Bitcoin Layer 2 Project Bitlayer Secures $11 Million in Funding, Becomes the First BTC Infrastructure to Receive Institutional Investment with ETF License

Recently, the Bitcoin Layer 2 project Bitlayer Labs completed a $11 million Series A financing round, led by several well-known investment institutions. It is noteworthy that Bitlayer has become the first Bitcoin infrastructure project to obtain ETF licensed institutional investment.

Bitlayer, as a second-layer project of BTC, aims to enhance the scalability of Bitcoin and unleash its ecological potential. The project has two main features: first, it is the first second-layer network based on BitVM; second, it is the first second-layer network that fully inherits the security of BTC and is Turing complete.

Current Status of BTC Layer 2 Network

Currently, most BTC layer 2 projects are essentially cross-chain bridges, with their technical implementations largely based on multi-signature schemes. However, multi-signature has serious trust issues, which have led to multiple incidents of fund theft. An ideal layer 2 network should inherit the security of the layer 1 network while expanding the ecosystem. Bitlayer, based on BitVM technology, achieves trust minimization and strikes a balance between security and scalability.

The Technical Architecture of Bitlayer

The business process of Bitlayer is divided into three stages: transaction processing, transaction validation, and final verification.

Transaction Processing Stage

This stage mainly involves two components: the sorter and the LVM (Layered Virtual Machine). The sorter is responsible for collecting and sorting transactions, while the LVM acts as a computation component that executes smart contracts and generates state updates and zero-knowledge proofs.

The innovation of LVM lies in the decoupling of smart contract execution from zero-knowledge provers, enabling the system to support multiple types of contracts and proof verifiers, significantly enhancing scalability and security.

Transaction Verification Stage

This stage involves the interaction between layer one and layer two networks, mainly addressing how to ensure that layer two networks inherit the security of layer one networks. Bitlayer uses a combination solution of BitVM bridge and OP-DLC bridge.

The BitVM bridge operates on a "pay first, reimburse later" model. Operating nodes advance withdrawal funds for users and regularly apply for reimbursement to the public deposit address. If an operating node commits fraud, anyone can initiate a challenge and punish the violation. This design decentralizes through a fund pool, fundamentally enhancing the security of the bridge.

The OP-DLC bridge serves as a supplement to enable peer-to-peer transactions between users, with its security relying on fraud proofs and third-party oracles.

Advantages and Challenges of Bitlayer

Bitlayer demonstrates foresight in its architectural design, with the decoupled design of LVM laying the foundation for future compatibility with various virtual machines and zero-knowledge provers. The BitVM+OP-DLC dual-channel bridging solution it employs is one of the safest cross-chain implementations in the BTC second-layer network, achieving minimal trust.

However, Bitlayer also faces some challenges. The funding pool model of the BitVM bridge may not meet the needs of certain users for fund independence. In addition, the availability of the BitVM bridge needs further optimization, such as requiring a large number of alliance members to be online simultaneously and correctly execute pre-signatures, etc.

Overall, Bitlayer has built a relatively balanced cross-chain bridge solution in terms of security and scalability through the combination of technology and engineering, based on BitVM. Although this is still a transitional solution, with the continuous maturation of BitVM technology and Bitlayer's ongoing innovation, we have reason to expect it to gradually become the ideal Bitcoin Layer 2 network.