A Bitcoin layer 2 is any offchain community, system, or expertise constructed on high of the Bitcoin blockchain to assist lengthen its capabilities.
Since its inception in 2008, Bitcoin has turn out to be the point of interest of the verifiable internet as the primary decentralized cryptocurrency, remaining the most important one by market capitalization. Nevertheless, Bitcoin’s development has confronted challenges because of the community’s restricted scalability, usually leading to excessive transaction charges and community congestion.
The latest introduction of ordinals, BRC-20 tokens, and different Bitcoin-native onchain purposes has additional exacerbated these points, the place—particularly throughout peak occasions—Bitcoin can turn out to be impractical for on a regular basis use. These ongoing scalability challenges spotlight the instant want for Bitcoin scaling options similar to layer-2 networks.
On this publish, we talk about what Bitcoin layer 2s are, how they work, and the way they will profit from industry-standard oracle providers.
How Do Bitcoin Layer 2s Work?
The Bitcoin community takes about 10 minutes to finalize a single block of transactions—solely seven transactions per second (TPS) on common. Scaling the Bitcoin blockchain immediately isn’t an possibility, as it could require compromising both safety or decentralization per the blockchain scalability trilemma.
It’s value noting that the restricted core performance (i.e., a worldwide, censorship-resistant decentralized foreign money) helps make the Bitcoin community so tamper-proof and strong, and a major technological breakthrough of the twenty first century. Nevertheless, this slim focus limits the community’s usability in on a regular basis eventualities and limits builders’ potential to launch new purposes on Bitcoin. Enter layer 2s.
A Bitcoin layer 2 is any offchain community, system, or expertise constructed on high of the Bitcoin blockchain that helps lengthen its capabilities. Layer-2 networks can introduce enhancements similar to larger transaction throughput, decreased charges, and programmability by sensible contracts. A key requirement for a community to be thought-about a layer 2 is that it should inherit the safety of the blockchain it’s constructed on—on this case, Bitcoin. Within the case of Bitcoin layer 2s, which means transaction knowledge is verified and confirmed by the Bitcoin blockchain reasonably than a separate set of nodes.
Layer-2 networks can fluctuate significantly in how they obtain this elevated scalability, however a typical denominator between layer-2 environments is that when trying to choose the bottom chain, they have to present some type of cryptographic proof to the blockchain on the integrity of the proposed state change, both preemptively or retroactively.
If you happen to’d like a deep dive into how layer 2s work, learn What Is Layer 2?.
Sorts of Bitcoin Layer 2s
There are a number of forms of Bitcoin scalability options that may be categorized as layer 2s, although some exist in a grey space relating to their classification as true layer-2 options. Notice that Bitcoin scalability is an ongoing space of analysis, and new options and applied sciences might emerge sooner or later to deal with a few of the limitations of present Bitcoin layer-2 applied sciences.
State Channels
State channels allow customers to bypass excessive transaction charges by transferring transactions offchain, the place two events lock a certain quantity of bitcoin right into a multisig to ship and obtain funds. These channels then keep data of all transactions that happen inside them till they’re closed. When the events are carried out transacting, they signal and broadcast the ultimate state of the channel to the Bitcoin blockchain.
State channels preserve all transactions inside them offchain, solely reporting the opening and shutting stability of members to the Bitcoin community. This enables members to make transactions with out having to pay Bitcoin mainnet charges for every transaction.
State channels are just like fee channels within the Bitcoin Lightning Community, however additionally they help extra complicated transactions apart from micropayments.
Sidechains
A sidechain is an impartial blockchain with its personal consensus mechanism that connects to Bitcoin by way of a two-way peg, permitting the switch of belongings or balances between the 2 chains. Whereas sidechains usually use bitcoin as their native foreign money, they will additionally challenge their very own native tokens.
Working as separate blockchains, sidechains supply quicker transactions and extra options like sensible contracts. As a result of sidechains have their very own validator set, they aren’t all the time thought-about true layer-2 options, as transactions aren’t essentially in the end verified by the Bitcoin community. Nevertheless, some sidechains might faucet into Bitcoin’s safety or periodically choose the principle chain.
Rollups
Bitcoin layer-2 rollups transfer transaction execution and knowledge off the principle Bitcoin blockchain to a separate rollup chain or layer whereas nonetheless anchoring to Bitcoin for knowledge availability and consensus.
Rollup expertise includes executing transactions on the rollup chain, compressing knowledge, and anchoring to the Bitcoin mainnet. Customers submit transactions to be executed on the rollup chain reasonably than immediately on the Bitcoin blockchain. The rollup chain then processes these transactions and updates account balances accordingly.
After processing a batch of transactions offchain, the rollup compresses the transaction knowledge right into a compact cryptographic proof or dedication, representing the online impact of all these transactions. This compressed proof is periodically submitted to the Bitcoin blockchain as a single transaction, and a few type of verification mechanism on Bitcoin then validates and applies the modifications represented by the rollup proof.
Advantages of Bitcoin Layer 2s
Bitcoin layer 2s supply a number of advantages:
Better scalability—Bitcoin layer 2s successfully enhance the transaction throughput and pace of Bitcoin by processing transactions offchain after which settling them on the principle chain, relying on the answer.
Lowered charges—Bitcoin layer 2s allow decrease transaction prices, unlocking use circumstances secured by Bitcoin that wouldn’t be possible on the principle Bitcoin community, similar to micropayments.
Programmable sensible contracts—Though Bitcoin was not initially designed to help sensible contracts, layer-2 options can introduce this performance, enabling the creation of complicated decentralized purposes and novel programmable monetary devices constructed on Bitcoin.
Deeper liquidity—Bitcoin layer 2s can enhance liquidity and entry to Bitcoin, unlocking DeFi on Bitcoin with enhanced liquidity, capital effectivity, and elevated entry.
Bitcoin Layer 2 vs. Ethereum Layer 2
The utility of layer-2 options lies in how they faucet into the safety of the principle chain whereas rising its scalability. On this method, Bitcoin and Ethereum layer 2s are fairly related—each search to introduce enhanced scalability with out making modifications to the bottom layer. Nevertheless, Bitcoin and Ethereum layer 2s differ considerably of their technical implementation, as Bitcoin and Ethereum themselves are designed for distinct functions.
Accelerating Bitcoin Layer 2 Adoption
State channels, sidechains, rollups, and different layer-2 options are all strategies of approaching the blockchain scalability drawback in numerous methods—supporting each the rising adoption of onchain purposes and enhanced use circumstances and person experiences.
The Chainlink platform has underpinned the DeFi ecosystem since its inception, fulfilling the necessity for high-quality knowledge, compute, and interoperability providers that assist builders create fully-fledged decentralized purposes. In lots of circumstances, integrating Chainlink has helped layer-1 and layer-2 ecosystems bootstrap their development with battle-tested Chainlink infrastructure, attracting each new builders and customers. With the rising ecosystem of Bitcoin layer-2 scalability options, the necessity for high-quality knowledge and different oracle providers may also develop within the Bitcoin ecosystem.
A big benefit of adopting the Chainlink platform is that after an app makes use of a single Chainlink service, there are little-to-no further belief assumptions for utilizing different Chainlink providers since they’re all constructed upon the identical time-tested oracle infrastructure. And each new service constructed on high of Chainlink provides extra worth for all current customers. For this reason blockchains are more and more becoming a member of the Chainlink Scale program as a solution to speed up the expansion of their utility ecosystem. An integration with Chainlink can convey a number of providers to a single blockchain and subsequently drive a surge in developer exercise.
To study extra about Chainlink, go to chain.hyperlink, subscribe to the Chainlink publication, and observe Chainlink on Twitter, YouTube, and Reddit.
