Original title: Exploring Bitcoin Layer-2s: Grift or New Paradigm?

Original author: Duncan

Original translation: TechFlow

While Runes are stealing the show, Bitcoin developers are hard at work — introducing a Frankenstein-like monster on top of the world’s most trusted blockchain. Because Bitcoin can take so many different forms, you might think that Bitcoin’s second layer is more like a gimmick for venture capital firms than a cutting-edge financial development.

But, dear reader, please note that Bitcoin is far richer than people think.

Example? Good. Bitcoin is as layered as an onion.

In the current case of Bitcoin, there is L2, an emerging narrative that promises to bring Bitcoin into decentralized finance, offering people a lucrative return on their money. But, like an onion, there are different kinds, and how they are prepared is important. Will the advanced technology attract new users, or just new holders?

What is the problem with Layers?

When we think about Layer 2 in blockchain development, we think about scalability: how can we make Bitcoin faster, better, and more powerful? Bitcoin is a bit slow, and its basic use, besides being a store of value, is peer-to-peer money transfer. When we talk about Layer 2, we are talking about using Bitcoin in meaningful ways, like in smart contracts, completing transactions in a reasonable amount of time, and doing it cleanly.

This functionality already exists on Ethereum Layer 2, such as Optimism and Arbitrum batching transactions, which rolls those transactions back to the main network. Bitcoin Layer 2 developers have creatively borrowed from these concepts and implemented them with varying degrees of sophistication.

From a macro perspective, the concepts are the same: Bitcoin Layer 2 is designed to enable more powerful applications for Bitcoin.

How Developers Prepare for Bitcoin Layer 2

Think of how you cook an onion. It can enhance the flavor of a dish, play a key role, or be the centerpiece. With Bitcoin Layer 2, developers are also thinking about how to use Bitcoin. Keep it simple, or craft a complete custom solution?

It turns out that solutions can vary widely in terms of technology. Luckily, I’ve put together a menu that highlights some of the key dishes I picked out.

Short and sweet: Citrea

In the short and sweet section, I presented Citrea. Other solutions I grouped here include Stacks, Build on Bitcoin (BOB), and SatoshiVM. They focus on core aspects of the second layer: scalability of blockspace and the use of smart contracts. Sounds high-end, but not too crazy.

Citrea is a zero-knowledge (ZK) Rollup designed to scale Bitcoin’s blockspace. As a Rollup, it inherits Bitcoin’s security and batches transactions and verifies validity proofs on Bitcoin through BitVM.

Citrea also uses a two-way peg between Bitcoin and itself, and is compatible with the Ethereum Virtual Machine (EVM) via BitVM, which allows Bitcoin to be processed off-chain (Turing-complete) for smart contract processing.

It is worth noting that Citrea is a Rollup, not a sidechain, just like garlic is from the same family as onions but completely different. Its goal is to scale blockspace rather than transaction throughput - that is, it focuses on storing blockchain information more efficiently rather than the number of transactions processed on the second layer.

In the case of Citrea, validity proofs are engraved into Bitcoin, allowing transaction batches to be easily Rolled up. An important difference is that these inscriptions are optimistically verified that all transactions are valid unless proven otherwise, and use fraud protection to combat illegal transactions.

So, where does ZK fit in? Well, first of all, transaction data is not published directly to Bitcoin itself, but only inscribed on it. This allows for some privacy protection for users on Citrea and other Bitcoin second layers that use a similar paradigm.

Second, there is a trust-minimized bridge between Citrea and Bitcoin that enables a two-way peg to Bitcoin, where funds can only be withdrawn if a valid ZK proof is passed. Citrea uses ZK-STARK, or Zero-Knowledge Succinct Non-interactive Arguments of Knowledge, to recursively verify batch proofs in a lightweight client.

This sounds a lot like “the flavor of onions is controlled by thiosulfinates” — which sounds like bullshit to the average user. There are a lot of important technical details, but in practice, the appeal of this solution is its simplicity.

If we think of Citrea as just another Rollup, like zkSync, Arbitrum, or Optimism, it makes all the fancy-sounding ingredients a little easier to digest. Of course, it’s not exactly the same, especially on a technical level; rather, this is just a loose analogy used for comparison. Imagine that when you use it on Ethereum, you’re not handing over your Bitcoin to a third party, but using native Bitcoin on Citrea: you just trust the open source code. That’s a powerful appeal.

Made for You: Bison

When it comes to using Bitcoin natively, some teams are taking different approaches. In fact, there are quite a few solutions that rely on using the EVM to implement their form of DeFi. Bison Labs addresses this problem with its Bison product suite, which includes Bison Network, Bison OS, and Bison Prover.

Bison offers its own analogy: Bison is to Bitcoin what Starknet is to Ethereum. Just like Citrea (and some other solutions), Bitcoin network inscriptions are leveraged as a data availability layer, thereby enforcing immutability and allowing data to be more easily obtained from the chain. They also use a zero-knowledge scalable transparent theory of knowledge (or ZK-STARK for short) approach to Rollups.

Bison Network has intrinsic components for Rollup and smart contract functionality. These components include L2 Dapp logic, sorter and token contracts, and bridge contracts. Essentially, we can think of Bison as a high-level form of "native Bitcoin DeFi" instead of relying on the EVM to handle this work.

From a culinary perspective, Bison recommends adding raw onions to dishes instead of sautéing them in olive oil every time, "because it tastes better that way."

There’s a spider in your dish: Botanix

Other teams have taken completely different approaches to leveraging native Bitcoin. If you’re looking for something a little novel, one good option is Botanix, which proposes implementing proof-of-stake on its own second layer. Yes, it’s new.

Proof of Stake (PoS) on Bitcoin is different from other PoS networks, which distribute interest to holders through inflation, block rewards, or both.

In Botanix, holders lock up their Bitcoins and generate fees through base transaction fees, priority transaction fees, and "down fees" that occur when users want to bridge from Botanix to Bitcoin. In theory, the base reward for Botanix blocks is 0. This means that Botanix benefits greatly from higher user adoption.

Botanix protects the locked Bitcoins in an architectural model called "the Spiderchain".

The Spiderchain is "a series of sequential multisigs between Botanix Orchestrators", which are essentially "full nodes" of the Botanix protocol. On every block of Bitcoin, a new multisig is created between randomly selected valid Orchestrators.

Orchestrators cannot access the Bitcoin in the multisig without obtaining a majority of signatures in the random multisig, which is determined by the amount of Bitcoin staked by the Orchestrators themselves, that is, they must control 1/3 of the staked Bitcoin. This security model means that as the network becomes more decentralized, as more Orchestrators join, the network becomes more secure.

Now, it is important to note that Bitcoin exists "natively" on Spiderchain. All Bitcoin stored on the Botanix EVM portion is synthetic. If user Alice bridges from Bitcoin to Botanix, her Bitcoin will be locked on Spiderchain, and she will receive synthetic Bitcoin to use on the Botanix EVM.

When she wants to bridge back from Bitcoin, the synthetic Bitcoin will be destroyed and she will receive her Bitcoin back from Spiderchain. This is called "peg-in" and "peg-out" respectively, because the supply should remain in a 1:1 ratio.

Botanix is definitely unique - is it like eating spiders? I don't know. It could be gross, or it could be the most delicious dish I've ever tasted. What I do know is that it's definitely cooked with onions.

Where do they overlap?

At this point, you might be thinking: is this another onion reference? The answer is yes, there are onion analogies all over this post.

Similarly, there are some key components that exist in multiple second layer solutions for Bitcoin. The main commonality will be the use of BitVM and the use of inscriptions as a data availability layer.

Technically, BitVM is what allows fraud proofs to be enabled on Bitcoin. Computations going through BitVM are simply verified, similar to optimistic rollups, but contain elements that are typically part of zero-knowledge rollups, such as obfuscating transaction details and using trust-minimized bridges.

You’ll also notice that most second layer solutions leverage EVM compatibility to leverage the power of smart contracts and the existing developer pool on Ethereum.

You might see some distinctions, such as whether the solution uses a token. For example, Merlin Chain, Map Protocol, and SatoshiVM all have their own tokens. They are not necessarily used as Gas, and have different applications.

So, does it really matter?

Well, it depends on what kind of cooking you are doing, right? Raw onions, sautéed onions, fried onions… you get what I mean. At the core of all this talk about the second layer is the technology, and yes, it does matter if you are cooking, or even eating something that is being cooked. But for the average user, maybe not really that important.

What does this mean for your portfolio? Well, it probably comes down to user experience. If Citrea is clunky to use, even though I think it is simple and straightforward, people probably won’t use it. Bison and Botanix may look overwhelming, but could be revolutionary user experiences in actual use.

But even user experience is a different science. It’s again a question of whether people prefer raw onions, sautéed onions, fried onions, or grilled onions: the market will evolve where the demand is.

Ultimately, Bitcoin Layer 2 represents an attempt at broader user adoption, and products will go where the market demand is. If people like cooking onions with spiders, who am I to judge?

Okay, admittedly, that’s enough onion analogies in this article. Let me summarize it for you, without the onion.

Complex technology gets simplified over time, which leads to better understanding (and therefore better experience) for users, and sometimes you need more complex solutions. Adoption of any kind is generally good for your portfolio.

Technology is great when your portfolio appreciates: adoption means that the technology is constantly improving, leading to new, potentially complex solutions. Typically, where there is greater attention in cryptocurrencies, there is more development support. In other words, your portfolio is more likely to succeed.

But we are talking about Bitcoin. People assume that these portfolios will succeed. What we are interested in is whether the technology will be adopted. In a second layer environment, we can see Bitcoin being used as money in different environments.

However, we should ask ourselves: is the idea of Bitcoin as a store of value or market hedge too entrenched to seriously consider this?

Initially, I think this will attract holders who just want to increase their Bitcoin holdings. The question is always who will make the first move, and for those who succeed, their risk will be well rewarded. For most people, it will continue to serve its current function solidly: as a store of value and a hedge against risk.

Again, see the need, fill the need, if the market needs onions cooked a certain way, in certain dishes, they will have them. Whether they are often eaten is another matter.

Summary

Personally, I am interested in native solutions like Bison. I think there is market fit for solutions like Botanix, and I think the perfect crossover between the two is probably somewhere.

I think there is enough market interest to justify its development, certainly, but I think it will be a small fraction of Bitcoin's total market cap. After all, I think its strength is that Bitcoin Layer 2 is interconnected in its potential relationship with Bitcoin, although it is more interesting in its relationship with Ethereum.

But here's the real key. While Bitcoin Layer 2 is still in its incubation stage, it is working hard to become a truly independent ecosystem. In the meantime, we should continue to watch and see how these projects develop and how they bring value to cryptocurrencies and blockchains.

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