Explore the path to implementation of the Bitcoin Layer 2 ecosystem

The "impossible triangle" issues of security, decentralization and scalability on the Bitcoin mainnet have become more significant.

Written by:****@tmel0211

Translation: Vernacular Blockchain

In the craze surrounding the FOMO inscription, I met some "real" Bitcoin developers. Surprisingly, they didn’t show overzealous enthusiasm or talk about disrupting Ethereum with Bitcoin Layer 2 as one might expect.

Instead, there seems to be a consensus: the Bitcoin ecosystem has potential, but it will be different from Ethereum’s Lego paradigm of DeFi. Next, let’s dive into how the Bitcoin ecosystem should be implemented based on technical reasoning.

Indeed, this new way of issuing assets, like inscriptions, has brought many people back to the ICO era in 2017 and reignited enthusiasm. This wave of subscriptions has brought new users, new application scenarios, and additional funds. To some extent, it makes sense to call it a Bitcoin bull run.

Subsequently, various directions such as side chains, Lightning Network, Taproot Assets, RGB, BitVM, etc. were crowded with "pretenders" of Bitcoin's orthodox Layer 2. They often loudly claimed that they would copy everything about Ethereum in the Bitcoin ecosystem, causing unrest. A small sensation.

Just like the unsustainable nature of the ICO asset issuance boom, as the wave of FOMO subsides, the inscription market is also eager to usher in a new Bitcoin Layer 2 trend.

There is nothing wrong with having such ambitions. However, if you want to replicate the diverse gameplay of the Ethereum ecosystem in Bitcoin, it is not feasible. The Bitcoin ecosystem needs to explore a landing path that is consistent with its inherent characteristics.

The core logic is that the native characteristics of the Bitcoin chain impose "limited" computing and verification capabilities. Even the storage capacity in Taproot addresses SegWit has been disputed by dust attacks.

Limited computing power means that more complex transaction logic must be implemented off-chain. For example, bitVM envisions Turing-complete computation based on off-chain circuits and on-chain logic gates (0, 1), and is implemented based on the optimistic Rollup concept. While the idea was ambitious and the technical logic made sense, the engineering effort required was impractical.

Limited verification capabilities make Bitcoin more suitable for asset settlement than global state verification. The Schnorr signature and MAST data structure features of Bitcoin nodes currently provide some verification capabilities. However, Schnorr only aggregates multiple signatures and is limited to multi-signature scenarios, while MAST allows the creation of more complex scripts, but relies on the UTXO model only for asset settlement and cannot achieve global state verification. Building a complex light node matrix can enhance the interactivity between the side chain and the main chain, and improve the security and response speed of asset settlement.

The storage controversy is undeniable. Bitcoin has evolved along a path of extreme simplicity, a consensus reached after the previous block size war. Therefore, the idea of making significant changes to the scripting space based on Taproot is certainly unrealistic. Although it may not reach the level of SegWit being castrated, upgrade protocols like Atomics, RUNE, and PIPE tend to compromise and tend to smaller blocks, such as discarding large JSON data packets, and returning to optimization and application OP\ _Return space.

These limitations determine that Bitcoin’s Layer 2 scaling solution is significantly different from Ethereum:

1. Bitcoin lacks data availability (DA) capabilities. Ethereum's DA is the mainnet validator's computing and verification capabilities for Layer 2 submissions. Obviously, while Bitcoin can accept a certain amount of data, the mainnet does not have the computational and verification capabilities to be feasible and efficient.

Therefore, Bitcoin's DA is more like a "bulletin board". The original data is stored in the Bitcoin block and can only be accounted for and verified by the off-chain indexer. This will undoubtedly test the indexer's accounting and verification capabilities. The challenge increases further if there are multiple indexers, leading to confusing accounting logic and error issues.

2. Bitcoin has limited interoperability. Ethereum's Layer 2 submits the status to the main network. The main network has contracts that can coordinate with Layer 2 to implement mechanisms such as the 7-day challenge time window and Layer 2 escape hatches to ensure that the main network can protect Ethereum's assets Layer 2 users. On the premise of Sequener's wrongdoing. Obviously, without the capability of smart contracts, Bitcoin would not have this level of security. Users can only trust that Bitcoin Layer 2 will not act maliciously.

3. Bitcoin’s UTXO security model is limited to “payment” scenarios. Similar to the Ethereum Plasma Layer 2 solution, if the nonce hash corresponding to each transaction is synchronized with the main network in the form of UTXO through Layer 2, a UTXO-based security model can be established. However, just like Plasma is limited to payment scenarios, Bitcoin Layer 2 based on the UTXO model also has this limitation. Any mechanism with complex smart contracts like the EVM cannot rely solely on this security mechanism unless additional consensus is added outside the Bitcoin chain.

Considering this technical logic and understanding, the narrative space of Bitcoin Layer 2 becomes very clear:

1. Use Bitcoin as the settlement layer to build an independent consensus for Layer 2 and provide a complete set of DA, interoperability, VM virtual machine and other capabilities that are consistent with the Ethereum ecosystem. However, such a powerful chain essentially recreates the Ethereum execution chain. Many people may not know that Ethereum actually has a Beacon settlement chain, and the main chain of Ethereum 2.0 we see can be regarded as the second layer of the Beacon chain.

The reason why people have a weak understanding of the settlement chain is because the core of the main network is the ability to verify interactions. If only one settlement chain is built, then the chain that handles a large number of calculations and verification operations will become the real "main chain".

Here comes the question: If we use Bitcoin as the settlement chain, do other chains dare to call themselves the main chain? Does the Bitcoin ecosystem allow this kind of "consensus" to exist?

2. Use Bitcoin as a payment solution, including client-side verification of Lightning Network, Taproot assets, and RGB. Essentially, these solutions rely on the Bitcoin mainnet’s UTXO model to provide security. This naturally limits these solutions to payment scenarios.

The Lightning Network provides a smooth experience for the circulation of small amounts of Bitcoin. Likewise, Taproot assets and RGB are also suitable for stablecoin payment channels.

If you want to superimpose some DeFi and EVM status on the state channel and client verification, it is equivalent to adding more complex verification logic to the original UTXO model. Of course, some states that cannot be verified by the main network will be submitted to the main network, essentially relying on off-chain consensus. Such a solution may be feasible, but the security level will be correspondingly lower compared to a transaction scenario controlled by a pure UTXO model.

In summary, how does the Bitcoin ecosystem come to fruition?

If we point Bitcoin’s security consensus capabilities to applications and consumption scenarios such as Lightning Network and Taproot assets, then RGB client verification can realize more complex second-layer smart contract application scenarios;

If Bitcoin allows some off-chain consensus outside of the main consensus, then RGB client verification points to more complex application scenarios, making complex Layer 2 smart contracts possible;

If the Bitcoin mainnet only serves as a settlement chain and relies on independent consensus outside the chain, then various solutions such as side chains, alliance chains, and index chains that can establish consensus and strictly implement transparent asset settlement seem to be feasible.

If a groundbreaking Bitcoin Turing computing and verification solution like BitVM is implemented and is less cost-effective than Ethereum's smart contract construction, then the above conclusion may be overturned.

In any case, the "impossible triangle" issues of security, decentralization and scalability on the Bitcoin mainnet have become more significant. The so-called orthodox Bitcoin Layer 2 may be just a superficial proposition. In my opinion, choosing orthodox consensus means accepting the "limitations" of expansion. If you hope to break through these limitations, don't hold high the banner of unbeatable consensus.