The huge potential of the Bitcoin ecosystem

When it comes to blockchain, Bitcoin is often the first thing that comes to mind worldwide. In 2023, the recovery of the digital currency market was primarily driven by Bitcoin. Despite the impact of the pandemic on the digital currency market, similar to traditional financial markets, Bitcoin continues to achieve historic milestones. Especially since the Taproot upgrade in 2021, the technical foundation of Bitcoin has opened up new possibilities for embedding more data on the blockchain, sparking enthusiasm for Bitcoin and the entire cryptocurrency world. In 2023, Bitcoin’s market share in the total market value of the crypto market increased from 38% at the beginning of the year to 52% by the end of the year, making the Bitcoin ecosystem the focus of attention once again.

The Bitcoin ecosystem is not a new concept. Since the birth of Bitcoin, exploration of its ecosystem has never stopped. The recent popularity of NFTs reflects the strong demand for ecosystem expansion within the Bitcoin community.

In April 2024, Bitcoin will experience its fourth halving, posing a significant challenge to miners’ income, and price fluctuations will severely affect miners’ motivation. Bitcoin, centered on security and decentralization, will face a severe test, making the expansion of the Bitcoin ecosystem extremely urgent.

Currently, the market value of Bitcoin has exceeded $850 billion. If blockchain development leads the value trajectory, Bitcoin is likely to enter the next major growth cycle. Bitcoin stands at the forefront of a new era, seamlessly combining traditional finance with decentralized, trustless financial models.

Taking Ethereum as an example, with a market value only one-third of Bitcoin’s, its ecosystem accounts for 20% of its total market value, with on-chain assets of around $50 billion. If calculated at this ratio, the Bitcoin ecosystem should have at least $200 billion in development space. However, the current staked assets in the Bitcoin ecosystem are only $300 million. This indicates that the Bitcoin ecosystem has a growth potential of up to 600 times, demonstrating its tremendous development prospects.

The total value locked (TVL) in ETH and ETH Layer2 is approximately $50 billion, accounting for around 18% of the market value of ETH.

The TVL in the Bitcoin network is $305 million, representing the total value of stakes.

Bitcoin’s current market value and total market share

Bitcoin needs L2

As the cornerstone of cryptocurrencies, Bitcoin is renowned for its security, reliability, and decentralization, making it a spiritual totem in the cryptocurrency space. Since its inception, Bitcoin has consistently adhered to the most secure way of protecting value, ensuring the sacred inviolability of individual property.

Despite Bitcoin’s network lacking Turing completeness, unable to execute smart contracts, and having a significantly lower TPS compared to other public chains, supporters of Bitcoin firmly believe that it doesn’t need major changes or risky technological innovations to maintain its core decentralization and security.

The introduction of the BRC20 protocol doubled the price of Bitcoin and attracted a significant influx of users from the encrypted world. However, as the mainnet for value storage, it faces challenges such as high interaction costs, slow confirmation speeds, and difficulty in scaling applications.

The community urgently desires the expansion of applications, and miners need stable income. Directly improving the underlying protocol of Bitcoin would face high complexity, resulting in hard forks and community splits, increasing system risks, and even threatening its most crucial decentralization and security. Drawing from the validated experiences in Ethereum, the community is more inclined to adopt Layer2 solutions. By handling a large number of operations off the mainnet and only writing the final state back to the mainnet, this technology aims to increase transaction speed, reduce transaction costs, and address the current issues facing the Bitcoin ecosystem.

Given the practical situation, Bitcoin’s Layer2 solution should have the following characteristics:

• Decentralized Cross-Chain: Decentralized cross-chain based on the consensus of the mainnet is crucial and is an extension of Bitcoin’s security philosophy. Current traditional cross-chain technologies such as hash time locks, multi-signatures, etc., are mostly centralized and cannot provide sufficient trust guarantees. Only by achieving true decentralized cross-chain can user trust be ensured, laying a solid trust foundation for Layer2.
• Secure and Efficient Second Layer: Layer2 should not only support smart contracts, allowing various protocols using BTC as assets, but should also fully inherit Bitcoin’s security features and provide fast and efficient transaction processing. At the same time, the state results should be effectively synchronized with the mainnet for confirmation.
• Benefit the Bitcoin Ecosystem: For Bitcoin users, if Layer2 lacks participation in Bitcoin consensus, it loses its core significance. Using BTC as transaction fees (gas) is an integral part of the Layer2 narrative. From a strategic perspective, improving miner income, stimulating community developer interest, and promoting the development and innovation of Layer2 will contribute to the overall development of Bitcoin.

Current Status of Bitcoin Ecosystem Development

Technical Challenges of Decentralized Cross-Chain in Bitcoin Layer2

Layer2 refers to off-chain solutions built on top of the Bitcoin mainnet, aiming to preserve the decentralization and security characteristics of Bitcoin without sacrificing them. Due to the Turing incompleteness of the Bitcoin mainnet, the limitations of the underlying block space, and the use of a simple UTXO model, Bitcoin faces unique challenges. For example, Ethereum’s L2 projects like Scroll use Layer1 contracts to verify ZK Proofs generated by Layer2 network computations. However, even after the Taproot upgrade, Bitcoin cannot implement complex OP/ZKP verification logic. Bitcoin’s UTXO model, meaning one-time use, implies the cost of generating a new contract for every contract invocation. While this helps prevent double-spending attacks and maintains security, it limits Bitcoin’s ability to directly replicate Ethereum-style cross-chain designs. Additionally, Bitcoin’s supported Script Code is stack-based, but the supported OpCode types are very limited, making it challenging to extend to computation-level contracts like Scroll’s ZK verification contracts.

Despite these challenges, exploration of the Bitcoin ecosystem has been ongoing for several years, with multiple teams dedicated to solving these technical problems:

• Lightning Network: Supports fast, low-cost microtransactions through the creation of payment channels, with on-chain confirmation only at critical points. Key technologies include revocable sequence contracts and time lock contracts, but it requires sufficient funds locked in payment channels, leading to liquidity issues. Effective operation depends on widespread participation and adequate channels.
• Stacks: Provides decentralized mining and bridging technology for Bitcoin, bringing Bitcoin liquidity into Stacks applications through protocols like sBTC. Adopts the Proof of Transfer consensus mechanism, where miners mine STX using BTC. Cross-chain uses a centralized bridge project, and Stacks has its own chain, compiler, and programming language Clarity.
• RGB: Integrates the Lightning Network into the Bitcoin smart contract system. Transaction verification is completed by clients and is primarily used for asset issuance and trading with limited use cases.
• Rootstock (RSK): Allows Bitcoin miners to simultaneously process BTC and RSK transactions. Supports EVM, expanding Bitcoin functionality, but the security model differs from Bitcoin, and cross-chain security is questioned.
• Liquid: Allows users to move Bitcoin between two networks through two-way pegging, with cross-chain usage involving 11 multisignature nodes, relatively centralized. Sidechain design limits the use of complex smart contracts.

Various Bitcoin Layer2 projects are continuously emerging, each with different compatibility designs. The main challenge for current Layer2 teams is to achieve decentralized cross-chain and efficient second-layer solutions. There is currently no perfect solution that fully addresses both aspects among existing projects.

Blayer solution

The Blayer protocol aims to bring revolutionary changes to the Bitcoin ecosystem. As an innovative BTC Layer 2 solution, the core of Blayer is to achieve efficient and secure transfer of Bitcoin to Layer 2 in a decentralized manner. It not only provides an efficient, secure and scalable value application platform, but also supports the use of native BTC as gas fees through the developer-friendly BVM protocol. This not only enriches and improves the Bitcoin ecosystem, but also helps to mine the value of the Bitcoin chain, realize its transformation as the underlying asset of the blockchain, and promote the development of the Bitcoin Web3 ecosystem.

The launch of the Blayer protocol marks an important step towards a more efficient, secure and diverse future for the Bitcoin ecosystem.

Create Bitcoin Layer2 decentralized cross-chain communication

Blayer Protocol innovatively introduces the Decentralized Cross-Chain Protocol (DC2P), which enables decentralized cross-chain communication between Bitcoin and the Blayer network. Through this mechanism, users can securely lock Bitcoin and cross-chain to the Blayer network, harnessing the powerful capabilities of smart contracts within Blayer.

When a user initiates a cross-chain request, the Blayer Protocol automatically conducts Merkle hash verification of the user’s actions. Once the protocol verifies that the user has transferred Bitcoin into the decentralized custody pool, the Privacy Shard Integration Protocol takes over and locks the funds. The protocol ensures that nodes do not generate the target private key when safeguarding encrypted privacy shards. These privacy shards can only achieve aggregate signatures through aggregation operations, maintaining the security of keys even in the event of the loss or error of individual or small batches of shards. This mechanism achieves decentralized private key management.

The Blayer Protocol maps user assets on the second layer network and ensures bidirectional synchronization verification through the Mirror Consensus Protocol, safeguarding the security of both the mainnet and the second layer network. Byzantine Fault Tolerance mechanisms manage the governance of second layer network nodes, ensuring network efficiency and decentralization. Through Blayer’s decentralized cross-chain technology, Bitcoin users can securely and efficiently transfer assets between the mainnet and the Blayer network.

(Cross-chain flow chart)

Blayer’s innovation in cross-chain technology

1. Merkle Hash Verification Computation (MHVC)

In Blayer’s decentralized cross-chain process, a key innovative technology is Merkle Hash Verification Computation (MHVC). This technology is dedicated to solving the verification problem of cross-chain transactions.

The core of the MHVC protocol is to verify the operations of each party participating in cross-chain transactions. It quickly confirms the legitimacy of a transaction by comparing the Merkle hash of the transaction data with the Merkle root hash in the block header without downloading the complete block information. This process involves the following steps:

• The protocol first obtains the header information of all nodes on the longest blockchain from the network.
• Next, it calculates the transaction hash that needs to be verified.
• By traversing the hash of the blockchain node header, the protocol locates and confirms whether the calculated transaction hash exists in the chain and obtains the height of the block containing this transaction.
• The Merkle root hash is calculated based on the hash of the transaction. If the node’s Merkle root hash matches the calculated result, the transaction is considered verified.

This approach not only improves the efficiency of transaction verification, but also reduces the burden of data processing, thereby enhancing the performance of the entire system without sacrificing security.

1. Privacy Fragment Integration Protocol (PFIP)

A core feature of the Blayer protocol is to achieve secure decentralized cross-chaining of Bitcoin between the second-layer network and the main network. Users can lock Bitcoin into Blayer, conduct transactions in the second-layer wallet, and then efficiently transfer the assets back to the mainnet account. The key to this process lies in Privacy Fragment Integration Protocol (PFIP) technology.

The outstanding feature of PFIP technology is the consistency between the second-layer wallet address and the main network address, ensuring the safe circulation of Bitcoin. This technology uses several key innovative algorithms:

• Bridge Address Generation algorithm: used to create a dedicated custody address pool. These addresses are generated by decentralized protocols to ensure the safe custody of assets.
• Privacy fragmentation processing mechanism: When processing sensitive data (such as private keys), the algorithm divides it into multiple encrypted fragments. These shards are distributed across different nodes, rather than directly generating the target private key. Each node processes only a portion of the data, which means that even if part of the data is leaked, the complete sensitive information cannot be reconstructed.
• Bitcoin Address Mapping algorithm: ensures accurate and secure correspondence of addresses between the Layer2 network and the main network.

The comprehensive application of these technologies not only improves the security of transactions, but also enhances the privacy protection capabilities of the entire system, providing strong technical support for the efficient and safe transfer of Bitcoin between the main network and the Layer2 network.

1. Mirror consensus protocol

Blayer achieves two-way synchronization between the Bitcoin network and the Blayer network through its unique Mirror Consensus Protocol (MCP) to improve data security and integrity. This protocol allows data to be synchronized and verified between the two networks, ensuring the authenticity and tamper-proofness of transaction data.

Utilizing Bitcoin’s consensus mechanism as the cornerstone of security, MCP not only maintains the core integrity of Bitcoin, but also provides a two-way communication and verification framework. This framework enables the Bitcoin network to more flexibly interoperate with Blayer’s ecological applications, thereby greatly enhancing the scalability and diversity of the entire ecosystem.

Overall, the MCP protocol is a key component of the Blayer protocol, which provides a secure and efficient bridge for interactions between Bitcoin and Blayer, while promoting diversification and innovation in the ecosystem. This innovative protocol brings new possibilities to Bitcoin’s Layer 2 solutions and paves the way for the future development of the Bitcoin ecosystem.

1. Efficient Layer 2: BVM virtual machine

The EVM (Ethereum Virtual Machine) ecosystem already has multiple mature and market-proven projects. For the development of Bitcoin Layer 2, the ideal situation is that these developers can build directly on Bitcoin Layer 2. To this end, the Blayer (BVM) virtual machine supports the development and deployment of smart contracts using the Solidity language, allowing developers to use their familiar smart contract language to build decentralized applications (DApps) on the Blayer platform.

The Blayer protocol specifically uses the “Swift Block Builder”, an efficient data processing algorithm for efficient ordering of blocks. This not only improves the transaction processing speed and efficiency of the Blayer network, but also provides great assistance to the development of the Bitcoin ecosystem. By integrating the EVM ecosystem in this way, Blayer aims to maximize the development and expansion of Bitcoin’s functionality and application scope, making it not just a store of value, but also a versatile and efficient blockchain platform.

Blayer Consensus Mechanism: Strengthening Security and Decentralization of Bitcoin Layer 2

In designing its Layer 2 solution, Blayer closely adheres to the principles of the Bitcoin mainnet, prioritizing security and steadfastly upholding decentralization. To achieve this, the Blayer consensus protocol ingeniously combines Byzantine Proof of Stake (BPOS) with Byzantine Fault Tolerance (BFT) mechanisms.

BPOS combines the efficiency of PoS with the robust security of BFT, enabling the Blayer network to effectively combat malicious nodes and system failures, ensuring reliable operation in various scenarios. BPOS not only reduces computational costs and improves transaction processing speed but also maintains high network security and fault tolerance, ensuring stable operation even in the face of internal dishonest behavior or external attacks.

In terms of node management, Blayer utilizes a mix of BTC and native tokens as node collateral, providing rewards to validators. By periodically rotating nodes holding shard addresses, Blayer enhances network security. If nodes engage in improper or malicious operations, they face partial or complete loss of collateral funds and may even be permanently banned from validation. This mechanism ensures fairness in network management, effectively prevents centralization risks, and further strengthens the decentralization and security of the network.

Additionally, Blayer adopts BTC as Gas, not only promoting Bitcoin in the era of deflation but also creating additional revenue for miners. This initiative undoubtedly contributes to the further development of the Bitcoin ecosystem, providing a solid foundation for the implementation of the Bitcoin Layer 2 solution.

(User usage flow chart)

Blayer’s Grand Vision: Leading the Future of Bitcoin Layer 2

The technical team at Blayer consists mainly of members from the native Bitcoin technology community. The core team has deep roots in the Bitcoin community, possessing a profound understanding and practical experience with the Bitcoin mainnet. They have actively participated in significant Bitcoin events and contributed to the early development of Bitcoin code.

Blayer envisions becoming a leader in the Bitcoin Layer 2 space, driving the broader application and adoption of Bitcoin. The company is committed to maintaining the purity and security of the Bitcoin network while responding to the community’s demands for ecosystem development, fostering the thriving growth of the Bitcoin ecosystem.

The Blayer team has introduced a decentralized BTC Layer 2 solution based on mirror blockchain technology. Through its core technologies—Merkle Hash Verification Protocol (MHVC), Privacy Fragment Integration Protocol (PFIP), Mirror Consensus Protocol (MCP), and Byzantine Proof of Stake (BPOS)—Blayer addresses the decentralization and cross-chain challenges from the Bitcoin network to Layer 2, along with bilateral verification challenges in block information. Simultaneously, it enables efficient utilization of Bitcoin in smart contract applications.

The launch of Blayer signifies explosive growth in the applications of the Bitcoin ecosystem, with the potential to unlock a trillion-dollar market for Bitcoin and provide long-term consensus security for the Bitcoin network. This marks not only a milestone in the technological development of Bitcoin but also a significant contribution to the entire cryptocurrency field.

As the Bitcoin ecosystem continues to evolve and adapt, we can anticipate further developments. Various Web3 platforms within the Bitcoin ecosystem may integrate with each other, potentially reshaping the global financial market and paving the way for a truly Web3 world. Blayer’s goal is not only to achieve technological innovation but also to play a crucial role in advancing the overall progress of cryptocurrency culture and community.

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