Can Bitcoin Layer 2 take over inscriptions to become the next "hit" narrative?
Recently, there have been many new Bitcoin Layer 2 projects. The author of this article has selected three projects with high popularity for personal analysis.Original Title: After Inscriptions, Is the Next Explosion in the BTC Ecosystem Bitcoin Layer-2?
Original Author: Bitwu.eth
Inscriptions have been popular for some time now. After the frenzy of memes and miners, the market has begun to seek new opportunities in the #BTC ecosystem, and many believe that the next explosion point will be Bitcoin Layer-2.
So today, let's take a look at Bitcoin Layer-2s.
This article exceeds 3000 words, is rich in information, and presents novel viewpoints. It requires some time to read, so it is recommended to save it for careful reading later:
This article is divided into 3 parts:
Bitcoin Layer-2 from 10 Years Ago
Development of Bitcoin Layer-2
Analysis of Several New Bitcoin Layer-2 Projects in the Market
· ZTC Global (@ZTCGlobal)
· B² Network (@BsquaredNetwork)
· BL2 (@BL2_official)
- Related Summary
I. The Past Life of Bitcoin Layer-2
In fact, the controversy surrounding Bitcoin Layer-2 has not just emerged now; it has been discussed since 2015, and there have been intense arguments within the BTC community.
The BTC blockchain has a maximum block size limit of 1M, and this 1MB block greatly restricts the number of transactions that can fit into each block. These arguments gradually formed two factions: the scaling faction and the core (conservative) faction.
The Core believes that a sidechain should be developed outside the main chain, with the technical solution being to build a layer-2 network protocol (such as the Lightning Network). This led to the emergence of various consortium chains, private chains, cross-chains, etc.
The current situation is that BTC continues to operate with small blocks. Since they are small blocks, the total number of transactions for miners has a ceiling, and the income from each transaction also has a ceiling. For example, if a user can accept a transaction fee of a few hundred Gas, if it goes higher, users will choose to transact off-chain or on alternative solutions like Bitcoin Layer-2, which will reduce miners' income from Gas.
The scaling faction believes that the 1M block capacity is too small, and the income from Gas fees has a ceiling. When Gas fees are too high, users go to transact on the Lightning Network and other Bitcoin Layer-2s, leading to reduced miner income.
This cannot be allowed; scaling must happen, expanding the block size to 8MB, 32MB, or even higher, so that users can transact on the main network, allowing miners to earn passively.
Thus, the biggest fork of BTC emerged, with the first fork being BCH, which led to the first wave of excitement after the ICO in 2017, with various forked coins of BTC flying everywhere. Many people became wealthy overnight, while many others saw their forked coins become worthless overnight. I remember that year, I also invested in various forked coins with Bitcoin, and in the end, it was a complete mess!
The scaling community was not so united, with constant internal disputes. On November 16, 2019, BCH hard forked into BCH SV and BCH ABC.
To summarize:
Bitcoin Cash aims to scale the network through on-chain methods, with community members believing that Bitcoin Cash will continue the vision of "peer-to-peer electronic cash" proposed by Satoshi Nakamoto.
Meanwhile, the Bitcoin project initiated by Satoshi Nakamoto, under the leadership of the Core development team, has taken the off-chain scaling route, such as payment channels (like the Lightning Network), implementing off-chain scaling through Segregated Witness (Segwit, 2017) and the Lightning Network.
II. Development of Bitcoin Layer-2
In the early days, there were many Bitcoin Layer-2s, such as the Lightning Network, Rootstock, Stacks, Liquid Network…
Today, we will not explore the classical Bitcoin Layer-2 technologies, as many strong technical concepts have consistently performed mediocre in the market (like EOS).
Regarding layer-2 protocols, there is an illustration in a book I was preparing to publish in 2018, which shows that around 2018, the layer-2 concepts for BTC and ETH were the Lightning Network and the Thunder Network…
After 2019, the Ethereum ecosystem flourished (after removing ICOs), leading to the emergence of many Ethereum Layer-2s and the huge wealth effect brought by NFTs. A portion of the BTC community seemed to realize that the history of Ethereum could be replayed on Bitcoin.
Thus, in January 2023, the NFT protocol Ordinals emerged on Bitcoin, and on March 8, Yuga Labs auctioned BTC NFTs on Ordinals, with 288 NFTs fetching a total value of $16.5 million.
The Ordinals protocol, released by Casey Rodarmor in January 2023, proposed an idea:
Can we arrange these "satoshis" in a certain order, assigning them an ordinal number between 0 and 2,100,000,000,000,000, and then link them to other information: images, text, videos, or even a string of code? Thus, each satoshi becomes unique and non-fungible.
This essentially gives Bitcoin the native ability to create NFTs.
Doesn't that sound magical? In fact, this protocol largely relies on the upgrades of Segwit in 2017 and Taproot in 2021.
The Taproot upgrade brought a higher level of privacy, security, and scalability to the Bitcoin network. While it has always been possible to attach data to Bitcoin through technical means, you could basically only cram in 4MB of data; anything more was not feasible.
Ordinal NFTs are based on the Ordinal theory, but the current capability of Ordinal NFTs also relies on the technical updates of Segregated Witness (SegWit) and Taproot made to the Bitcoin protocol in 2017 and 2021.
It is worth noting that these updates were not developed for the purpose of enabling these new types of NFTs.
However, since both updates increased the amount of data that can be stored in a block—meaning there is now space to store images, videos, and even games—they inadvertently made the deployment of Ordinal NFTs possible.
III. Analysis of Several New Bitcoin Layer-2 Projects in the Market
With the popularity of inscriptions, many Bitcoin Layer-2 related projects have emerged. Today, we will not comment on the existing Bitcoin Layer-2 ecosystem; instead, we will select a few projects from this week's developments for analysis.
This article does not provide any investment advice; it is merely a perspective on new projects. Due to the high risks associated with new projects, please conduct your own research. The project may have disappeared by the time I publish this, so please be prepared for the possibility of total loss.
Since new projects require numerous users to participate, the technological innovations claimed by the projects exist only in white papers or PPTs before their implementation. To attract more user attention, projects often focus heavily on marketing, so we will write the following content from the perspective of strong marketing and weak technology.
(1) BL2 (@BL2_official)
This week, it launched on the Turtsat platform through a whitelist giveaway, gaining significant attention.
From a technical perspective:
BL2 is built on the VM universal protocol and the BTC security layer, aiming to establish a dynamic BTC Layer-2 ecosystem by creating dApps and smart contract platforms.
The project will be EVM-compatible and will introduce Ethereum ecosystem assets through cross-chain bridge applications, fully integrating the BTC and ETH ecosystems.
Personal Opinion:
BL2 is working on a foundational protocol, preparing to create an EVM-compatible BTC smart contract platform, which will take some time for technical development. The project has not yet open-sourced, and financing information is not available. Currently, it is only preparing to issue its own token, and while marketing is strong, there are certain market risks.
(2) B² Network (@BsquaredNetwork)
B² Network is preparing to create a blockchain platform based on Bitcoin zero-knowledge proof compatible with EVM Rollup.
In terms of marketing:
B² Network has also done well, but it is not overly eager for quick success. It has launched a "Christmas NFT" as a trial, which performed well. Currently, it is not using the IDO method to attract users but is developing a task system, planning to launch tokens through airdrops. The project has also introduced a million-dollar Grant program to attract more Dapps.
Personal Opinion:
B² Network is following the operational model of Ethereum Layer-2, using airdrops to attract users while bringing project parties on board, and then financing (it seems they have already secured funding).
(3) ZTC Global (@ZTCGlobal)
From a technical perspective:
ZTC Global utilizes various technical protocols, such as BRC-20/BRC-Y and BRC-420, to develop a Bitcoin Layer-2 platform with low Gas fees. The platform plans to first create two games and a SocialFi to attract users, developing while drawing in other Dapps to complete ecosystem deployment.
Current progress: ZTC has issued a set of inscriptions (nearly $80 each), with nearly 70% minted. The official Twitter shows that ZTC will end minting at 24:00 UTC-8 on January 7, and then develop secondary trading. After the inscription MINT is completed, placing orders and inscribing will not require Gas fees.
Uses of Inscriptions:
According to the official white paper, holders of inscriptions will receive tokens, NFTs, and WL airdrops before the games go live.
In terms of marketing:
ZTC Global is not particularly skilled in marketing, so the hype is not very high, compounded by the long minting period. This has allowed competitors to exploit weaknesses in the project, leading to mixed opinions in the market regarding the project.
Personal Opinion:
ZTC has a good vision; the project team has burned 70% of the tokens, and minting will end tomorrow, followed by trading. However, the future development of the project will mainly depend on the progress of technical development. If you hold the project's inscriptions, you can decide whether to keep or sell them based on the situation after trading opens.
IV. Summary of the Entire Article
Bitcoin Layer-2 is not a completely new concept.
Over the past 10 years, many layer-2 technologies have emerged, and many have achieved significant success. However, those protocols were all top-down projects before the emergence of the Ordinals protocol.
After 2019, the Bitcoin community saw the tremendous success of the Ethereum ecosystem and believed that the narrative on Ethereum could be replayed on BTC. At that time, it was all about exploration and experimentation.
The emergence of the Ordinals protocol has made the concept of Bitcoin Layer-2 possible. This has attracted significant attention from community developers, entrepreneurs, VCs, and institutions.
More hot money has entered, bringing a more prosperous ecological market, which has a significant positive impact on the development of BTC, potentially boosting BTC's market value or revitalizing BTC's L2.
Now there are many new Bitcoin Layer-2 projects, and I am quite optimistic about this track, so I have been researching this direction. Currently, I have only analyzed three projects with relatively high attention this week.
Projects certainly carry certain risks, so the analysis does not constitute investment advice.
