Exploring BTC Layer2: Is it a venture capital gimmick? Or the forefront of financial development?

Original Author: Duncan

Original Compilation: Deep Tide TechFlow

While the runes are stealing the spotlight, Bitcoin developers are hard at work—introducing a Frankenstein-like monster (Note: a fictional character from Mary Shelley's novel "Frankenstein") on the world's most trusted blockchain. Since Bitcoin can take many different forms, you might think that Bitcoin's second layer is more of a venture capital gimmick than the forefront of financial development.

However, dear readers, please note that Bitcoin is far richer than people imagine.

Examples? Sure. Bitcoin is layered like an onion.

In the current state of Bitcoin, there is L2, an emerging narrative that promises to bring Bitcoin into decentralized finance, offering people lucrative returns. But, like onions, there are different kinds, and how they are prepared matters. Will high-end technology attract new users, or will it only attract new holders?

What is the Problem with Layer?

When we think about the second layer in blockchain development, we think about scalability: how do we make Bitcoin faster, better, and stronger? Bitcoin is a bit slow; aside from being a store of value, its primary use is peer-to-peer currency transfer. When we talk about the second layer, we are discussing using Bitcoin in meaningful ways, such as in smart contracts, completing transactions in a reasonable time, and doing so cleanly.

This functionality already exists in Ethereum's second layer, such as Optimism and Arbitrum, which batch transactions and roll them back to the main network. Bitcoin's second layer developers creatively borrowed these concepts and implemented them with varying degrees of complexity.

From a macro perspective, the concepts are the same: Bitcoin's second layer aims to enable more powerful applications of Bitcoin.

How Developers Are Preparing Bitcoin's Second Layer

Imagine how to cook an onion. It can enhance the flavor of a dish, serve as a key role, or be the centerpiece. For Bitcoin's second layer, developers are also thinking about how to use Bitcoin. Should they keep it simple or create a fully customized solution?

It turns out that the technical differences in solutions can be significant. Fortunately, I've put together a menu highlighting some key dishes I've selected.

Short and Sweet: Citrea

In the short and sweet section, I present Citrea. Other solutions I categorize here include Stacks, Build on Bitcoin (BOB), and SatoshiVM. They focus on core aspects of the second layer: scalability of block space and the use of smart contracts. It sounds high-end, but it's not too crazy.

Citrea is a zero-knowledge (ZK) Rollup designed to expand Bitcoin's block space. As a Rollup, it inherits Bitcoin's security and batches transactions on Bitcoin through BitVM while verifying validity proofs.

Citrea also employs a bi-directional peg mechanism between Bitcoin and itself, and it is compatible with the Ethereum Virtual Machine (EVM) through BitVM, allowing Bitcoin to process smart contracts off-chain (Turing complete).

Notably, Citrea is a Rollup, not a sidechain, just as garlic and onions are from the same family but are entirely different. Its goal is to expand block space rather than transaction throughput—that is, it focuses on more efficiently storing blockchain information rather than the number of transactions processed on the second layer.

In Citrea's case, validity proofs are inscribed on Bitcoin, allowing transaction batches to be easily rolled up. An important distinction is that these inscriptions are optimistically verified, meaning all transactions are valid unless proven otherwise, and fraud prevention is used to combat illicit transactions.

So, where does ZK apply? Well, first, transaction data is not directly published to Bitcoin itself but merely inscribed on it. This allows for some user privacy protection on Citrea and other Bitcoin second layers using similar paradigms.

Secondly, there is a trust-minimized bridge between Citrea and Bitcoin, allowing for bi-directional pegs, with funds only retrievable upon valid ZK proofs. Citrea uses ZK-STARK, or Zero-Knowledge Succinct Non-interactive Arguments of Knowledge, to recursively verify batch proofs in lightweight clients.

This sounds a lot like "the flavor of the onion is controlled by thiosulfinate"—which sounds like nonsense to the average user. There are many important technical details, but in practice, the appeal of this solution lies in its simplicity.

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

Tailored for You: Bison

When it comes to natively using Bitcoin, some teams have taken a different approach. In fact, quite a few solutions rely on using EVM to implement their forms of DeFi. Bison Labs addresses this issue with its Bison product suite, which includes Bison Network, Bison OS, and Bison Prover.

Bison presents its own analogy: Bison is to Bitcoin what Starknet is to Ethereum. Like Citrea (and some other solutions), Bitcoin network inscriptions are utilized as a data availability layer, enhancing immutability and allowing for easier on-chain data retrieval. They also use zero-knowledge scalable transparent arguments (or ZK-STARK) methods to perform Rollups.

Bison Network has inherent components for Rollup and smart contract functionality. These components include L2 Dapp logic, sorters, token contracts, and bridging contracts. Essentially, we can view Bison as an advanced form of "native Bitcoin DeFi," rather than relying on EVM to handle the work.

From a cooking perspective, Bison suggests adding raw onions to dishes rather than 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 a completely different approach to leverage native Bitcoin. If you're looking for something novel, then Botanix is a good choice, proposing to implement proof of stake on its own second layer. Yes, this is new.

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

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

Botanix protects locked Bitcoin within a structural model called "the Spiderchain."

The Spiderchain is "a series of consecutive multi-signatures between Botanix Orchestrators," which are essentially "full nodes" of the Botanix protocol. In each Bitcoin block, a new multi-signature is created among randomly selected valid Orchestrators.

Orchestrators cannot access the Bitcoin in the multi-signature unless they obtain the majority of signatures from the random multi-signature, which is determined by the amount of Bitcoin they themselves have staked, meaning they must control 1/3 of the staked Bitcoin. This security model means that as the network becomes more decentralized, with more Orchestrators joining, the network becomes more secure.

Now, it’s important to note that Bitcoin "natively" exists on the Spiderchain. All Bitcoin stored in the Botanix EVM portion is synthetic. If user Alice bridges from Bitcoin to Botanix, her Bitcoin will be locked on the 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 reclaim her Bitcoin from the Spiderchain. This is referred to as "peg-in" and "peg-out," as the supply should maintain a 1:1 ratio.

Botanix is absolutely unique—like eating a spider? I don’t know. It could be disgusting or it could be the most delicious dish I’ve ever tasted. What I do know is that it is definitely cooked with onions.

Where Do They Overlap?

At this point, you might be thinking: are we going to mention onions again? The answer is yes; this article is full of onion analogies.

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

Technically speaking, BitVM is something that allows for fraud proofs to be enabled on Bitcoin. The computation through BitVM is simply verification, similar to optimistic Rollups, but includes elements typically belonging to zero-knowledge Rollups, such as obscured transaction details and using trust-minimized bridging.

You will also notice that most second layer solutions leverage EVM compatibility to utilize the functionalities of smart contracts and the existing pool of developers on Ethereum.

You might see some distinctions, such as whether solutions use tokens. 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 dish you are making, right? Raw onions, sautéed onions, fried onions… you get my point. At the core of all this discussion about the second layer is technology, and yes, if you are cooking or even eating what has been cooked, it does matter. But for the average user, perhaps it doesn’t really matter that much.

What does this mean for your portfolio? Well, it may come down to user experience. If Citrea is cumbersome to use, despite my belief that it is straightforward, people may not use it. Bison and Botanix may seem overwhelming, but they could provide a revolutionary user experience in practice.

But even user experience is a different science. It raises the question of whether people prefer raw onions, sautéed onions, fried onions, or roasted onions: the market will develop where the demand is.

Ultimately, Bitcoin's second layer represents an attempt at broader user adoption; where there is market demand, products will go. If people enjoy cooking onions with spiders, who am I to judge?

Well, admittedly, this article has used onions as an analogy enough. Let me summarize without the onions.

Complex technologies are simplified over time, leading to better user understanding (and thus better experiences), and sometimes you need more complex solutions. Any form of adoption is usually beneficial for your portfolio.

When your portfolio appreciates, technology is great: adoption means continuous refinement of technology, leading to new, potentially complex solutions. Typically, where there is greater attention in cryptocurrency, there is more development support. In other words, your portfolio is more likely to succeed.

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

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

At first, I thought this would attract holders who only want to increase their Bitcoin holdings. The question is always who will take the first step; for those who succeed, their ventures will yield rich rewards. For most, it will continue to firmly maintain its current function: as a store of value and a hedge against risk.

Again, see the demand, fill the demand; if the market needs onions to be cooked in some way, in some dishes, they will be. Whether they are often eaten is another matter.

Conclusion

Personally, I am very interested in native solutions like Bison. I believe solutions like Botanix have market adaptability, and I think the perfect intersection between the two may exist somewhere.

I believe there is enough market interest to justify its development, of course, but I think it will be a small part of Bitcoin's total market cap. After all, I think its advantage lies in the interconnected potential relationship with Bitcoin's second layer, although it is more interesting in relation to Ethereum.

But this is the real key. While Bitcoin's second layer is still in its incubation stage, it is striving to become a truly independent ecosystem. Meanwhile, we should continue to observe how these projects develop and how they bring value to cryptocurrency and blockchain.