Bitcoin scaling route ≠ BTC L2.

At the beginning of the new year, I summarized the technical route of BTC L2, which was mainly divided into two parts: the security and value upside of BTC, and the downside of L2 transaction execution and results. With the development of time, in less than three months, BTC L2 has reached a value of nearly hundreds of dollars, but there are still some basic issues that have yet to be clarified, with definition issues bearing the brunt.

In the history of the development of Bitcoin, there have been three practices in the scaling route for a long time. The basic is the main network upgrade, such as SegWit and Taproot. The second is off-chain scaling, such as client verification, lightning network, side chain and many other attempts. Finally, there are direct forks, such as Dogecoin, BSV, BCH, etc.

Bitcoin scaling route selection

From the inside out, it is complicated. There are different opinions on what exactly BTC L2 is. With reference to the development history of Ethereum, I hereby put forward two key points for evaluation:

1. L2 must first be a chain by itself, able to independently complete all aspects of calculations and transactions, and finally submit Bitcoin for settlement;
2. The security of L2 is completely guaranteed by L1. The underlying value of L2 is supported by BTC. L2 tokens cannot interfere with the function of BTC.

According to this standard, mainnet upgrades and forks are irrelevant to the L2 concept. The focus is on how to classify off-chain scalability. For example, the Lightning Network is a special “channel” that is difficult to say is a public chain itself, while sidechains have their own security consensus and operating models. The security cannot be strictly equivalent to Bitcoin. However, L2 should be hidden in them, so let’s continue to divide them.

BTC L2 = Lightning Network + Sidechains.

According to the previous standard, BTC L2 should be a hybrid product of the Lightning Network and sidechains, that is, it is completely dependent on the Bitcoin mainnet like the Lightning Network, while “independent” of the operation of Bitcoin like sidechains, taking the essence of both and eliminating the dross.

In this way, existing BTC L2 solutions need further development, especially considering the fact that Bitcoin’s UTXO mechanism and Layer 2 rely on smart contract mechanisms that cannot operate strictly in coordination. For example, Bitcoin cannot revoke past transactions, which needs to be resolved by L2 itself or introduce off-chain update or indexing mechanisms.

Secondly, there is a problem of excessive independence of L2. For example, only storing the block header information of Bitcoin transactions as synchronization proofs from L2 to L1, only storing settlement information into Bitcoin scripts as DA schemes, without considering subsequent retrieval and confirmation issues.

The current status of BTC L2 is prone to be exploited, leading to security and trust crises. I believe that it is necessary to transition from being L2-centered to a brand-new stage centered around Rollup, that is, fully utilizing the security of the Bitcoin mainnet while solving the problem of large-scale computation.

1. BTC builds a PoS system to provide security and uses a permissionless access and burning mechanism, which is different from the existing package asset system.
2. BTC staking income completely uses BTC as the pricing currency, and the project token cannot have a functional conflict with BTC.
3. The Rollup computing layer needs to meet both large-scale and privacy requirements and uses crypto technology to combat centralization tendencies.
4. Rollup cannot build additional DA layers and strictly uses Bitcoin as a DA solution.

To sum up, the ideal Rollup should use BTC as the native Gas Fee and staking reward, use the 2WP double peg mechanism to achieve cross-chain circulation, and the 1:1 anchored mapped asset xBTC circulates in BTC L2 and cross-L2 bridges, privacy computing + ZK proves that the complete anonymity and privacy of Bitcoin users can be guaranteed from the source and process. The project tokens participate in Rollup operations to avoid conflicts with the role of BTC.

Rollup is like a bridge, a chain and L2

BTC Rollup operation process

First of all, we must emancipate our minds. The bottom layer of PoW + the upper layer of PoS is the current optimal solution. The source of staking income depends on the underlying value support. Engineering combination replaces technological innovation. It doesn’t make much sense to worry about ZK or OP. The result storage is not DA. In addition, there is no need to worry too much. In terms of centralized and decentralized mechanism design, no solution can compare with Bitcoin. Even for ETH OP, the real failure proof and recovery mechanism is “route” or “theoretical”. Currently or in the long term, it will still be controlled by the project.

Therefore, a more reasonable mechanism design lies in how to reduce human intervention through technical means and ensure the long-term stable operation of the project. In ETH L2, it is called forced withdrawal and escape cabin design to ensure that the safety of user funds can be ensured even in extreme cases when the project is shut down. For BTC Rollup, the difficulty here is how to return the mapped assets to the Bitcoin main network in the event of a failure, and how to ensure privacy during Rollup calculations when it was not so decentralized in the early days.

Let’s discuss the first point, which is the mapped assets of BTC, such as various decentralized versions of WBTC, circulating on Rollup while ensuring security. On one hand, BTC entering must support the value of Rollup, and on the other hand, Rollup BTC must be able to revert to the mainnet in case of failure.

Existing solutions are various variants of cross-chain bridges, differing only in whether they are communication bridges, asset bridges, or centralized bridges. Currently, it is difficult to see new solutions. Bridging assets is the first step in building a PoS system.

However, there is still innovation space for staking and staking rewards. For example, it is possible to skip the development stage of Lido and directly use DVT technology to build a complete decentralized staking system, or to build a hybrid staking system based on BTC, WBTC, or BounceBit issued based on the exchange system, to reduce the security impact on BTC during crises.

After bridging and DVT/hybrid staking, the long-term neglect of Rollup’s computation is a problem. The issue here is that Rollup itself must be able to handle the data throughput, state updates, and result storage of a public chain, as well as data distribution, which can be discussed in terms of efficiency and privacy.

• Efficiency is easy to understand, such as the use of parallel mechanisms or concurrency mechanisms. After getting over the early FOMO emotions, Bitcoin Rollup has to compete with ETH Rollup for operating efficiency, and speed improvement has been proven effective by Solana.
• The privacy issue has long been overlooked. Bitcoin’s PoW mechanism makes it almost impossible to censor, but in the early stages, Rollup is vulnerable to the dilemma after ETH PoS, where certain types of nodes may be subject to and cater to censorship mechanisms. Solutions here cannot be achieved through decentralized mechanism designs, and no solution can compare to BTC PoW. Therefore, help from privacy computing must be sought.

Lastly, there is the issue of Data Availability (DA). Referring to the criteria for distinguishing between ETH L2 and Rollup, any solution that does not use the mainnet as a DA scheme cannot be called Rollup. This involves the final security commitment. If L2/Rollup voluntarily abandons the security guarantee of L1, then it should naturally be excluded. Due to BTC’s independent mechanism, additional supplementary designs are needed.

DA mechanism

• Optimistic verification and ZK hybrid usage have become mainstream, referring to the confirmation of transactions on Rollup being ultimately confirmed by the mainnet. Fraud proofs use an optimistic mechanism, meaning confirmation first, then troubleshooting. If time elapses, it becomes effective. Additionally, in proof generation, ZK can be used to significantly compress data. This point is particularly important in BTC Rollup because the Bitcoin space is too expensive.

• The Inscription mechanism can play a greater role in transaction mechanisms. On ETH Rollup, once a fraud proof is challenged and accepted by Ethereum, the submitter’s staked assets will be slashed by the mainnet. However, on BTC Rollup, such slashing must be done off-chain because once Bitcoin scripts are written, they cannot be changed again. They can only be updated by continuing to write information into new blocks, meaning only updates are possible, not overwrites.

  In fact, the responsibility of transaction updates lies with the indexer network and must be decentralized.

Finally, we can complete the entire BTC Rollup mechanism design, which can be divided into four steps. Basically, we will follow the four steps of xBTC—->Staking—->Calculation——>DA to build the technical architecture. Here, the difficulties mainly lie in the design principles of the staking system and mapped assets, as well as the privacy issues of on-chain calculations and the final DA design.

In addition, following the principle that project tokens cannot conflict with BTC, project tokens should play a role within Rollup, such as the construction of the DVT system, the decentralized maintenance of the indexer, and the circulation of ecological development and governance systems.

The Big Picture: BTC L2 Overview

Architecture Overview

If we use the Rollup standard I defined as the benchmark, it’s evident that many project schemes cannot be included in the discussion. Therefore, we will broaden the scope, and any solution with the above characteristics can be intuitively evaluated.

Following the four-step sequence, we can compare the current mainstream technical solutions slightly. It’s important to note that each step is interrelated, but the prerequisite will be assumed to exist and will not be reiterated. For example, when discussing staking, the implementation of bridging will not be emphasized again, and so on in a progressive manner.

Starting from bridged assets, ZetaChain and Zeus Network are the most suitable, each connecting the Bitcoin and EVM ecosystems as well as the Solana ecosystem. In terms of specific implementation, there are slight differences between the two.

ZetaChain has created a standard similar to ERC-20 called ZRC-20, where BTC can be issued as zBTC tokens in a 1:1 mapping. Meanwhile, to highlight the full-chain Omni concept, there is actually an internal exchange mechanism for zBTC, which does not physically transfer to the target chain. This makes zBTC a so-called full-chain asset, but such mapping assets require strong mechanism design. ZetaChain achieves this by using observers and signers to monitor transactions and events on the Bitcoin chain and reach consensus on ZetaChain, thus enabling interaction with non-smart contract blockchains like Bitcoin.

In theory, ZetaChain is a full-chain cross-chain bridge, not limited to communicating between Bitcoin and the EVM ecosystem. However, the focus here is to illustrate the process of how non-smart contract blockchains like Bitcoin integrate with the EVM. It can be observed that ZetaChain is not only a message bridge but also an asset bridge.

On the other hand, Zeus Network emphasizes itself as a communication layer rather than a cross-chain bridge. In its mechanism design, it provides a standardized interface that allows different blockchains to exchange information and value through this interface.

For example, BTC can be locked in a specific Bitcoin address and equivalent assets released on Solana. Actual transfer of BTC and execution of smart contracts on Solana can change behaviors on the Bitcoin network.

This feels more like a semantic game; theoretically, there is indeed no need to transfer assets between the two chains, but in practice, you cannot truly transfer BTC to the Solana network. Bridging assets or information fundamentally require the involvement of third parties for mutual invocation and communication. The difference lies in the degree of intervention.

After asset bridging, a staking system will emerge. The significance of staking lies in emulating the security commitments of the ETH network, such as Stake, LSDFI, Restake, and LRTFi, which fall into four categories. Their fundamental logic lies in staking to ensure the security of the mainnet and issuing equivalent certificates to participate in DeFi and earn income. The difference lies in the degree of “nesting.”

In the practice of Bitcoin, Merlin Chain is the representative of the staking system, and BounceBit is the representative of LRTfi. However, the core is to attract users to keep their assets in their system. They are not simply depositing money to earn interest, but hoping to keep it safe. At the same time, we strive to expand the boundaries of ecology, and the era of usability is gradually coming.

Merlin Chain, beyond its violent pump, is committed to ecosystem development in terms of mechanism. Based on the L1 BTC multi-signature and L2 smart contract system, it has built various scenarios on L2, such as Merlin Swap and Merlin Starter. It is currently the most innovative among Layer 2 solutions, akin to ETH L2 ZKFair, both being Lumoz products. It has also collaborated with Cobo to build an L2 asset management system, with a current TVL of $3.6 billion, essentially the highest tier.

On the other hand, BounceBit goes a step further, or perhaps a step backward.

The progress lies in BounceBit’s production of re-staked assets based on exchanges. Users directly deposit BTC on Binance and exchange it for wrapped assets on the BNB Chain, participating in both CeFi and DeFi trading activities. Furthermore, utilizing custody technology, BounceBit can issue LRTfi assets while holding Bitcoin, thereby building an EVM-compatible system that can connect to the on-chain world.

In the entire network operation, centralized exchanges (CEX) and custody form the foundation of operation. What sets BounceBit apart is its unique approach of re-issuing locked BTC into liquidity, injecting it into the logic of asset appreciation. Currently, with a TVL of $700 million, it allows for the staking of BTC or its own tokens into the collateral network. The overall idea is to utilize more centralized measures to reduce the risk associated with BTC circulation.

Taking a step back, this is a slightly improved version of WBTC, and even without extensive operation, its security may not necessarily surpass the established reputation of WBTC.

Next is the on-chain computation phase, where two issues need to be addressed: the decentralization of sequencers and their compatibility and computational efficiency.

The centralization of sequencers is a chronic issue in ETH L2. Fundamentally, the use of centralized sequencers can greatly improve the efficiency of L2 operation and to a considerable extent mitigate MEV attacks. It also helps enhance the user trading experience. However, beyond these benefits lies the serious issue of centralization, which can lead to project teams becoming de facto operating entities.

The B² Network attempts to use its own BSQ mainnet token to construct a decentralized sequencer network. In essence, this creates an incentive network that requires a combination of submitters, verifiers, and challengers to maintain operation. The goal is to use the complexity of governance to reduce the degree of centralization.

In terms of compatibility, compatibility with EVM or SVM is easily resolved, but cross-chain compatibility between L2s will be more complex. Additionally, computational efficiency will require the widespread introduction of parallelism or concurrency, but there are currently no particularly evident practical projects in this area.

Another aspect is privacy protection for on-chain computation. Although there are solutions using ZK-Rollup, they are mainly used for data compression and focus more on data publishing in DA. There are currently no very evident projects specifically targeting privacy protection during the computation process.

Finally, there is the issue of DA data publishing methods, which need to be discussed in conjunction with ZK mechanisms. Unlike ETH L2, BTC L2 uses ZK mainly for data compression, as in the case of Bitlayer.

Bitlayer reduces complexity in execution by using optimistic verification mechanisms, compresses data using ZK, and writes data in a manner similar to inscriptions. Specifically, it assumes that transaction batches are valid by default unless there is evidence to prove otherwise. This allows transactions to be processed quickly off-chain and submitted to the Bitcoin network in a compressed format, reducing data payload and costs. If fraudulent behavior is detected, participants can initiate challenges, triggering state rollbacks and punishing malicious actors to ensure system security.

However, constructing state rollbacks based on Bitcoin may not be as simple, and further exploration is still needed.

Conclusion

Starting from the Bitcoin scaling solutions, this article attempts to outline what the Bitcoin version centered around Rollup should look like, which revolves around ensuring that the value and security of BTC can migrate to Rollup while distinguishing it from existing wrapped asset schemes. In terms of specific implementation, solutions based on bridged assets and staking systems have become common choices. However, how to ensure decentralization and leverage the role of BTC and native tokens on the mainnet remains ambiguous.

Nevertheless, the Rollup-centric approach remains the most comprehensive one. Compared to solutions based on the UTXO mechanism or client-side verification, it is more mature. In the intermediate on-chain processes, privacy computation and decentralized sequencing are two key points. In terms of the final DA, Inscriptions have already provided relatively mature reference ideas, with the only difficulty being the cost issue.

Statement:

1. This article originally titled “BTC L2 故事新编，以 Rollup 为中心的设计原则” is reproduced from [佐爷歪脖山]. All copyrights belong to the original author [佐爷]. If you have any objection to the reprint, please contact the Gate Learn team , the team will handle it as soon as possible.

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