In the past three months, the first batch of inscription projects such as Ordinals have driven the entire track to fire, and the increase in star tokens related to inscriptions has also continued to set new records, which has also given birth to the popularity of the concept of inscriptions on SATS, RATS and even other public chains.
At the same time, Bitcoin Core developer Luke Dashjr's fierce criticism of inscriptions such as ORDI poured cold water on the entire inscription market, and at the same time made the market think and explore how to develop healthily and benignly between inscriptions and Bitcoin.
In this context, the wave of "L2" of the Bitcoin ecosystem seems to be unstoppable, especially L2 not only solves the much-criticized problem of Bitcoin "garbage trading", but also creates a series of DeFi applications such as Swap, lending, and liquidity mining with the help of programmability, which has broad prospects.
Bitcoin's "L2" trend
From a narrative point of view, the inscription is indeed different from the traditional narrative logic dominated by many previous large-scale investment and financing projects and VCs, giving more opportunities for the general public to participate in addition to OG and giant whales.
However, the Bitcoin network, which is at the center of the inscription frenzy, is also facing many problems, the most intuitive is "network congestion and surging fees" - because inscriptions are similar to NFTs, allowing users to record various data on the blockchain, but overall because Bitcoin's 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.
Against this backdrop, the flood of inscription transactions that are willing to queue up has squeezed the Bitcoin mempool (where all valid transactions are stored) that have not been officially added to the network.
According to crypto KOL bitrabbit.btc, Bitcoin has accumulated 87 million UTXOs over the past 14 years, but it soared to 140 million in about seven months after BRC20 began trading on April 24 — and of the more than 50 million UTXOs added, 40 million were very small transactions of 100-1,000 satosos.
As you can see from the chart above, since its launch in February 2023, Inscription has been a major consumer of Bitcoin block space, and the Bitcoin mempool began to be fully loaded in February, and has continued to this day.
As a result, the Bitcoin network has been unable to clean up its mempool, and is at the highest level in BTC's history since data records began at the time of writing.
According to the actual situation of the current Bitcoin network, especially the Bitcoin network, in order to prevent dust attacks, the Bitcoin transaction in a single UTXO must be limited to 546 satosher transactions, which means that the vast majority of the tens of millions of inscription transactions to be processed are actually equivalent to the garbage transactions of DDoS attacks, and may not be packaged and broadcast on the chain for a lifetime.
"Most of these small UTXOs will never be spent, but will lie in the Bitcoin node forever, causing tens of billions of dollars of waste of hardware and power resources to the BTC network for tens and hundreds of years to come."
This is the main reason why Bitcoin Core developer Luke Dashjr has publicly lashed out at ORDI, Inscription and BRC20 – "Inscription is using the Bitcoin Core vulnerability to spam the blockchain".
Therefore, with the inscription market exceeding billions of dollars and the growth momentum unabated, the inscription projects issued by the traditional Bitcoin main chain will become more and more unsustainable due to network congestion and accusations of "spam transactions", which will be a key obstacle to limit the further expansion of its volume.
The advantages of the Bitcoin L2 track are highlighted by the fact that it not only solves the problem of network congestion and "garbage trading" by packaging transactions to L2, but also creates a series of DeFi application scenarios for the Bitcoin ecosystem, including swap, lending, liquidity mining, and staking, with the help of the programmability of new smart contracts.
Bitcoin L2 Project Inventory
In general, as building a thriving DeFi application layer on top of the current Bitcoin ecosystem has become a new hot narrative, Bitcoin L2 projects have become a key track to carry the new expectations of Bitcoin supporters, among which in addition to familiar old projects such as Stacks, RSK, and Liquid, new solutions such as BitVM and BEVM also provide new ideas.
Stacks: Bitcoin's smart contract layer
As the second layer of Bitcoin, Stacks is anchored to the Bitcoin blockchain on the one hand, and on the other hand, as an independent protocol, it introduces Ethereum-like smart contract functionality and settles transactions permanently on the BTC blockchain to unlock Bitcoin's programmability as a Bitcoin L2, opening up new possibilities for applications such as DeFi and NFTs.
If you look at the overall system, Stacks actually has its own chain, compiler, and programming language, and runs in sync with Bitcoin to ensure its transaction and integrity.
However, because it uses the "peg" method to achieve BTC cross-chain - through the issuance of sBTC on the Stacks network, it is essentially a centralized mapping method, and there is a certain centralized single point risk.
At the same time, its network gas uses its mainnet token STX instead of BTC, and miners participating in Stacks' network mining will consume staked BTC to mine its network tokens, through this system, miners earn STX coins and transaction fees, and STX stakers earn bitcoins, which will also cause miners to hesitate to participate in the trade-off.
As of the time of writing, compared with the 200,000 daily active users of the popular ETH L2 Arbitrum, the gap is still large, and the response from both users and funds is mediocre.
RSK: A universal smart contract platform based on Bitcoin
RSK (Rootstock) is a general-purpose smart contract platform secured by the Bitcoin network that makes all Ethereum applications compatible with the Bitcoin blockchain by transferring its smart contracts from Ethereum to RSK. Since RSK creates a new block roughly every 33 seconds, it is much faster than Bitcoin's 10-minute block time, and RSK can also process about 10-20 transactions per second, which is also more efficient than Bitcoin's processing power of about 5 transactions per second.
Compared to other Bitcoin layering solutions, RSK's most unique design is merge mining – the RSK blockchain uses the same proof-of-work (PoW) consensus algorithm as Bitcoin, but miners can generate blocks faster than Bitcoin's base layer. These RSK blocks are mined through a process called merge mining.
Since both blockchains use the same consensus, miners can merge mine and mine for both Bitcoin and RSK blockchains, but make Bitcoin and RSK consume the same mining computing power, so miners can also mine RSK blocks with the hash power they contribute, which allows merge mining to greatly increase the profitability of miners without having to invest additional resources.
Merge mining allows RSK to validate transactions, generate blocks, and send them to Bitcoin, and 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), that is, the tokens issued by BTC are locked at a ratio of 1:1 on Bitcoin, and are bridged through the vault and smart contract on RSK, it is still difficult to avoid the security risks of smart contracts on RSK during the entire bridging process.
BitVM: A new star of Bitcoin smart contracts to be verified
BitVM, on the other hand, aims to implement Turing-complete Bitcoin contracts without changing the operating code, with key innovations including:
Introduce state between different UTXOs or different scripts via Bit Commitments.
Verifiability via logic gates: Execution can be verified by deconstructing any problematic program in the virtual machine, and the validity of the execution can be verified by a prover. This ensures that any false claims can be quickly proven false.
Keeping the Bitcoin network lightweight: Similar to the Optimistic Rollup on Ethereum, BitVM doesn't perform a lot of computations on Bitcoin. Instead, it minimizes on-chain activity and simply refutes incorrect execution, acting more as a solver and validator. Only the output of the BitVM program is used in Bitcoin transactions.
However, BitVM's capabilities are currently extremely limited, and more on paper, with only a viable feature called a zero-check function, and potential future use cases include a two-way peg with sidechains for scalability, but the implementation is similar to the Rollup logic on Ethereum:
Run a fraud proof similar to OPR on the BTC script, that is, when an asset transaction is disputed, the user can initiate a report, if the transaction really has a problem, the assets of the dishonest party will be confiscated, and the general effective reporting time is within 7 days (which can be simply understood as an unconditional return within 7 days), however, if the user initiates a report after 7 days is invalid, even if there is a problem with the asset transaction, it will be automatically saved on the blockchain to continue to run.
However, BitVM's smart contract layer runs off-chain, and each smart contract does not share state, and BTC cross-chain uses traditional hash locks for asset anchoring, which does not realize 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, with the core goal of expanding Bitcoin's smart contract scenario, helping BTC break through the shackles of the Bitcoin blockchain's non-Turing-complete and non-supporting smart contracts, so that BTC can build decentralized applications with BTC as the native gas on BEVM, a Layer2.
When a user crosses the BTC of the Bitcoin mainnet to the BEVM, the user's BTC will enter the contract address hosted by 1000 nodes, and then generate new BTC at the BEVM, that is, the BTC Layer2 network, at a ratio of 1:1.
When a user gives an instruction to cross BTC from BEVM back to mainnet, the BEVM network node will trigger the Mast contract, and the 1,000 nodes that custodian the asset will automatically sign according to the established rules and return the BTC to the user's address, and the whole process will be completely decentralized and trustless.
This means that all transactions are transferred from the Bitcoin main chain to the Layer 2 network, and since the BEVM is fully EVM compatible, it is also easy to enable BTC to implement various decentralized applications, empowering Bitcoin ecosystem sub-projects from L2:
Developers of Ethereum DApps can directly and seamlessly migrate to BEVM, and quickly build on-chain DeFi scenarios such as swap and even lending, liquid staking, etc., on BEVM, bringing more possibilities to the Bitcoin ecosystem, which is also the most decentralized and convenient compared to the first two.
MAP Protocol: A Bitcoin L2 network with peer-to-peer cross-chain interoperability
MAP Protocol is a Bitcoin Layer2 network for peer-to-peer cross-chain interoperability, which leverages Bitcoin's security mechanisms to enable assets and users of other public chains to seamlessly interact with the Bitcoin network, thereby enhancing the security of the network and enabling BRC20 cross-chain capabilities.
Compared with 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, utilizing 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 via Rolluper for trading on Unisat, OKX, and other Bitcoin L1 trading platforms.
brief summary
As the broader crypto community recognizes 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, and the entire build cycle will be long, now is the time for early layout.
In particular, the most imaginative L2 solutions and a series of derivative application scenarios, such as Ethereum Layer2 solutions such as Arbitrum and Optimism in 2021, are destined to eventually run a batch of multi-billion dollar Bitcoin L2 leading projects.
Therefore, Bitcoin L2 as a new solution to the problem naturally has a new enough imagination space, it is still in the early stage of the blue ocean, in the wealth password to be mined bonus period, worthy of long-term attention.
As a result, the approval of the ETF is currently the biggest catalyst for the cryptocurrency market, promising huge upside potential and limited downside. Despite some liquidity risks, ETFs are likely to improve market conditions across the board if investors' appetites increase substantially.