have 100,000 ETH, would you dare to move these assets to an Ethereum Layer2 that is not censorship-resistant? Yesterday's Arbitrum network downtime also exposed the problem of single-point risk of the sequencer. At the same time, there are two user-unfriendly problems here: a. Since Op-Roullp has a 7-day reporting mechanism, when users move ETH from Layer2 back to the Ethereum mainnet, they need to complete at least a 7-day reporting period.
b. Since the sequencer of ETH Layer2 is completely controlled by a single official node of the project, the cross-chain and transaction fees of ETH Layer2 are exclusively enjoyed by the official project (it is reported that the monthly revenue of ETH Layer2 sequencers such as Base and ZKsync exceeds US$5 million, and exceeds US$10 million at peak times), while Layer2 users cannot share these network growth dividends.
So, how does Bitcoin Layer2 make the ledger trustworthy?
Let’s take BEVM as an example. As mentioned earlier, BEVM realizes Bitcoin decentralized cross-chain through a combination of Mast contract + Schnorr signature. In order to achieve real-time communication between Layer2 and Layer1, BEVM’s network is a fully operational Bitcoin light node. Therefore, BEVM is a trusted network composed of 1,000 Bitcoin light nodes.
In order to ensure the absolute security of the Layer2 ledger and prevent network nodes from doing evil, BEVM draws on the economic game mechanism of the Bitcoin network. BEVM combines the nodes that host Bitcoin and the nodes that run the Layer2 network into one, that is, the nodes that run the Layer2 network through pledged assets are also the nodes that host BTC assets. At the same time, BEVM has designed a set of automated dynamic pledge mechanisms based entirely on economics, which ensures that the total value of BTC/mainnet tokens pledged by BEVM's Layer2 nodes is always greater than the value of the assets it hosts. The mechanism of economic game is used to ensure that the Layer2 network nodes have no motivation to do evil, thereby ensuring that the Layer2 ledger is absolutely safe and reliable.
In addition, the design of BEVM also brings two benefits that Ethereum Layer2 does not have:
a. BEVM's network nodes are completely decentralized and not controlled by a certain project party. Therefore, BTC on BEVM's Layer2 is censorship-resistant and cannot be frozen by any force. It can be accessed with the Bitcoin main network at any time. Therefore, the trust problem of large funds can be solved.
b. Since the BEVM network is run by decentralized nodes, the cross-chain and network fees generated are shared with nodes and users, and are not exclusive to the project party.
3. The Right Path for Bitcoin Layer2
Through the comparison above, we can clearly see the similarities and differences between Bitcoin Layer2 and Ethereum Layer2. Due to the inherent differences between Bitcoin and Ethereum, when designing Bitcoin Layer2, we cannot copy the Ethereum Layer2 model. Instead, we should see through the essence of Layer2 and combine it with the characteristics of Bitcoin to embark on the right path of Bitcoin Layer2.
The correct design direction of Bitcoin Layer2:
1. Bitcoin Layer 1 is not Turing complete by nature. Bitcoin's extremely simple UTXO design and block space cannot verify and calculate complex data and programs. Therefore, it is not feasible to attempt to verify through the client or make improvements within Bitcoin's limited UTXO and block space. This direction is not only extremely complex to implement, but also has limited application scenarios. It can only support the issuance of assets at most. It is not feasible to expand to the higher-performance Layer 2 direction. The only correct direction is to jump BTC to Layer 2 in a decentralized way, so as to achieve more complex and higher-performance scenario expansion.
2. The problem of Bitcoin's decentralized cross-chain to Layer2 must be solved. This is the basis of everything. It is difficult to gain user trust through traditional Bitcoin cross-chain methods such as Hash time locks, hooks, encapsulation, and multi-signatures. The technical combination of Mast contract + Schnorr signature brought by Bitcoin's Taproot upgrade in 2021 can solve the problem of Bitcoin's decentralized cross-chain, which is also a direction worth exploring for Bitcoin Layer2.
3. In terms of ensuring the security and reliability of Layer2 ledgers, we must not copy the model of Ethereum Layer2 and try to compress and package the BTC Layer2 ledgers to the Bitcoin chain for verification through roullp. This is not feasible because the Bitcoin blockchain does not support OP or ZKP verification, and miners will not participate in the verification of Layer2 ledgers. Storing these ledgers on the Bitcoin chain is just a proof and has no meaning. To ensure the security of Layer2 ledgers, we can learn the economic game mechanism of Bitcoin and design a node dynamic pledge mechanism through the level of economics and game theory, so that Layer2 network nodes have no motivation to do evil, thereby ensuring the security of Layer2 ledgers.
Of course, we also hope that Bitcoin will be upgraded at the BIP level again in the future, so that the Bitcoin network can verify OP or ZKP, and Bitcoin mining machines can perform ZKP calculations. At this time, ZK-roullp can enter the Bitcoin network, and then Bitcoin Layer2 can achieve a more ultimate solution. However, this may be something that can only be achieved in the next 5-10 years or even longer.
Based on the above analysis, we can see that the most feasible BTC Layer2 solution is based on the Mast contract + Schnorr signature brought by the Taproot upgrade, combined with the Bitcoin light node dynamic pledge network to achieve real-time communication and network security between Layer2 and Layer1, thereby realizing a truly decentralized Bitcoin Layer2, which is exactly the solution that BEVM has implemented (for details, please refer to the BEVM white paper: https://github.com/btclayer2/BEVM-white-paper)
So, does Bitcoin Layer2 have a chance to surpass the size of Ethereum Layer2?
The answer is almost certainly:
I think there are at least several reasons:
1. Currently, there is a fully decentralized BTC Layer2 solution available.
Before there was a completely decentralized solution, the largest Bitcoin packaged asset was WBTC issued by the centralized institution Bitgo, which is currently worth about $6.5 billion. After the emergence of a completely decentralized solution (such as BEVM), it is predicted that the market can grow by more than 5-10 times, and the volume can reach $32.5 billion to $65 billion, which is much larger than the current $20 billion total TVL of ETH Layer2 (this data includes cross-chain ETH and other assets on ETH Layer2, and the actual cross-chain ETH is far from $20 billion)
2. Bitcoin is inherently Turing incomplete, so Bitcoin needs Layer 2 more than Ethereum to develop its ecosystem. Therefore, in the future, a large number of BTC will go to Layer 2 to build various decentralized BTC applications. This is determined by market demand.
3. Bitcoin Layer2 can be more resistant to censorship than Ethereum Layer2, and can more easily gain the trust and favor of users, especially large funds.
4. The market value of Bitcoin is three times that of Ethereum. Currently, the total TVL of ETH Layer2 is about 20 billion US dollars, accounting for about 10% of the market value of Ethereum. According to the same ratio, if 10% of BTC enters Bitcoin Layer2 in the future, the entire TVL will reach 85 billion US dollars, which is three times the size of Ethereum Layer2.
Summarize:
The Layer2 solution originated from the Bitcoin ecosystem and was developed in the Ethereum ecosystem. The current solution of Ethereum Layer2 is not perfect, nor is it the ultimate solution for L2, and it cannot be used as the only reference standard for all L2.
Bitcoin Layer 1 is naturally Turing incomplete, and Bitcoin's extremely simple UTXO and limited block space cannot handle complex data and calculations. Therefore, Bitcoin must have Layer 2 to develop its ecosystem, and it must be a completely decentralized Bitcoin Layer 2.
Before the Bitcoin Taproot upgrade in 2021, Bitcoin could not achieve a fully decentralized Layer2 solution. However, the Mast contract + Schnorr signature brought by the Taproot upgrade realized a fully decentralized BTC cross-chain. Therefore, a fully decentralized Bitcoin L2 became a reality, and the BTC Layer2 project - BEVM gave its own answer.
Bitcoin Layer2 cannot completely copy the Ethereum Layer2 solution, but needs to be designed in combination with the characteristics of Bitcoin itself.
Finally, the size of Bitcoin's Layer2 will surpass that of Ethereum's Layer2. This is an inevitable trend!
