Luke's "plot" to restrict inscriptions failed? The market is calling for a new solution to Bitcoin L2

Amid intense debate, the community gradually recognized the importance of Layer 2 solutions in shaping the future of Bitcoin.

Written by: Web3CN Editor

Since November last year, Bitcoin Core core developer Luke Dashjr has frequently issued fierce criticisms of the inscription track represented by ORDI, and even once proposed a community proposal to restrict inscriptions on the Bitcoin chain.

However, the latest news is that Luke Dashjr’s proposal to restrict inscriptions has not been passed and has been closed. Although most developers overall still express their dislike of inscriptions, other OGs and developers in the community do not agree with Luke Dashjr’s extreme proposal and believe that the market It will find a way to digest itself through methods such as Layer 2, so no intervention is needed.

This also means that amid intense debate, the community is gradually recognizing the importance of Layer 2 solutions in shaping the future of Bitcoin.

Does the inscription expose the “flaws” of Bitcoin?

Since the emergence of Ethereum and the public chain ecosystem, whether it was the ICO craze in 2017, the DeFi summer in 2020, and the subsequent NFT craze, almost every carnival in the industry over the years is no longer dominated by Bitcoin, and even gradually There is a tendency to leave Bitcoin alone and dance alone. It was not until this Ordinals craze that BTC was finally no longer absent.

With the explosive development of the Bitcoin ecosystem, BTC, as the highest-quality asset in the circle, is a new asset form born with the help of Inscription’s diversion, which is destined to generate new demand. However, the fire of Inscription has also exposed the bottom layer of Bitcoin to some extent. Defects".

First of all, most of the tens of millions of inscription transactions are small transactions to be processed. In fact, they are equivalent to spam transactions in DDoS attacks. They may not be packaged and broadcast on the chain in a lifetime:

Because Inscription is similar to NFT, allowing users to record various data to the blockchain, but overall since Bitcoin transaction fees are paid based on data size, Inscription users tend to set relatively low transaction fees.

This also means they are willing to wait longer for confirmation, which can easily lead to inscription-type transactions being replaced by more urgent Bitcoin transfers. Against this background, these massive inscription transactions, which are all willing to queue up, have overwhelmed the Bitcoin memory pool (the place where all valid transactions that have not been officially added to the network are stored).

Secondly, there are still underlying flaws in implementing smart contract scenarios such as DeFi directly on the Bitcoin main chain - this makes the BTC in the hands of Holders still a “non-interest-bearing asset” and cannot participate in various wider use scenarios such as DeFi. .

There have been many previous attempts to release the liquidity of Bitcoin assets, the most important of which is bridging to the Ethereum ecosystem:

Staking BTC in the form of “encapsulation” is equivalent to the Bitcoin version of liquidity staking. Like renBTC, WBTC, and tBTC in the DeFi wave back then, users can pledge BTC and obtain the corresponding encapsulated tokens, which can be used as a liquidity bridge to Ethereum. Ethereum ecosystem, and obtain benefits through coupling with the Ethereum DeFi ecosystem.

From this perspective, if Bitcoin can be introduced into a wider range of application scenarios, it will be equivalent to revitalizing Bitcoin, a high-quality cryptographic native asset, and also bring diversified sources of income to Bitcoin holders, which can be said to kill two birds with one stone.

Bitcoin L2 Tradeoffs

Competition in the Bitcoin L2 space was fierce long before the Ordinals wave, and below are the specific trade-offs involved in the different types of L2 that might be built on Bitcoin.

1. OFF-CHAIN network

Examples include Lightning Network and RGB.

None of these solutions are blockchains, but networks that keep data off-chain (stored by users), making data and smart contracts much less accessible and interactive, so users cannot experience experiences like Ethereum or Solana etc. The comprehensive functionality that smart contract blockchain can provide.

They also require users to run their own nodes or infrastructure in order to be fully decentralized, which leads to significant user experience barriers to adoption. Nonetheless, this approach offers scalability and privacy benefits that go far beyond what blockchain technology can offer, making it the best choice for specific application use cases, especially large-scale payments.

2. Decentralized side chain

For example, solutions such as Stacks, Interlay, and Layer-0.

Decentralized sidechains allow anyone to participate in consensus (i.e. mining) as they replenish their security budget with new tokens issued by the protocol, which creates a competitive market for miners - who spend resources The native tokens competing for the blockchain network are then used by users to pay for gas fees when executing smart contracts.

3. Joint side chain

Solutions such as Liquid, RSK, Botanix, etc.

In this case, without tokens, the miners’ only income would be paid by the company behind the development work, or by user fees generated by the blockchain-based network, although these fees are usually negligible in the first few years until the network Used on a large scale.

This compensation for miners is necessary because in a proof-of-work consensus model, mining costs money, and in proof-of-stake, there is also the risk of funds being cut. Even Bitcoin and Ethereum, each with over 100 million users, fund their network security primarily through token reward subsidies.

To solve this problem, federated sidechains do not open mining to everyone. Taking Liquid as an example, it has established a group of 15 crypto business service providers, including exchanges, OTC merchants and infrastructure providers. Although this approach can work well, it requires trust in the chosen one. entity.

At the same time, in order to become more decentralized over time, an age-old conundrum arises: How to attract a large number of users and generate significant fees while running a trusted community? There are also ongoing efforts to design hardware solutions to automate and democratize membership, transferring trust to the hardware used.

L2 urgently needs new solutions

Since last year, as protocols such as Ordinals, BRC-20, and Runes have attracted more Web3 developers to build applications on Bitcoin, new options for EVM-compatible L2 solutions have begun to emerge, which are adopted by BEVM and many new L2 solutions. method.

This decision will undoubtedly help accelerate market expansion and ensure compatibility with exchanges and EVM-centric blockchain infrastructure.

Taking BEVM as an example, as a BTC Layer2 that uses BTC as Gas and is compatible with EVM, its core goal is to expand the smart contract scenario of Bitcoin and help BTC break through the constraints of the Bitcoin blockchain that is not Turing complete and does not support smart contracts, allowing BTC can build decentralized applications with BTC as the native Gas on Layer 2 of BEVM.

When a user transfers BTC from the Bitcoin main network to BEVM, the user’s BTC will enter the contract address hosted by 1,000 nodes, and then at the same time, new BTC will be generated in BEVM, the BTC Layer2 network, at a ratio of 1:1.

When a user issues an instruction to transfer BTC from BEVM back to the main network, the BEVM network node will trigger the Mast contract, and the 1,000 asset-custody nodes will automatically sign according to the established rules and return the BTC to the user’s address. The entire process will be completely decentralized. Centralized and trustless.

This means that all transactions are transferred from the Bitcoin main chain to run on the Layer 2 network. At the same time, because BEVM is fully compatible with EVM, it can also easily enable BTC to implement various decentralized applications and empower Bitcoin from L2. Ecological sub-projects:

Ethereum DApp developers can directly and seamlessly migrate to BEVM, and quickly build Swap or even on-chain DeFi scenarios such as lending and liquidity staking on BEVM, bringing more possibilities to the Bitcoin ecosystem. Compared with the previous two It is also the most decentralized and convenient.

Summary

In general, most Bitcoin Layer 2 projects actually have huge risks, and even more than half of the new projects are destined to fail, because their development requires a steady stream of funds to help expand the ecology and developer community.

The EVM-compatible solution of BEVM is equivalent to a trade-off: EVM compatibility allows Ethereum-based developers and existing applications to migrate, which is conducive to further expansion of the ecosystem and facilitates developers to deploy products, thereby quickly opening up the situation.

Just like Ethereum Layer 2 solutions such as Arbitrum and Optimism in 2021, they are destined to eventually emerge with a number of leading multi-billion-dollar Bitcoin L2 projects. Let us wait and see in 2024.