Bankless: 8 Bitcoin L2s to Watch

Author: William M. Peaster, Bankless

Compiled by: Deng Tong, Jinse Finance

With Bitcoin hitting all-time highs, it's time to take a closer look at one of the investment narratives that has helped rekindle interest in the asset: Bitcoin L2.

Bitcoin is the oldest blockchain and, of course, the most time-tested cryptocurrency. Is this its biggest drawback? Transactions are slow and expensive, especially during periods of high trading activity. The Lightning Network is a payment channel protocol in the Bitcoin scaling scene, a serious and interesting effort, but it has yet to achieve breakthrough appeal due to user experience and liquidity issues.

That said, the arrival of Ordinal NFTs in January 2023 sparked a massive revival of interest in building on Bitcoin, leading to a resurgence of existing scaling efforts like Stacks and a flourishing of new initiatives adopting a variety of approaches.

Thus, one of the next major frontiers in cryptocurrency is the newly revived Bitcoin Layer 2 scene, so let’s take you through some emerging contenders aimed at enhancing Bitcoin’s functionality.

Here are 8 Bitcoin L2 projects you should know about.

Bison Network

Bison Network, developed by Bison Labs, is a zero-knowledge (zk) rollup solution using ZK-STARK technology. It aims to significantly increase transaction throughput, reduce fees, and integrate smart contract functionality around BTC.

By leveraging Ordinals for data storage, Bison ensures that all transactions and smart contracts are as secure and immutable as the underlying Bitcoin blockchain. Its infrastructure includes Bison OS for managing transactions and token contracts, as well as Bison Prover for generating zero-knowledge proofs.

This setup paves the way for more Bitcoin DeFi experiments and allows users to independently verify transactions quickly and efficiently.

Stacks

Stacks stands out in the Bitcoin L2 scene for its unique approach to enhancing Bitcoin's functionality, primarily by integrating smart contracts directly on top of Bitcoin. It employs a unique consensus mechanism called Proof of Transfer (PoX), fundamentally linking its operations and security directly to Bitcoin.

A key feature that sets Stacks apart is how users can earn BTC by staking STX tokens. This approach not only incentivizes participation in the Stacks ecosystem but also strengthens the bridge between Stacks and Bitcoin, enhancing the value propositions of both networks.

The upcoming Satoshi upgrade will transform it into a proper L2 by fully inheriting Bitcoin's security, further solidifying Stacks' position. This upgrade will also introduce faster block generation times on Stacks, independent of Bitcoin's block time, while still achieving 100% Bitcoin finality. This means that once a transaction is confirmed on Stacks, it inherits the same level of irreversibility as Bitcoin transactions.

BitVM

BitVM introduces a new method for Bitcoin smart contracts without changing the existing rules of Bitcoin. The system allows for verification on Bitcoin rather than executing computations, similar to the concept of optimistic rollups on Ethereum.

At its core, BitVM employs a unique combination of hash locks, time locks, and a large Merkle tree system to execute general computations. This design allows for offline execution of programs with minimal on-chain footprint, requiring on-chain operations only in the event of a dispute.

While BitVM is still in its early stages, its potential to implement advanced features such as bidirectional peg for Bitcoin sidechains and Rollups indicates a promising avenue for scaling OG blockchain functionality without the need for a soft fork.

Botanix

Botanix Labs has pioneered the spider chain design, a new L2 format that allows for seamless bidirectional pegged sidechains with Bitcoin without altering the underlying Bitcoin layer. The ongoing Botanix protocol is the first implementation of this novel approach and integrates with the Ethereum Virtual Machine (EVM) to bridge the robustness of Bitcoin with the versatile smart contract ecosystem of Ethereum.

At the heart of the spider chain design is a coordinator network managing multi-signature wallets, facilitating the inflow and outflow processes between Bitcoin and the spider chain. These orchestrators run both Bitcoin nodes and spider chain nodes, and they are randomly selected based on Bitcoin block hashes to ensure fair and secure operations.

Chainway

Chainway is another rising force in the Bitcoin L2 space, backed by prominent venture capital firms like Galaxy Digital and Delphi Ventures. The team has released the BitcoinDA data availability adapter for connecting Rollups to Bitcoin, and they have also begun work on Citrea, a zk-rollup solution that writes its proofs to Bitcoin using BitVM.

Citrea is designed as Bitcoin's "Type 2 zkEVM," using zero-knowledge proofs to batch transactions and then ensuring validity through succinct proofs. This approach allows anyone running a Bitcoin node to easily verify and access the complete state of Citrea. Citrea uses $BTC as its native token (with $cBTC within Citrea) and will provide broader trading functionalities for the OG cryptocurrency.

Kasar Labs

Kasar Labs is a Starknet engineering and research team working to integrate Starknet's zk-rollup capabilities with Bitcoin. Recently, they collaborated with Taproot Wizards to launch a data availability adapter that allows developers to anchor Rollups to Bitcoin.

Kasar's work also necessarily includes Barknet, a new Bitcoin Rollup that leverages Starknet's Madara sequencer and Cairo VM to harness the power of Starknet's advanced cryptographic proofs.

Merlin Chain

Merlin Chain is another EVM-compatible zk-rollup project built by the Bitmap Tech team as an L2, capable of scaling a variety of different Bitcoin-native protocols, including Atomicals, Bitmaps, BRC-20s, Stamps, and more. Merlin Chain recently launched its mainnet and initiated a staking campaign aimed at fairly distributing the upcoming $MERL governance token. As a result, since February 9, Merlin Chain has added $2 billion in TVL.

Ark

Ark is a novel L2 designed to enhance Bitcoin's transaction scalability. Unlike traditional methods that rely on state channels or Rollups, Ark introduces a unique approach with its virtual transaction outputs (VTXO), allowing for anonymous, off-chain payments. These VTXOs must be used or "refreshed" within four weeks to prevent expiration.

At the core of Ark is a process called "uplift," where users can convert on-chain UTXOs to off-chain VTXOs in a trustless manner. Additionally, Ark's design allows for transactions to occur without a direct link between sender and receiver, significantly reducing on-chain footprint compared to traditional methods like the Lightning Network.

The Big Picture

Today, Bitcoin's market cap exceeds $1.3 trillion, but much of the capital on the network remains idle due to limitations in programmability and scalability.

The updated Bitcoin L2 ecosystem is emerging as a strategic solution to these limitations, gaining resurgence from the rise of Ordinals and the growing inspiration from Ethereum's increasingly layered architecture.

This evolution of L2, combined with the growing institutional interest brought by the first U.S. spot Bitcoin ETF, lays the groundwork for a revival in Bitcoin adoption. As these developments unfold, Bitcoin is poised to transition from a primarily passive store of value to an active, programmable cryptocurrency, a shift that could redefine its role in the broader crypto economy and open new avenues for innovation and growth!