Written by: Web3CN
In the past three months, the first batch of inscription projects such as Ordinals have driven the entire track to become popular, and the growth of star tokens related to inscriptions has also been constantly breaking records. This has also given rise to the popularity of SATS, RATS and even other public chain inscription concepts.
At the same time, Bitcoin Core developer Luke Dashjr's fierce criticism of inscriptions such as ORDI has poured cold water on the entire inscription market, and also prompted the market to think and explore new ways for inscriptions and Bitcoin to develop in a healthy and benign manner.
In this context, the "L2ization" trend of the Bitcoin ecosystem seems to be unstoppable, especially since L2 not only solves the much-criticized Bitcoin "junk transaction" problem, but also uses programmability to create a series of DeFi applications such as Swap, lending, and liquidity mining. The prospects are broad. So what is the current development trend of the Bitcoin L2 track, and what early passwords worth paying attention to are hidden in it?
Bitcoin’s “L2” Trend
With the continued popularity of the Bitcoin inscription track, manual participation in new on-chain inscription projects has quickly become a red ocean. From a narrative perspective, inscriptions are indeed different from many previous large-scale investment and financing projects and the traditional narrative logic dominated by VCs, giving more ordinary people outside of OGs and whales the opportunity to participate.
However, the Bitcoin network, which is at the center of the inscription craze, also faces many problems. The most obvious one is "network congestion and surge in transaction fees" - because inscriptions are similar to NFTs, allowing users to record various data on the blockchain, but overall, since Bitcoin transaction fees are paid according to the size of the data, inscription users tend to set relatively low transaction fees.
This also means that they are willing to wait longer for confirmation, which can easily lead to inscription transactions being replaced by more urgent Bitcoin transfers.
In this context, these massive inscription transactions that are willing to queue up have overwhelmed the Bitcoin memory pool (the place where all valid transactions that have not been officially added to the network are stored).
According to statistics from crypto KOL bitrabbit.btc, Bitcoin has accumulated 87 million UTXOs in the past 14 years, but after BRC20 began trading on April 24, it soared to 140 million in about 7 months - and among the more than 50 million newly added UTXOs, 40 million were extremely small transactions of 100-1000 satoshis.
As can be seen from the above figure, since its launch in February 2023, inscriptions have been the main consumer of Bitcoin block space, and the Bitcoin memory pool has been full since February, which has continued to this day.
This has also resulted in the Bitcoin network being unable to clean up its memory pool, which is at its highest level in BTC history since data was recorded at the time of writing.
According to the current actual situation of the Bitcoin network, especially the Bitcoin network is limited to 546 satoshis in a single UTXO to prevent dust attacks. This means that most of the small transactions to be processed among the tens of millions of inscription transactions are actually equivalent to junk transactions in DDoS attacks, and may never be packaged and broadcast on the chain.
"Most of these small UTXOs will never be spent, but will lie forever in Bitcoin nodes, causing tens of billions of dollars in hardware and electricity resources to be wasted on the BTC network in the next few decades or hundreds of years."
This is also the main reason why Luke Dashjr, a developer of the Bitcoin client Bitcoin Core, publicly criticized ORDI, Inscriptions, and BRC20 - "Inscriptions are exploiting Bitcoin Core vulnerabilities to send spam to the blockchain."
Therefore, as the inscription market breaks through billions of dollars and its growth momentum remains unabated, the inscription projects issued by the traditional Bitcoin main chain will become increasingly unsustainable due to network congestion and accusations of "junk transactions", which will be a key obstacle to limiting its further expansion.
The advantages of the Bitcoin L2 track in comparison are highlighted - it not only solves the problems of network congestion and "junk transactions" by packaging transactions into L2, but also uses the programmability of the newly added smart contracts to create a series of DeFi application scenarios for the Bitcoin ecosystem, including Swap, lending, liquidity mining, and staking.
Bitcoin L2 Project Inventory
In general, as building a prosperous DeFi application layer on the current Bitcoin ecosystem becomes a new hot narrative, the Bitcoin L2 project has become a key track that carries the new expectations of Bitcoin supporters. In addition to the well-known old projects such as Stacks, RSK, Liquid, etc., new solutions such as BitVM and BEVM also provide new ideas.
Stacks: Bitcoin smart contract layer
As the second layer of Bitcoin, Stacks is anchored on the Bitcoin blockchain on the one hand, and on the other hand, as an independent protocol, it introduces smart contract functions similar to Ethereum and permanently settles transactions on the BTC blockchain. As Bitcoin L2, it unlocks the programmability of Bitcoin and opens up new possibilities for applications such as DeFi and NFT.
If you look at the system as a whole, Stacks actually has its own chain, compiler, and programming language, and runs in sync with Bitcoin to ensure its transactions and integrity.
However, since it uses a "peg" method to achieve BTC cross-chain - achieved by issuing sBTC on the Stacks network, it is essentially a centralized mapping method and has certain centralized single-point risks.
At the same time, its network Gas uses its main network token STX instead of BTC. Miners participating in Stacks' network mining will consume pledged BTC to mine its network tokens. Through this system, miners earn STX coins and transaction fees, while STX stakers earn Bitcoin. This will also cause miners to be hesitant to participate in the trade-offs.
As of the time of writing, there is still a large gap compared to the 200,000 daily active users of the popular ETH L2 Arbitrum, and currently the response from both users and funds is mediocre.
RSK: A Universal Smart Contract Platform Based on Bitcoin
RSK (Rootstock) is a universal smart contract platform secured by the Bitcoin network, making all Ethereum applications compatible with the Bitcoin blockchain by moving their smart contracts from Ethereum to RSK. Since RSK creates a new block approximately every 33 seconds, which is much faster than Bitcoin's 10-minute block time, RSK can also process approximately 10-20 transactions per second, which is more efficient than Bitcoin's processing capacity of approximately 5 transactions per second.
Compared to other Bitcoin layering solutions, RSK’s most unique design is merged mining — the RSK blockchain uses the same Proof of Work (PoW) consensus algorithm as Bitcoin, but miners can generate blocks faster than the Bitcoin base layer. These RSK blocks are mined through a process called “merged mining.”
Since both blockchains use the same consensus, miners can perform merged mining and mine for both Bitcoin and RSK blockchains at the same time, but let Bitcoin and RSK consume the same mining computing power. Therefore, the computing power contributed by miners can also mine RSK blocks. This allows merged mining to significantly increase the profitability of miners without investing additional resources.
Merged mining allows RSK to verify transactions, generate blocks and send them to Bitcoin. Through this mining process, users can rest assured that RSK's smart contracts benefit from the security of the Bitcoin blockchain.
However, since RSK uses smartBTC (RBTC), which locks BTC-issued tokens on Bitcoin at a 1:1 ratio and bridges them through the vault and smart contract on RSK, the entire bridging process still cannot avoid the security risks of smart contracts on RSK.
BitVM: A new star in Bitcoin smart contracts yet to be verified
BitVM aims to implement Turing-complete Bitcoin contracts without changing the operating code. Key innovations include:
Introduce states between different UTXOs or different scripts through Bit Commitments.
Verifiability through logic gates: The execution can be verified by deconstructing any problematic program in the virtual machine, and the validity of the execution can be verified by the prover. This ensures that any false claims can be quickly proven to be false.
Keep the Bitcoin network lightweight: Similar to Optimistic Rollup on Ethereum, BitVM does not perform a lot of computation on Bitcoin. Instead, it minimizes on-chain activity and only refutes incorrect executions, acting more as a solver and validator. Only the output of the BitVM program is used in Bitcoin transactions.
However, BitVM’s functionality is currently extremely limited and remains mostly on paper. It only has one viable function called zero-check function. Although potential future use cases include two-way pegs with sidechains to achieve scalability, the implementation is similar to the Rollup logic on Ethereum:
Running a fraud proof similar to OPR on the BTC script means that when an asset transaction has objections, the user can report it. If there is a problem with the transaction, the assets of the dishonest party will be confiscated. Generally, the effective reporting time is within 7 days (which can be simply understood as an unconditional return within 7 days). However, if the user reports after 7 days, it will be invalid. Even if there is a problem with the asset transaction, it will be automatically saved on the blockchain and continue to run.
The smart contract layer of BitVM runs off-chain, and each smart contract does not share status. The BTC cross-chain uses traditional hash locks to anchor assets. It does not achieve truly decentralized BTC cross-chain and cannot avoid the asset security risks of centralized arbitration nodes.
BEVM: A Fully Decentralized Bitcoin L2 Solution
BEVM is a BTC Layer2 that uses BTC as Gas and is compatible with EVM. Its core goal is to expand Bitcoin's smart contract scenarios, help BTC break through the constraints of the Bitcoin blockchain's non-Turing completeness and lack of support for smart contracts, and allow BTC to build decentralized applications with BTC as native Gas on the BEVM Layer2.
When a user transfers BTC from the Bitcoin mainnet to BEVM, the user's BTC will enter the contract address hosted by 1,000 nodes, and then new BTC will be generated in the BEVM, i.e., BTC Layer2 network, at a 1:1 ratio.
When a user issues an instruction to transfer BTC from BEVM back to the main network, the BEVM network node will trigger the Mast contract, and the 1,000 nodes that hold custody assets will automatically sign according to the established rules and return BTC to the user's address. The entire process is completely decentralized and trustless.
This means that all transactions are transferred from the Bitcoin main chain to the Layer2 network. At the same time, since BEVM is fully compatible with EVM, it can also easily enable BTC to implement various decentralized applications and empower Bitcoin ecosystem sub-projects from L2:
Ethereum DApp developers can directly and seamlessly migrate to BEVM, and quickly build on-chain DeFi scenarios such as Swap and even lending, liquidity staking, etc. on BEVM, bringing more possibilities to the Bitcoin ecosystem. Compared with the first two, it is also the most decentralized and convenient.
MAP Protocol: A peer-to-peer cross-chain interoperable Bitcoin L2 network
MAP Protocol is a Bitcoin Layer2 network for peer-to-peer cross-chain interoperability. It leverages Bitcoin’s security mechanisms to enable assets and users from other public chains to interact seamlessly with the Bitcoin network, thereby enhancing the security of the network and achieving BRC20 cross-chain capabilities.
Compared to the Bitcoin main chain, MAP Protocol can provide lower Gas transaction fees, even as low as 35% of the cost of Unisat and OKX Ordinals platforms.
Therefore, using MAP Protocol’s Bitcoin L2 technology, users can trade inscribed BRC20 tokens on SATSAT with low gas and zero congestion, and can also roll back to the Bitcoin main chain through Rolluper for trading on Unisat, OKX and other Bitcoin L1 trading platforms.
summary
As the wider cryptocurrency community realizes the importance of Layer2 solutions in shaping the future of Bitcoin, it also means that the entire Bitcoin L2 track will usher in new development opportunities. The entire building cycle will also be long. Now is the time for early layout.
In particular, the most imaginative L2 solutions and a series of derivative application scenarios, just like the Ethereum Layer2 solutions such as Arbitrum and Optimism in 2021, are destined to eventually produce a number of multi-billion dollar Bitcoin L2 leading projects.
Therefore, as a new solution to the problem, Bitcoin L2 naturally has sufficient room for imagination. It is still in the early stages of the blue ocean and is in a period of dividends to be mined for the code of wealth, and is worthy of long-term attention.
Therefore, the approval of an ETF is the biggest catalyst for the cryptocurrency market right now, promising huge upside potential and limited downside. Although there are some liquidity risks, if investor appetite increases significantly, ETFs could improve market conditions across the board.
