Author: Fu Shaoqing, SatoshiLab, ThreeDAO BTC Studio

1. Common missions of Layer 2

• 1.1. Basic characteristics and basic requirements of blockchain

• 1.2. The role of layer2 construction

• 1.3. Why do we need layered design?

2. Several constructions for Bitcoin Layer2

• 2.1. Second-layer construction based on chains

• 2.2. Second-layer construction based on distributed systems

• 2.3. Second-layer construction based on centralized systems

• 2.4. The second layer in a broader sense and the applications on the upper layer

• 2.5. Summary of the basic characteristics of blockchain and the characteristics of three Layer2 constructions

• 2.6. Blockchain capacity expansion and capability expansion

3. Things related to the second-layer construction

• 3.1. Connection technology between the first and second layers

• 3.2. Refer to the von Neumann structure to look at the development of blockchain in a macro sense

4. Current Bitcoin Layer2 Construction Situation

• 4.1. Bitcoin Layer 2 Projects Already in Operation

• 4.2. Analysis of the development of Bitcoin's second-layer construction

References

V2.0 revision notes:

(1) By writing the article "Analyzing the system architecture of Bitcoin Layer2 and finding the right path for blockchain capacity expansion and capabilities expansion", we obtained a summary of knowledge related to capacity expansion and capabilities expansion, added Section 2.6, and released the V2.0 version. The 2.0 version was modified based on the 1.5 version.

V1.5 revision notes:

(1) "A basic knowledge system for the construction of Bitcoin Layer 2 (V1.0) " was published in February 2024. After writing the article "Observing Bitcoin Layer 2 from the perspective of a state machine can get more thoughts and conclusions" in March, we obtained a summary of the characteristics of some different layers. It will be easier to read if we summarize them into the basic knowledge system, so we released the V1.5 version.

(2) Modified some details of the textual expression, such as the connection technology between the first layer and the second layer.

(3) Because there are often disputes, the three concepts of Centralised, Decentralised, and Distributed in Section 2.4 are explained in more detail.

(4) Improved and modified the second picture in Section 2.4 to make the contrast clearer.

(5) Added Section 2.5, which summarizes the basic characteristics of blockchain and the characteristics of three types of Layer2 construction, so that it is easier to understand if multiple combined structures are used.

The rise of Bitcoin inscriptions has brought new vitality to the Bitcoin ecosystem, allowing more people to start paying attention to Bitcoin again. Some people also say that it has opened the Pandora's box of the Bitcoin ecosystem. Among the many technological developments in the Bitcoin ecosystem, the construction of the second layer of Bitcoin is the top priority. In this direction, I have summarized an article on the basic knowledge of the second layer of Bitcoin by drawing on some well-known articles on the Internet, exchanges with many friends, and the experience of our team in the design and development of Web3 products. This method is convenient for summary and learning. Because of the limitations of individual cognition, I hope that “to lead with a simple idea to inspire more complex ones”, and attract more people to improve relevant ideas and allow this field to develop better.

The world of blockchain starts with Bitcoin and ends with the Bitcoin ecosystem. (A summary by Mr. Dashan of Waterdrop Capital, I personally agree more.) Ethereum is also a side chain technology exploration of Bitcoin.

In this article, we will use "second-layer construction" or "second-layer network construction" in a mixed way. Usually, the term "second-layer network construction" is relatively narrow, and second-layer construction is a broader concept. However, in order to adapt to the common descriptions of the first-layer network and the second-layer network commonly discussed in the industry, we will also use the concept of "second-layer network construction". These two terms are the same concept in this article.

In order to understand the basic problems that need to be solved in the construction of Bitcoin Layer2, we first start by understanding the basic characteristics of the blockchain system.

This article uses a concept proposed by Vitalik: blockchain is a "world computer". It will be clearer for us to understand the various characteristics of blockchain from this perspective. In the following chapters, we will also analyze the possibility of the development of this "world computer" based on the von Neumann structure in the computer.

Let's summarize some basic characteristics first:

Note:

The requirements generated to maintain the normal operation of the blockchain "world computer" are called internal requirements;

The requirements of users who use this "world computer" are called external requirements.

Openness and transparency: This is the data storage and execution instruction feature of the blockchain "world computer", and it is also an internal requirement feature that requires many distributed nodes around the world to participate in the calculation. This feature just meets the user's right to know about the data, and is the result of the internal collaboration requirements of the "world computer" itself and the external needs of the user. The privacy feature mentioned later is to meet the external needs of the user without destroying the collaboration requirements of the "world computer" itself.

Decentralization: This feature is the architectural feature of this "world computer". The degree of decentralization and fault tolerance are theoretically supported by the Byzantine Generals Theory (the possibility of dishonesty among collaborators, that is, the situation of not complying with the agreement). Non-Byzantine Generals systems are not blockchain systems in theory. We will see two cases of non-blockchain systems in the second-layer construction later. The degree of decentralization is an important indicator of blockchain security and the basis of certain features.

Security: Security is composed of internal requirements generated by the architectural characteristics of this "world computer" and external requirements required by users. From the micro level, security is guaranteed by cryptography-related technologies, and from the macro level, it is guaranteed by the decentralization of the architecture, so that the security of this "world computer" will not be affected by the forgery of micro data or the destruction of the macro architecture.

Computing capabilities: One of the main functions of the blockchain world computer is computing capabilities. To measure this indicator, we generally use whether it is Turing complete. In order to maintain their main characteristics, some chains are deliberately designed to be Turing incomplete. For example, in the Bitcoin network, Satoshi Nakamoto not only made its code instructions not Turing complete, but also deliberately deleted some instructions during development to maintain its stability and security. All Turing complete technologies are designed to expand the computing power of blockchain. From the perspective of layered design, simple systems are more suitable for the bottom layer.

Performance: Under the same computing capabilities, performance is another major capability of blockchain as a world computer. It is generally measured by TPS, that is, the number of transactions processed per second.

Storage: Blockchain is described as a "world computer", so it must have a storage function, which is the ability to record data. At present, it is basically stored in the block, and more professional on-chain storage outside the block is still under development.

Privacy: Privacy is a sub-demand in the "world computer", that is, it requires the authority of data producers and users to be maintained during the calculation and storage process (we also put anti-censorship in the privacy part). This is basically driven by the external needs of users.

There is also a comprehensive indicator scalability, which generally refers to the scalability of the entire architecture. This feature affects most of the basic features. At the architectural level, the scalability of the system is a very important indicator. There are also some other connection capabilities, or capabilities for other specific scenarios, which we will not discuss in detail here. We will analyze them in detail when we encounter these special scenarios.

Among the basic characteristics of these blockchains, most of them are constrained by the impossible triangle in their mutual development relationship. For example, the DSS conjecture is decentralization (D), security (S) and scalability (S). As shown in the figure below:

In distributed systems, a similar impossible triangle is the CAP principle, which means that in a distributed system, consistency, availability, and partition tolerance cannot be achieved at the same time. The blockchain system is a distributed system with the Byzantine Generals Problem, so the CAP principle also applies.

The CAP principle is shown in the figure below:

Capacity expansion and capabilities expansion are to achieve the three goals in the impossible triangle by combining different system structures. Two goals of these impossible triangles can be achieved in one structure, and the third goal can be achieved in another structure.

What roles does the second layer construction fulfill? What functions does it provide? The second layer construction must be to expand the shortcomings of the first layer system, and to complete things that are not suitable for the first layer system on the second layer construction.

We can draw a preliminary conclusion from the blockchain characteristics summarized above, which must be to expand these basic capabilities: openness, transparency, decentralization, security, computing capabilities, performance (throughput), storage, privacy, etc. In addition to these basic capabilities from a technical perspective, there is another very important economic problem that needs to be solved, which is to reduce costs. Usually, the comprehensive cost of executing transactions on the first layer network is relatively high, and the second layer network needs to be used to reduce these costs.

In a word, the solutions for increasing capacity and capabilities, reducing costs, and customizing features are all second-layer construction. For customized features, it is not obvious enough at present, or it is often hidden in the first two features, which is a bit confusing. We can understand it this way. The characteristics of the first layer network are required to different degrees for many applications, and the degree of realization of various features can be readjusted for certain applications on the second layer.

In the construction of the second layer, the basic capabilities of the blockchain will have their own trade-offs, and some features will be reduced or even discarded in exchange for significant improvements in certain features. For example, some second layers will reduce the degree of decentralization and security in order to improve performance; some second layers, such as the Lightning Network, will change the structure of the system and the way of settlement in order to increase throughput. Some will enhance certain features without reducing basic features, such as the processing method of RGB, which significantly increases privacy and anti-censorship, but increases the difficulty of technical implementation. In the following cases, we will see the construction of the second layer that reduces or changes several features at the same time.

Among them, reducing costs should be a basic requirement for all second-layer construction. (Is there a second layer that does not reduce costs? I haven't seen it yet.)

Layered design is a means and methodology for humans to deal with complex systems. By dividing the system into multiple hierarchical structures and defining the relationships and functions between the layers, the modularity, maintainability and scalability of the system can be achieved, thereby improving the design efficiency and reliability of the system.

For a wide and large protocol system, the use of layers will have obvious benefits. Doing so makes it easier for people to understand, easy to implement by division of labor and easy to improve by modules. For example, the seven-layer model design of ISO/OSI in computer networks, but in specific implementations, some layers can be merged. For example, the specific network protocol TCP/IP is a four-layer protocol. As shown in the following figure:

Specifically speaking, the advantages of protocol layering are:

1. Each layer is independent. A layer does not need to know how the next layer is implemented, but only needs to know the services provided by the layer through the interface between layers. In this way, the complexity of the whole problem is reduced. In other words, how the previous layer works does not affect the work of the next layer. In this way, when we design the work of each layer, as long as the interface remains unchanged, we can adjust the working method within the layer at will.

2. Good flexibility. When any layer changes, as long as the interface relationship between the layers remains unchanged, the layers above or below this layer will not be affected. When a certain layer has technological innovation or a problem occurs in the work of a certain layer, it will not affect the work of other layers. When troubleshooting the problem, you only need to consider the problem of this layer alone.

3. Structurally separable. Each layer can be implemented with the most appropriate technology. The development of technology is often asymmetric, and the hierarchical division effectively avoids the barrel effect, and will not affect the overall work efficiency due to the imperfection of a certain aspect of technology.

4. Easy to implement and maintain. This structure makes it easy to implement and debug a large and complex system, because the entire system has been decomposed into several relatively independent subsystems. During debugging and maintenance, each layer can be debugged separately to avoid the situation where the wrong problem cannot be found or solved.

5. promote standardization. Because the functions of each layer and the services it provides have been accurately described. The advantage of standardization is that one of the layers can be replaced at will, which is very convenient for use and research.

The layered modular design idea is a common treatment method in the technical field for a large-scale project that requires multi-person collaboration and continuous improvement. It is also a proven and effective method.

We take the construction of Bitcoin's second layer as an example for analysis. There are three significant second-layer construction routes for Bitcoin:

• (1) One is a chain-based expansion route, which is very similar to the second layer of EVM and is a blockchain structure;

• (2) One is a distributed system, represented by the Lightning Network, which is a distributed structure.

• (3) There is also a route based on a centralized system, represented by a centralized index, which is a centralized structure.

The first two methods are very distinctive, and there are already some products in use and products under exploration. For the first method, due to the booming development of Ethereum and the exploration of other Bitcoin imitation chains, chain-based second-layer expansion is relatively easier, and there are more reference cases. The second distributed method is usually more difficult and develops more slowly, represented by the Lightning Network. The third method is very controversial because it does not look like a second-layer construction, but it seems to have completed the function of a second-layer construction.

Which second-layer construction plan is better? We use a market test result as a measure to mark which second-layer network has the highest TVL (Total Value Locked) is the best solution. With the development of time and technology, this best solution will be a process of change.

For the definition of Bitcoin's second-layer network, as long as it relies on the Bitcoin network, establishes technical connections with the Bitcoin network, and has some characteristics that are better than Bitcoin's first-layer network, it is considered Bitcoin's second-layer network construction. In other words, as long as BTC is consumed as gas, BTC is used as the underlying asset, and the system that expands Bitcoin's performance is considered a second-layer construction. Based on this judgment, we should recognize the third type of second-layer network construction, that is, the second-layer construction of the centralized structure.

The development of Bitcoin's technology, such as modifying OP_RETURN, SegWit (Segregated Witness), Taproot (Segregated Witness Upgrade), Schnnor Signature, MAST, Tapscript should be designed for the purpose of connecting the first and second layers, and these technologies should not be used too much to develop functions, because no matter how much the first-layer network is expanded, there will be no qualitative breakthrough, and the second-layer construction must be carried out. However, in the absence of better Bitcoin second-layer products, these technical capabilities that connect the first and second layers will be overused for a period of time.

Early Bitcoin imitation chains have made various explorations, such as "Colorcoin", "CovertCoins" and "MasterCoin"; various Bitcoin imitation chains with expanded capacity, such as BCH (Bitcoin Cash), BSV (Bitcoin SV), BTG (Bitcoin Gold); various sidechain technologies are all cases of chain-based expansion construction, which can be said to be a broad second-layer.

Ethereum is also an improvement exploration based on Bitcoin. When Vitalik failed to persuade other project teams, he formed a team to publish a white paper and develop a new generation of blockchain system to address the imperfections of Bitcoin: UTXO's accountless system, non-Turing completeness of the execution language, poor scalability, etc. Although Ethereum's exploration is not a direct second-layer construction on Bitcoin, it is a chain-based construction exploration in a broad sense.

Ethereum's improvement exploration of Bitcoin's imperfections, as well as the development and verification of the second layer on Ethereum, provide a reference case for the development of a chain-based second-layer network on Bitcoin. Various Rollup solutions, cross-chain solutions, message channel technology, and Ethereum's own sharding technology (from the perspective of the layered thinking of dealing with complex systems, perhaps this idea of solving multiple problems at one level is wrong) have made the Ethereum technology ecosystem flourish, making many people once believe that the development direction and future of the public chain have been determined, and the ecosystem represented by Ethereum has won. In fact, this is also a manifestation of the relative maturity of the second-layer construction based on the chain. However, the second-layer construction based on the chain is only one way of second-layer construction. It has its own advantages and disadvantages, and other second-layer technologies are needed to improve the entire second-layer ecology.

The second-layer construction based on the chain in Bitcoin generally includes two typical chain types, one is the account model compatible with EVM, and the other is the UTXO model similar to Bitcoin. Existing cases (we use the broad second-layer definition) include: Ethereum, Polygon, Bsc, Arbitrum, etc. are all EVM account models, and CKB (Nervos) and Chia are all UTXO models.

In the following chapters, we will introduce some cases in more detail in the introduction of the Bitcoin second-layer projects that have been running.

In addition, the second-layer projects that have been successful on Ethereum will also be added to the second-layer construction of Bitcoin based on the chain. For these second-layer projects on Ethereum, the workload and challenges of transforming to the second-layer on Bitcoin will be less. In the development and theoretical achievements of Ethereum's rollup maturity and modularization, this type of second-layer construction will become the mainstream of the expansion discussion and the fastest solution.

How successful will this transformation be? It remains to be tested. We can make some preliminary judgments based on the advantages and disadvantages of this chain-based second-layer construction.

What are the advantages and disadvantages of chain-based second-layer construction?

(1)The disadvantage of this solution is that the second-layer based on the chain is generally still limited by the limitations of the blockchain structure, and the performance improvement is limited. It either makes the system more centralized or reduces the interval between block generation and increases the block capacity, and the security is generally reduced. So the second-layer construction on the second layer is generated, which is the so-called Layer3 or Layer4.

(2)The advantages are: this solution maintains most of the basic characteristics of the blockchain, and generally solves the problem of Turing completeness, and the transaction fee is significantly reduced, which expands the capacity of the first-layer network to a certain extent. Moreover, this solution has abundant construction cases, and the technical implementation is relatively easy. There are already many exploration cases. The migration of upper-layer applications is also very convenient. It is a faster implementation method. I believe that this method will produce more second-layer networks.

Roughly speaking, due to the expansion limitations of this method, there should be many projects based on the second layer of the chain structure. There may be one or more second layers in each vertical field. Each project must complete its own unique second-layer construction to meet the needs of certain applications. Its value will also be determined by the number and total value of applications on it.

In the second-layer construction, there are also some constructions based on distributed systems. In this scheme, the structure and framework of the second layer are no longer the structure of the blockchain, but a distributed system based on Channel. The Lightning Network is a typical representative.

A distributed system consists of a limited set of processes and a limited set of channels. In order to transmit messages in a distributed system, the data, events, and channels that need to be controlled are already a set of relatively complex problems. The Channel we refer to here is the upper-level channel concept, such as the payment channel in the Lightning Network and the message channel in Nostr, rather than the underlying concept of the specific technology Channel in the distributed network.

In the second-layer construction of distributed systems, there are two categories:

(1) Only completing value transfer, similar to the Lightning Network;

(2) Both completing value transfer and completing Turing-complete technology, such as RGB;

In the second-layer construction scheme based on distribution, because it is value transfer, there are many difficulties that exceed the original message transmission, such as the total value capacity in the channel, the rigor of transactions, and the inability to consume twice. These problems all exceed the difficulty of message transmission. Therefore, the development of distributed second-layer construction is not as fast as that of chain-based second-layer construction, and there are not many mature cases.

If you want to complete Turing-complete calculations on such a second layer, that is, to build a Turing-complete virtual machine system on Channel, it will be more difficult. For example, the RGB protocol is to achieve Turing-complete calculations on a distributed system through client verification and Single-use-seals.

The existing cases of distributed second-layer construction based on distributed systems in Bitcoin include: Lightning Network, RGB, are there more famous cases? If we look at it according to the standards of generalized second-layer construction, does Nostr also belong to the second-layer construction of distributed systems with Channel mechanism? When sorting out Ethereum materials, I saw that there are cases of using Channel in Ethereum documents: Connext, Raiden, Perun, which can be used as an exploration direction for in-depth researchers.

In the following chapters, I will introduce the Bitcoin second-layer projects that have been running, and will introduce Lightning Network and RGB in more detail.

What are the advantages and disadvantages of distributed systems based on distribution?

(1)The advantages of this solution are generally that the system is more decentralized, the second-layer network can accommodate countless nodes, the privacy and anti-censorship capabilities are better, and there is unlimited scalability, so the performance becomes extremely large in theory.

(2)The disadvantage of this solution is that the technical implementation is complex. The routing algorithm, value splitting and packaging algorithm in the huge distributed system are relatively complex. Compared with information transmission, there is still a lack of engineering implementation experience and infrastructure in value transmission. This is also one of the reasons why the Lightning Network has always been considered to be slow in development.

In addition, it is a very big challenge to implement a Turing-complete system in this system, that is, Channel+computing, which can definitely be achieved in theory, but is still in the early experimental stage in practice. RGB is a typical representative of this situation.

Once a breakthrough is made in the second-layer construction based on a distributed approach, it will greatly promote the development of upper-layer applications. The decentralized ability formed by its huge distributed nodes and the Turing-complete code execution ability will better support the next generation of Internet applications, which is the "Mass Adoption" scenario that everyone is talking about.

Generally speaking, there are only a few parallel projects in the second layer of the distributed structure based on Channel. There are two main reasons. One is the unlimited scalability of such a system, and the other is the high technical difficulty of implementation. Therefore, such a system requires a more open design and concept to accommodate more people and teams. And based on this second-layer infrastructure, the application development team will also promote the development of this second layer, for example, the BiHelix project based on RGB.

Should we have this classification? There should be controversy.

Centralized index structures like Ordinals, or indexers of certain functional nodes are centralized structures, and they are also a second-layer construction idea. However, this construction idea will be less recognized because the second layer is too centralized and the expansion of the first layer network is very limited. The second layer of this centralized structure depends on the first layer network for its basic features of various blockchains. The second layer only serves as some simple calculation and statistical functions. The second layer sometimes seems to be a temporary existence that can be replaced by another second layer at any time, and its importance does not seem to be that high. But from the perspective of On-Chain and Off-Chain, and from the perspective of improving the capabilities of the first layer network, this centralized structure is also a second-layer expansion.

In addition to Ordinals, there should be centralized exchanges as examples of this system. Projects in this situation will not be introduced in the following cases.

Advantages and disadvantages of the second layer construction based on a centralized system:

(1)The advantage is that the centralized system is very mature, with countless available cases and optimization solutions, complete Turing completeness and excellent performance.

(2)The disadvantage is that the second layer is extremely centralized, and all the basic features of blockchain rely on the first layer network.

Roughly speaking, there should be fewer projects based on the second layer of the centralized structure, and even a phased existence. After the distributed structure based on the chain structure and the channel matures and improves, most of the second-layer constructions of the centralized structure will disappear, or only a few centralized second layers with characteristic scenarios will remain. At the current stage, because the centralized system is very mature, it can well meet the scenarios of On-Chain data and Off-Chain calculations when it can write data on the basic chain. It is the easiest mode to implement the primary application of the current Bitcoin ecosystem and is widely used.

From the perspective of the second layer construction structure, there are blockchain-style structures, distributed system structures, and centralized system structures. This is a common classification of system structures: Centralised, Decentralised, Distributed. From this perspective, it is easier for us to understand the characteristics and applicable scenarios of each type. The three types of second layers have their advantages and disadvantages. In the future, in the complete Bitcoin ecosystem, all three types should be distributed according to different scenarios.

I use this diagram to refer to Vitalik's article: The Meaning of Decentralization, link URL: https://medium.com/@VitalikButerin/the-meaning-of-decentralization-a0c92b76a274

There are often some disputes about this diagram, and some people think that the symbols of Decentralised and Distributed are reversed. From the perspective of control and decision-making, this dispute should be eliminated and Decentralised and Distributed can be better understood. For Centralised (A) in the diagram, there should be no dispute from many perspectives, so we only compare decentralization and distribution. Decentralised is actually a kind of multi-centralization (for a more precise explanation, please refer to Professor Hong Shuning's article "Decentralization is the most fundamental feature of blockchain, but do you have a misunderstanding of decentralization?"). Its control and decision-making still require the participation of certain central nodes. At this time, control and decision-making are called consensus. For example, in Bitcoin, only full nodes with mining capabilities have the ability to determine the generation of new blocks and the content written into new blocks. Those nodes without mining capabilities are read-only nodes or verification nodes. In POS and DPOS chains, this situation is more obvious. Only consensus nodes can decide what to generate and write into new blocks. The difference between synchronous and asynchronous algorithms in consensus protocols is also more obvious, which determines the number of nodes that can be accommodated in the blockchain network. In a distributed system, there is no obvious center at all, only nodes. Any node can join or leave the network at any time. Its control and decision-making are local, which is also one of the reasons why distributed systems can achieve very high performance. Does this eliminate the common controversy between Decentralised and Distributed?

In addition, the blockchain community often discusses Layer 3 and even Layer 4 above the second-layer construction, which is a generalized second-layer construction. It is a completely different concept from Layer 3 and Layer 4 in the five-layer structure of the Web3 technology stack proposed by Gavin Wood. Layer 3 and Layer 4 in the Web3 technology stack are a classification method for application protocols.

Schematic diagram of the 5 layers of Gavin Wood's Web3 technology stack and the generalized second-layer construction of the chain

What impact will these second-layer constructions have on upper-layer applications? With the basic characteristics provided by the blockchain system: openness, transparency, decentralization, security, computing capabilities, throughput, storage, privacy, etc., upper-layer applications will be built on these second-layer extensions and will interact with each other on these second layers. The second-layer extensions based on blockchain-style structures, distributed structures, centralized structures, and some centralized applications will produce real, large-scale Web3.0 applications.

This section is from another article, "Observing Bitcoin Layer2 from the perspective of the state machine can get more thoughts and conclusions." Here I directly quote the summary table and some conclusions. For the system architecture of Web3.0 applications, please also refer to that article.

Through the above table, we can roughly summarize the characteristics of blockchain structure, distributed system structure, and centralized structure.

(1) Blockchain structure

The biggest advantage of blockchain structure is that it solves trust-related problems (the role of ledgers) and can record the change process of data (state transition), so that data and computing rules become trusted data and trusted computing.

The biggest problem of blockchain structure is poor performance. There are two reasons for this. First, the blockchain structure cannot remove some computing scenarios. All requests are processed in a full computing manner. For example, partial computing and global computing, local data and global data, temporary data and permanent data. Second, the blockchain structure has a clear performance ceiling. If the second layer is expanded through the chain, the number of transactions supported is also limited.

In order to expand the performance of the blockchain structure, multi-layer construction is required, and it needs to be used in combination with heterogeneous systems.

From the above table, only the blockchain structure can realize the trustless ledger function. Therefore, if a system wants to realize the trustless ledger function, it must include the blockchain system. However, the performance requirements of large-scale applications require the blockchain system to be combined with other systems to meet the needs.

(2) Distributed systems

In the table above, we can see the obvious advantages of distributed systems: decentralization, performance, and scalability are all excellent, but the only feature is that the implementation of functions is relatively complex. In addition, distributed systems do not have the ability to trustless ledger.

So if we can use distributed systems in the second-layer construction based on the first-layer ledger function of Bitcoin, theoretically, we can maintain the basic characteristics of the blockchain while achieving unlimited performance expansion. Bitcoin + Lightning Network is a representative example of this. The performance of this combination is 7 TPS * ∞ of Bitcoin.

The reason for achieving Turing completeness in a distributed system is that the cost of recording and running smart contracts in a blockchain system is very high because it is global data and global code. Therefore, smart contracts are also suitable for layered theory, limiting the storage and execution of smart contract code to participants.

(3) Centralized systems

In the table above, we can see that the advantage of centralized systems is that the engineering implementation is relatively simple, which is due to the simple internal logic control and simple calculation. Similarly, centralized systems do not have the ability of trustless ledger. The advantages of centralized systems are not prominent. If you are processing small-scale data, or processing temporary data and temporary calculations, it will be relatively suitable.

The second-layer construction of the centralized system can serve as a supplement or transitional solution to the other two methods.

(4) Comprehensive analysis

In the era of value(vs information), through the above content, we can see that it is difficult to achieve the effect of meeting the needs by relying on a single system. This is also a practical demand for the second-layer development of the Bitcoin ecosystem. However, how to combine these three systems requires a lot of exploration. Let us first analyze it theoretically. In the face of different needs, there will be different combination structures.

First, from the design idea of protocol layering, the Bitcoin network does not need Turing completeness. It is a global trust machine that only needs to save data that requires global trust and the trajectory of data changes. According to this most basic requirement, the instruction set of Bitcoin can be reduced to a minimum. Other functions are left to the upper-layer extension to complete.

General small applications can be completed on a single blockchain. Slightly larger systems are suitable for completion on the second-layer construction of blockchain + blockchain. But for large-scale applications, the preferred solution is to use blockchain system + distributed system.

Through the combination of multiple system structures, the limitations of the basic theory of a single system can be broken. For example, the blockchain system is limited by the DSS impossible triangle, but if the blockchain system + distributed system is used, the impossible triangle of decentralization D, security S, and scalability S can be solved. Other combinations, blockchain + centralized system, can also solve the scalability problem to a certain extent. Distributed system + centralized system can solve the limitations of the CAP triangle in the distributed system.

This section is from another article, "Analysis of Bitcoin Layer2 System Architecture, Finding the Right Path to Blockchain Capacity Expansion and Capabilities Expansion" and supplemented to the basic knowledge system of Bitcoin Layer2.

In the ecological development of blockchain, two important tasks are needed: capacity expansion and capabilities expansion. The author summarizes three construction paths from the analysis of Bitcoin Layer2 system architecture and the application architecture of Web3.0:

(1) Path 1: Chain-based Layer 2 construction (mainly completing capabilities  expansion, partially achieving capacity expansion)

This path is relatively easy to implement in theory, and Ethereum's Layer 2 construction has provided many running cases. Therefore, in the final Web3.0 application architecture, the construction based on Bitcoin Layer1 network + Chain Layer2 is this implementation path. As shown in Path 1 in the figure.

(2) Path 2: Strong capacity expansion of blockchain (mainly relying on the capacity expansion of distributed systems)

This path is the best way to achieve the capacity expansion of blockchain systems, that is, blockchain + distributed systems, which can expand the transaction capacity TPS to infinity. The current Bitcoin + Lightning Network is a representative of this path. As shown in Path 2 in the figure.

(3) Path 3: Strong expansion of blockchain (capabilities expansion based on capacity expansion)

This path is the most difficult way to expand capacity, that is, to achieve capabilities expansion based on the strongest capacity expansion plan. The current RGB system is an example of this implementation method, as shown in Path 3 in the figure.

With the first-layer network and the second-layer construction, what is the connection between the two? Or how are the two directly related? One is a direct technical connection, for example, through a two-way lock or bridge technology link. The other is a correlation outside the system, such as Bitcoin and Ethereum. Although there is no direct connection, people transform BTC into WBTC to flow on Ethereum, and there is not even any technical connection. It is just that individuals adjust the positions of Bitcoin and Ethereum based on price fluctuations. This is a correlation outside the system.

Here we only discuss the technical correlation, and these related technologies are completely closely related to the structure and characteristics of the second layer. Later, we will refer to the von Neumann structure from a more macro perspective to judge the development of the blockchain-related ecology.

We have mentioned the development of Bitcoin technology, such as the modification of OP_RETURN, SegWit (Segregated Witness), Taproot (Segregated Witness Upgrade), Schnorr Signature, MAST, and Tapscript, which should be designed for the purpose of connecting the first and second layers, and are the basic technical elements connecting the first and second layers in the Bitcoin ecosystem. These connection technologies are an important part of thinking about the construction of the second layer. Although there are some BTC connection technology implementation plans on the network, such as using HashLock, or threshold signatures, MPC, etc., these solutions have limited functions and are not suitable for more complex functions and more segmented requirements. It is still necessary to use the basic technical elements generated for connection in the Bitcoin ecosystem.

BEVM's first and second layer connections are representative, and more functions built with the above basic elements are used. Its BTC L2 solution of Shnorr signature + MAST contract + Bitcoin light node network is a good case for learning to connect the first and second layers.

In addition to these basic technical elements connecting the first and second layers, the specific connection technology will vary due to the different structures of the second layer construction. I will first give a general introduction to some types of connection technologies. Common technologies that connect the first-layer network and the second-layer network of blockchains are as follows:

Cross-chain technology: Through cross-chain technology, different blockchains can interoperate and realize the connection between the first-layer network and the second-layer network. Cross-chain technology can realize the cross-chain transfer and interaction of assets, so that data and value can flow between different blockchains.

Segregated Witness technology: Isolated verification technology can isolate the transaction data in the first-layer network, and then verify and process it through the second-layer network. This method can reduce the burden of the first-layer network and improve the overall throughput and efficiency.

Side chain technology: Side chain technology is a technology that connects the main chain and the side chain. Through the side chain, data transmission between the first-layer network and the second-layer network can be realized. The side chain can separate some specific functions and applications from the main chain to improve the overall performance and scalability.

State Channel technology: State Channel technology is a solution based on the second-layer network. By establishing a communication channel outside the chain, transactions can be carried out outside the chain and submitted to the first-layer network only when needed. State Channel technology can increase the speed and throughput of transactions and reduce transaction costs.

Plasma technology: Plasma technology is an expansion solution based on the second-layer network. By sharding the transaction data of the first-layer network and then verifying and processing it through the second-layer network, higher throughput and scalability can be achieved.

Common second-layer structures include blockchain structure, distributed system structure, and centralized system structure. Most of the common connection technologies mentioned above can only be used in one structure due to the different structures of the second layer, so we will not discuss them in depth here.

With the maturity of the second-layer construction, there are more specific technologies or cases, and even not technical-level associations but only economic-level associations.

What are the reference indicators for examining the quality of the first-layer and second-layer linking technology? The indicators we roughly see are:

• Can the first layer verify the transactions of the second layer?

• Can the assets of the first layer escape smoothly when the second layer collapses?

• Will the connection technology reduce certain characteristics of the system?

• …….

The content of the first-layer and second-layer linking technology should be better summarized and improved when there are more cases of second-layer construction. These connection technologies are currently completed by the second-layer builders. Whether there will be independent products like cross-chain bridges in the future is still hard to say.

This section is more about raising questions and giving us participants and builders more to think about.

In the previous section, we have used the concept proposed by Vitalik: blockchain is a "world computer". Since both can be called computers, this "world computer" can be compared and analyzed with the von Neumann structure of traditional computers.

blockchain world computer the von Neumann structure of traditional computers

The five major components of a von Neumann computer are: arithmetic/logic unit, controll unit, memory(Storage), input device, and output device. In the blockchain, the "world computer" system, there are similar components, and the connection part of these five components should also be taken seriously, because in a distributed system, the connection part has a greater impact.

The development law of the "world computer" is very similar to the development law of traditional computers. Compared with the development of traditional computers, the blockchain system is still in a stage similar to that before x286, and is still expanding its processing power and storage capacity. It has simple peripherals and can do very limited things.

Several comparisons between the development of traditional computers and the development of the "world computer":

(1) The expansion of the CPU (arithmetic/logic unit and controller unit) is like the current expansion of the computing power and throughput of the first and second layers;

(2) The expansion of memory will gradually change from competing for space on the chain to using real blockchain storage. The current first and second layer on-chain storage space is like the registers, first-level cache, and second-level cache in traditional computers. In the future, there will be professional blockchain storage methods such as memory, hard disk, and external storage. The current way of writing data will also change greatly in the future.

(3) Input devices and output devices, in the blockchain system, are oracles. These input and output devices have not been reflected much in the second-layer construction, and there will be more demand in upper-layer applications.

(4) Some special chains and functions in the blockchain are very similar to the GPU, special device cards, special peripherals and other components in traditional computers.

(5) On-chain applications and upper-layer applications are also evolving and separating functions step by step, just like traditional computers have not yet distinguished between operating systems and application software.

(6) Many current blockchain applications are financial applications, which are very similar to early traditional computers, mostly used for scientific research and military applications. With development, they are slowly moving towards enterprises, families, and individuals. Blockchain applications will also have a similar development trend, from early financial applications to more extensive applications.

From the construction of the second layer, there is still a lot to discuss about the comparison between traditional computers and the "world computer" of blockchain, which will not be described in this article.

In this article, we mainly introduce those Bitcoin Layer 2 projects that have been successfully operated, referring to some research reports and industry reports. These Layer2 constructions have been in operation for a certain period of time, and most of them have been brewing or started from 2015-2019. Some newer projects, if they have characteristics, will also be introduced. We will see that these cases are basically based on the second-layer construction of chains, and the only distributed system construction based on channels is the Lightning Network. If the second-layer construction of Ethereum is included, the Raiden Network is also a design case based on Channel, but its current development does not seem to be successful, so it will not be introduced in this article. Ethereum's Plasma technology is a design solution for a sub-chain based on Channel, which seems to be a combination of chain and Channel. I personally think that its main feature is a second-layer design based on chain, and I will not discuss it too much here.

1. Lightning Network (based on distributed second-layer construction)

Lightning Network is a second-layer solution built on the Bitcoin blockchain, designed to solve the problems of Bitcoin's scalability and low transaction speed. The Lightning Network was first proposed in 2015 and began to be fully implemented in 2018.

The main features of the Lightning Network are fast, low-cost and scalable. It establishes a series of payment channels so that Bitcoin transactions can be carried out inside the channel without being recorded directly on the blockchain. This can greatly reduce transaction confirmation time and transaction fees, and support a large number of parallel transactions. The Lightning Network relies on the RMSC protocol to ensure the security and reliability of transactions, and HTLC solves the routable scalability. The scalability of its architecture gives it very large performance.

Since its launch, the Lightning Network has received widespread attention and adoption. More and more Bitcoin users, exchanges and merchants have begun to use the Lightning Network for fast cross-chain transactions and real-time payments. In addition, developers are also constantly improving the performance and user experience of the Lightning Network, providing it with more functions and scalability.

Although the Lightning Network provides significant improvements in scalability and transaction speed, it still faces some technical and adoption challenges. For example, aspects such as the stability of the network, routing algorithms and user interfaces need to be continuously improved. However, with the passage of time and technological advances, the Lightning Network is expected to become an important payment solution for Bitcoin and other cryptocurrencies, providing users with a faster and low-cost transaction experience.

2.Liquid (chain-based second-layer construction)

Liquid is a sidechain solution launched by Blockstream in 2015. As the first sidechain of Bitcoin, Liquid aims to provide a faster, more secure and private transaction solution to meet the needs of professional users such as financial institutions and exchanges.

One of the main features of Liquid is the fast transaction confirmation time. Compared with Bitcoin's confirmation time of about 10 minutes, Liquid's transaction confirmation time is only 2 minutes. This allows users to trade faster and quickly complete fund transfers when needed. Another important feature is Liquid's transaction privacy. Liquid uses Confidential Transactions technology, which allows the transaction amount to be hidden and only the parties involved in the transaction can view the specific amount. This helps protect the privacy of transaction participants.

Liquid also has a higher transaction throughput. By using Federated Peg technology, Liquid is able to support a large number of parallel transactions and anchor on the Bitcoin network to achieve interoperability with Bitcoin. This allows Liquid to handle more transaction volume and improve the overall system throughput.

Since its launch, Liquid has gradually grown in the cryptocurrency industry. More and more exchanges, financial institutions and enterprises are beginning to adopt Liquid as their trading and fund settlement solution. At the same time, Blockstream continues to launch new features and improvements to further improve Liquid's performance and security.

In summary, Liquid is a Bitcoin sidechain solution launched by Blockstream that aims to provide fast, private and high-throughput transactions. It meets the needs of professional users by shortening transaction confirmation time, providing transaction privacy and increasing transaction throughput. Over time, Liquid has been widely used and developed in the cryptocurrency industry.

3. Rootstock (RSK) (chain-based second-layer construction)

Rootstock (RSK) is a smart contract platform built on the Bitcoin blockchain that aims to provide Ethereum-like functions to the Bitcoin ecosystem. Rootstock was first proposed in 2015 and officially launched in 2018.

The main features of Rootstock are two-way anchoring with Bitcoin and smart contract functions. Through the two-way anchoring with Bitcoin, Rootstock is able to use Bitcoin as its main asset to achieve security and stability. At the same time, Rootstock supports smart contract functions, enabling developers to build and execute smart contracts with automation functions on its platform.

Since its launch, Rootstock has gradually been recognized and adopted in the Bitcoin ecosystem. It provides Bitcoin users and developers with more functionality and flexibility, enabling Bitcoin to support a wider range of application scenarios, such as decentralized finance (DeFi), digital asset issuance, and supply chain management.

However, compared with other smart contract platforms, Rootstock has developed relatively slowly. Its expansion in terms of user and developer communities still requires more efforts. Nevertheless, the development prospects of Rootstock are still considered positive, and it has the potential to become one of the important smart contract platforms in the Bitcoin ecosystem.

4. RGB (Based on distributed + Turing-complete second-layer construction)

The story of RGB can be traced back to 2016, when Giacomo Zucco wanted to use Peter Todd's client verification and one-time seal concepts, develop a better colored coin and bring these tokens to the Lightning Network (this is where the name "RGB" comes from). It is an open protocol built on the Bitcoin blockchain that aims to provide richer functions for the creation, trading and management of digital assets. RGB is a scalable and confidential Bitcoin and Lightning Network smart contract system developed by the LNP/BP Standard Association. It adopts the concepts of private and common ownership, is a Turing-complete, trustless form of distributed computing, and does not require the introduction of non-blockchain decentralized protocols for tokens.

RGB is designed to run scalable, robust, and private smart contracts on UTXO blockchains (such as Bitcoin) to realize all possibilities. With RGB, developers can perform complex multi-category smart contracts such as token issuance, NFT casting, DeFi, DAO, and more.

The RGB protocol is a client state verification and smart contract system that runs on the second and third layers (off-chain) of the Bitcoin ecosystem based on the concepts of client-side validation and single-use-seals.

5. Stacks (chain-based second-layer construction)

Stacks (formerly Blockstack) is a decentralized computing platform built on the Bitcoin blockchain. Stacks was first proposed in 2013 and conducted its first coin offering (ICO) in 2017. Its main features are providing decentralized identity authentication, storage, and smart contract functions.

The core feature of Stacks is to support the development and execution of decentralized applications through the security and stability of Bitcoin. It adopts a consensus mechanism called "Stacking" to achieve consensus by allowing users holding STX tokens to lock a certain number of tokens and participate in network verification. This mechanism provides incentives for users and increases the security of the network.

In terms of development, Stacks has become one of the important platforms in the field of decentralized applications. It has attracted a group of developers and projects to join, built numerous decentralized applications, and provided rich tools and development documentation. Stacks also cooperates with other blockchain projects to expand its ecosystem and application scenarios.

6. Other Bitcoin Layer2 Projects

With the popularity of Bitcoin, many new projects have been generated. Among them, there are many projects initiated by Chinese, and these new projects such as B² Network, BEVM, Dovi, Map Protocol, Merlin, Bison, etc. also have certain characteristics.

B²Network was established in 2022. It is a Bitcoin Layer 2 network developed based on ZK-Rollup. It is compatible with EVM and can enable EVM ecosystem developers to seamlessly deploy DApps. It is a typical case of the transfer of Ethereum Layer 2 technology to the Bitcoin ecosystem.

The original BEVM team was founded in 2017 and explored a variety of Bitcoin extension applications. The BEVM concept proposed in 2023 is a decentralized Bitcoin L2 compatible with EVM. BEVM is based on technologies such as the Schnorr signature algorithm brought by the Taproot upgrade, allowing BTC to cross-chain from the Bitcoin mainnet to the second layer in a decentralized manner. Since BEVM is compatible with EVM, all DApps running in the Ethereum ecosystem can run on BTC Layer 2 and use BTC as Gas. On November 29, 2023, BEVM released a white paper.

Dovi was founded in 2023 and is a Bitcoin Layer2 compatible with EVM smart contracts. In November 2023, Dovi officially released a white paper. The white paper introduces that Dovi integrates Schnorr signatures and MAST structures to improve transaction privacy, optimize data size and verification process; a flexible framework for issuing various asset types other than Bitcoin, realizing cross-chain asset transfer.

The Map Protocol team was established relatively early. Originally, it was mainly engaged in cross-chain protocols, which is the connection technology between the first and second layers we introduced earlier. After the Bitcoin ecosystem became popular, it was able to build a second-layer construction based on the chain soon. The ability to cross-chain the current inscription assets and reduce transaction fees will attract some project parties and applications.

From the official website, it is easy to see the properties of Merlin Chain's Bridge. It transfers assets on BTC to the second-layer network and reduces transaction fees. It is a typical representative of solving pain points first. From the official website introduction and some research reports, Merlin is a Bitcoin Layer2 solution that integrates ZK-Rollup network, decentralized oracle and on-chain BTC anti-fraud module. The project was launched by Bitmap Tech. They are a distinctive team. The Bitmap.game and BRC-420 "blue box" Ordinals assets they launched have good reputations.

Founded in 2023, Bison is a Bitcoin-native zk-rollup that can increase transaction speed while implementing advanced functions on native Bitcoin. Developers can use zk-rollup to create innovative DeFi solutions, such as trading platforms, lending services, and automated market makers. From its official website, Bridge is also an important feature. Cross-chaining Bitcoin assets and completing upper-layer asset applications are the entry points for many projects.

From the above relatively new projects B² Network, BEVM, Dovi, Map Protocol, Merlin, and Bison, they have quickly completed the reduction of transaction fees and met the needs of Bitcoin's first-layer asset transactions. They all involve cross-chain assets. Teams that already have cross-chain protocols can do it faster. Teams that have experience in second-layer construction have more advantages in upper-layer applications. These newer projects are all based on the second-layer construction of the chain, taking advantage of the original technical accumulation and short-term explosive power advantages. These projects are somewhat homogeneous. How will they develop in the future? What will be the result of the competition with distributed second-layer construction service providers? There is still a lot of observation to be done. From the experience of the second-layer projects on Ethereum, after the issuance of tokens, many projects will lie flat after taking advantage of hot marketing. Will the second layer of Bitcoin be like this?

From the projects currently running on the second layer of Bitcoin, we can roughly see that the well-known second-layer Bitcoin projects were established relatively early and have been exploring related technologies for a long time. However, because the basic technology of the Bitcoin ecosystem has not been formed, most of the projects are not exciting enough, or are overshadowed by the brilliance of Ethereum and the Ethereum ecosystem. With the maturity of the Bitcoin basic protocol, especially the formation of the underlying basic technologies such as Segregated Witness, Taproot, Schnorr Signature, MAST Merkle Abstract Syntax Tree, Tapscript, etc., the connection technology between the first layer and the second layer has developed well, so the things that the Bitcoin ecosystem can do are becoming richer. From the second-layer projects of Bitcoin that are already running, we can see that some are builders of the original Bitcoin ecosystem, another part is the builders of the second layer of Ethereum, and another part is from the builders of connection technology. No matter which direction the project comes from, it is necessary to use these newly generated Bitcoin basic connection technologies. The more comprehensive and diversified the use methods are, the better the support for the second layer will be.

Where the funds are, there is the heat, and it will attract more funds to gather. Bitcoin currently has a market value of about 1000 billion US dollars. Its ecological development is weak, but it has the potential to explode. Therefore, many projects have claimed to carry out Bitcoin's second-layer construction. Here we will not mention the specific names of these projects, but classify the entrants of these projects to see their characteristics and their respective advantages and disadvantages.

1. Existing Bitcoin second-layer construction projects

Existing Bitcoin second-layer projects, especially those that have been developed for many years and have accumulated certain advantages, can they be rejuvenated with the help of this Bitcoin heat? Will it flourish? There is a lot of uncertainty.

There are two criteria: one is the aforementioned, which second-layer network has a higher total locked value TVL in the end, and which Bitcoin second-layer will win. The other is the structural type of the second layer. The second-layer construction based on the chain, because of its expansion characteristics, will accommodate more parallels, and the second-layer construction based on the distributed can only accommodate relatively few competitors.

The existing second-layer projects also need to give full play to their accumulated advantages, and use new technologies to establish new advantages, attract more applications to enter the platform, so that they have the opportunity to rejuvenate and strive for more market share. If they fail to attract more applications to enter, such old projects are likely to eventually sink or transform. In fact, such projects can also cooperate or merge with the projects that have no technical accumulation at all, but have established a community through a certain consensus, in exchange for greater development.

In addition, if those old projects can have advantages in the accumulation of distributed second-layer construction technology, they can fully intervene in the distributed second-layer construction, and it will be more effective by providing guidance for upper-layer applications.

2. Newly entered Bitcoin second-layer construction projects

Newly entered Bitcoin second-layer construction projects generally do not have too many accumulated advantages, but this gives such teams a latecomer advantage, and they can study the latest technology, first solve those lightweight and most attractive needs, and attract a certain number of applications to enter. It is best to have a team that already has experience in second-layer construction in the Ethereum ecosystem or other ecosystems, which is more suitable for quickly entering the second-layer construction of Bitcoin. Such projects can consider selecting chain-based second-layer construction, which will be faster and more advantageous.

Teams with no experience or advantages can refer to the third case to see whether they can screen out users and accumulate funds through community consensus.

3. Bitcoin second-layer projects that have no accumulation but want to enter

I didn’t understand much about projects that promote entering Web3.0 without any technical accumulation or community accumulation, and I probably thought these projects were CX projects. But through the inscription phenomenon, those communities that have generated a large community consensus through a certain inscription, such as sats, ordi, rats, not only have many members, but also have accumulated a certain amount of funds. Such projects can completely start a new second-layer construction from scratch, integrate upper-layer applications into the community through the power of the community, and it is possible to build the second layer. Such a second layer is likely to be selected as a chain-based second-layer construction, because it is simple and fast, and through the power of the community, DID (decentralized identity), DAO tools, DeFi applications, and other upper-layer applications are built on the second layer of the community, and they do not need to build it themselves, but only need to introduce mature product parties and share revenue with them. This may form a small ecosystem. Such projects place high demands on community building, foundation management, and decision-making mechanisms.

4. Development of upper-layer applications

With the rapid development of Bitcoin's second layer, the huge amount of funds dormant on BTC has begun to be reawakened, and because of the eyeball effect, it will attract more new users to enter the Web3.0 field. In addition, the rapid development of Bitcoin's second-layer technology will lay a solid foundation for Mass Adoption. The upper-layer applications will start with the current financial applications, and gradually introduce those applications that require high performance, large traffic, and frequent interactions, such as Gamefi, SocialFi, etc., without chain-based applications crashing or poor service experience. The development of Bitcoin's second layer will bring a lot of opportunities and solid infrastructure to upper-layer applications, and when mature, it will bring more opportunities to more Web3 teams that are not so native.

In any case, the Web3.0 era has just begun, and it is still in its infancy and early stages. It requires a lot of exploration and construction. Many countries and regions have not yet fully opened up to many new things in Web3.0. Web3.0 requires a lot of construction, which will give each project team more opportunities. A team that constantly perceives new developments and technologies, constantly adjusts, and continuously participates in the construction of Web3.0 will definitely reap rewards at some stage and in some field.

This article was written based on my reading of a large number of industry articles and my participation in TwitterSpace, offline exchanges and many other activities. Inspired by the speeches of many people, some prominent influencers and factors are as follows:

(1) Mr. Dashan of Waterdrop Capital, who has written many articles, given us many lectures on ThreeDAO, and participated in many Space activities he participated in.

(2) Some in-depth technical content was obtained by listening to Mr. Hong Shuning’s lectures, watching his videos, and communicating with him offline, such as routing problems in distributed systems and RGB’s Turing completeness problem.

(3) Many articles on www.btcstudy.org. This website has a wealth of knowledge.

(4) Interview program with Jan Xie, chief architect of Nervos (CKB).

(5) I have read a lot of BIP protocols, Segwit, Taproot, ordinarys, brc20, Atomical and other content.

(6) Other blockchain knowledge, including layered design ideas and von Neumann structure comparison, comes from the knowledge accumulation of several books I wrote in the past few years, of which 5 have been published, "Blockchain Knowledge - Popular Edition", "Blockchain Knowledge - Technical Edition", "Turing Blockchain", "Blockchain Economic Model", "Web3.0: Building the Digital Future of the Metaverse"; and 3 books on Ethereum, which have been partially written but not published. These contents refer to many native protocols, white papers, and technical principles of blockchain. The output of these contents is also the result of many people. I just collected and sorted them out. Gradually, I understood the correlation between these underlying principles and many technologies and possible future application scenarios.

(7) Discussions and thinking with team members when designing related products in our project(MiYou).

(8) "Decentralization is the most fundamental feature of blockchain, but do you have some misunderstandings about decentralization? ”, Hong Shuning

Thank you very much to Dashan, Elaine Yang, Hong Shuning and other technical experts from SatoshiLab. They read this article and gave a lot of feedback and revision suggestions. They strictly checked the accuracy of the concepts cited in the article until we could find the original references. I really appreciate this rigorous habit!

Thank you very much to all the contributors and participants who have improved my knowledge system.

Author twitter:

Fushaoqing: https://x.com/fushaoqingbj

SatoshiLab: https://x.com/satoshilabs

ThreeDAO: https://x.com/ThreeDAOspace

Our Product is MiYou, A Next-Generation EMail Ecosystem Base on Blockchains and AI. You can visit out twitter https://x.com/MiYouMail

Author: Fu Shaoqing, SatoshiLab, ThreeDAO BTC Studio

1. Common missions of Layer 2

• 1.1. Basic characteristics and basic requirements of blockchain

• 1.2. The role of layer2 construction

• 1.3. Why do we need layered design?

2. Several constructions for Bitcoin Layer2

• 2.1. Second-layer construction based on chains

• 2.2. Second-layer construction based on distributed systems

• 2.3. Second-layer construction based on centralized systems

• 2.4. The second layer in a broader sense and the applications on the upper layer

• 2.5. Summary of the basic characteristics of blockchain and the characteristics of three Layer2 constructions

• 2.6. Blockchain capacity expansion and capability expansion

3. Things related to the second-layer construction

• 3.1. Connection technology between the first and second layers

• 3.2. Refer to the von Neumann structure to look at the development of blockchain in a macro sense

4. Current Bitcoin Layer2 Construction Situation

• 4.1. Bitcoin Layer 2 Projects Already in Operation

• 4.2. Analysis of the development of Bitcoin's second-layer construction

References

V2.0 revision notes:

(1) By writing the article "Analyzing the system architecture of Bitcoin Layer2 and finding the right path for blockchain capacity expansion and capabilities expansion", we obtained a summary of knowledge related to capacity expansion and capabilities expansion, added Section 2.6, and released the V2.0 version. The 2.0 version was modified based on the 1.5 version.

V1.5 revision notes:

(1) "A basic knowledge system for the construction of Bitcoin Layer 2 (V1.0) " was published in February 2024. After writing the article "Observing Bitcoin Layer 2 from the perspective of a state machine can get more thoughts and conclusions" in March, we obtained a summary of the characteristics of some different layers. It will be easier to read if we summarize them into the basic knowledge system, so we released the V1.5 version.

(2) Modified some details of the textual expression, such as the connection technology between the first layer and the second layer.

(3) Because there are often disputes, the three concepts of Centralised, Decentralised, and Distributed in Section 2.4 are explained in more detail.

(4) Improved and modified the second picture in Section 2.4 to make the contrast clearer.

(5) Added Section 2.5, which summarizes the basic characteristics of blockchain and the characteristics of three types of Layer2 construction, so that it is easier to understand if multiple combined structures are used.

The rise of Bitcoin inscriptions has brought new vitality to the Bitcoin ecosystem, allowing more people to start paying attention to Bitcoin again. Some people also say that it has opened the Pandora's box of the Bitcoin ecosystem. Among the many technological developments in the Bitcoin ecosystem, the construction of the second layer of Bitcoin is the top priority. In this direction, I have summarized an article on the basic knowledge of the second layer of Bitcoin by drawing on some well-known articles on the Internet, exchanges with many friends, and the experience of our team in the design and development of Web3 products. This method is convenient for summary and learning. Because of the limitations of individual cognition, I hope that “to lead with a simple idea to inspire more complex ones”, and attract more people to improve relevant ideas and allow this field to develop better.

The world of blockchain starts with Bitcoin and ends with the Bitcoin ecosystem. (A summary by Mr. Dashan of Waterdrop Capital, I personally agree more.) Ethereum is also a side chain technology exploration of Bitcoin.

In this article, we will use "second-layer construction" or "second-layer network construction" in a mixed way. Usually, the term "second-layer network construction" is relatively narrow, and second-layer construction is a broader concept. However, in order to adapt to the common descriptions of the first-layer network and the second-layer network commonly discussed in the industry, we will also use the concept of "second-layer network construction". These two terms are the same concept in this article.

In order to understand the basic problems that need to be solved in the construction of Bitcoin Layer2, we first start by understanding the basic characteristics of the blockchain system.

This article uses a concept proposed by Vitalik: blockchain is a "world computer". It will be clearer for us to understand the various characteristics of blockchain from this perspective. In the following chapters, we will also analyze the possibility of the development of this "world computer" based on the von Neumann structure in the computer.

Let's summarize some basic characteristics first:

Note:

The requirements generated to maintain the normal operation of the blockchain "world computer" are called internal requirements;

The requirements of users who use this "world computer" are called external requirements.

Openness and transparency: This is the data storage and execution instruction feature of the blockchain "world computer", and it is also an internal requirement feature that requires many distributed nodes around the world to participate in the calculation. This feature just meets the user's right to know about the data, and is the result of the internal collaboration requirements of the "world computer" itself and the external needs of the user. The privacy feature mentioned later is to meet the external needs of the user without destroying the collaboration requirements of the "world computer" itself.

Decentralization: This feature is the architectural feature of this "world computer". The degree of decentralization and fault tolerance are theoretically supported by the Byzantine Generals Theory (the possibility of dishonesty among collaborators, that is, the situation of not complying with the agreement). Non-Byzantine Generals systems are not blockchain systems in theory. We will see two cases of non-blockchain systems in the second-layer construction later. The degree of decentralization is an important indicator of blockchain security and the basis of certain features.

Security: Security is composed of internal requirements generated by the architectural characteristics of this "world computer" and external requirements required by users. From the micro level, security is guaranteed by cryptography-related technologies, and from the macro level, it is guaranteed by the decentralization of the architecture, so that the security of this "world computer" will not be affected by the forgery of micro data or the destruction of the macro architecture.

Computing capabilities: One of the main functions of the blockchain world computer is computing capabilities. To measure this indicator, we generally use whether it is Turing complete. In order to maintain their main characteristics, some chains are deliberately designed to be Turing incomplete. For example, in the Bitcoin network, Satoshi Nakamoto not only made its code instructions not Turing complete, but also deliberately deleted some instructions during development to maintain its stability and security. All Turing complete technologies are designed to expand the computing power of blockchain. From the perspective of layered design, simple systems are more suitable for the bottom layer.

Performance: Under the same computing capabilities, performance is another major capability of blockchain as a world computer. It is generally measured by TPS, that is, the number of transactions processed per second.

Storage: Blockchain is described as a "world computer", so it must have a storage function, which is the ability to record data. At present, it is basically stored in the block, and more professional on-chain storage outside the block is still under development.

Privacy: Privacy is a sub-demand in the "world computer", that is, it requires the authority of data producers and users to be maintained during the calculation and storage process (we also put anti-censorship in the privacy part). This is basically driven by the external needs of users.

There is also a comprehensive indicator scalability, which generally refers to the scalability of the entire architecture. This feature affects most of the basic features. At the architectural level, the scalability of the system is a very important indicator. There are also some other connection capabilities, or capabilities for other specific scenarios, which we will not discuss in detail here. We will analyze them in detail when we encounter these special scenarios.

Among the basic characteristics of these blockchains, most of them are constrained by the impossible triangle in their mutual development relationship. For example, the DSS conjecture is decentralization (D), security (S) and scalability (S). As shown in the figure below:

In distributed systems, a similar impossible triangle is the CAP principle, which means that in a distributed system, consistency, availability, and partition tolerance cannot be achieved at the same time. The blockchain system is a distributed system with the Byzantine Generals Problem, so the CAP principle also applies.

The CAP principle is shown in the figure below:

Capacity expansion and capabilities expansion are to achieve the three goals in the impossible triangle by combining different system structures. Two goals of these impossible triangles can be achieved in one structure, and the third goal can be achieved in another structure.

What roles does the second layer construction fulfill? What functions does it provide? The second layer construction must be to expand the shortcomings of the first layer system, and to complete things that are not suitable for the first layer system on the second layer construction.

We can draw a preliminary conclusion from the blockchain characteristics summarized above, which must be to expand these basic capabilities: openness, transparency, decentralization, security, computing capabilities, performance (throughput), storage, privacy, etc. In addition to these basic capabilities from a technical perspective, there is another very important economic problem that needs to be solved, which is to reduce costs. Usually, the comprehensive cost of executing transactions on the first layer network is relatively high, and the second layer network needs to be used to reduce these costs.

In a word, the solutions for increasing capacity and capabilities, reducing costs, and customizing features are all second-layer construction. For customized features, it is not obvious enough at present, or it is often hidden in the first two features, which is a bit confusing. We can understand it this way. The characteristics of the first layer network are required to different degrees for many applications, and the degree of realization of various features can be readjusted for certain applications on the second layer.

In the construction of the second layer, the basic capabilities of the blockchain will have their own trade-offs, and some features will be reduced or even discarded in exchange for significant improvements in certain features. For example, some second layers will reduce the degree of decentralization and security in order to improve performance; some second layers, such as the Lightning Network, will change the structure of the system and the way of settlement in order to increase throughput. Some will enhance certain features without reducing basic features, such as the processing method of RGB, which significantly increases privacy and anti-censorship, but increases the difficulty of technical implementation. In the following cases, we will see the construction of the second layer that reduces or changes several features at the same time.

Among them, reducing costs should be a basic requirement for all second-layer construction. (Is there a second layer that does not reduce costs? I haven't seen it yet.)

Layered design is a means and methodology for humans to deal with complex systems. By dividing the system into multiple hierarchical structures and defining the relationships and functions between the layers, the modularity, maintainability and scalability of the system can be achieved, thereby improving the design efficiency and reliability of the system.

For a wide and large protocol system, the use of layers will have obvious benefits. Doing so makes it easier for people to understand, easy to implement by division of labor and easy to improve by modules. For example, the seven-layer model design of ISO/OSI in computer networks, but in specific implementations, some layers can be merged. For example, the specific network protocol TCP/IP is a four-layer protocol. As shown in the following figure:

Specifically speaking, the advantages of protocol layering are:

1. Each layer is independent. A layer does not need to know how the next layer is implemented, but only needs to know the services provided by the layer through the interface between layers. In this way, the complexity of the whole problem is reduced. In other words, how the previous layer works does not affect the work of the next layer. In this way, when we design the work of each layer, as long as the interface remains unchanged, we can adjust the working method within the layer at will.

2. Good flexibility. When any layer changes, as long as the interface relationship between the layers remains unchanged, the layers above or below this layer will not be affected. When a certain layer has technological innovation or a problem occurs in the work of a certain layer, it will not affect the work of other layers. When troubleshooting the problem, you only need to consider the problem of this layer alone.

3. Structurally separable. Each layer can be implemented with the most appropriate technology. The development of technology is often asymmetric, and the hierarchical division effectively avoids the barrel effect, and will not affect the overall work efficiency due to the imperfection of a certain aspect of technology.

4. Easy to implement and maintain. This structure makes it easy to implement and debug a large and complex system, because the entire system has been decomposed into several relatively independent subsystems. During debugging and maintenance, each layer can be debugged separately to avoid the situation where the wrong problem cannot be found or solved.

5. promote standardization. Because the functions of each layer and the services it provides have been accurately described. The advantage of standardization is that one of the layers can be replaced at will, which is very convenient for use and research.

The layered modular design idea is a common treatment method in the technical field for a large-scale project that requires multi-person collaboration and continuous improvement. It is also a proven and effective method.

We take the construction of Bitcoin's second layer as an example for analysis. There are three significant second-layer construction routes for Bitcoin:

• (1) One is a chain-based expansion route, which is very similar to the second layer of EVM and is a blockchain structure;

• (2) One is a distributed system, represented by the Lightning Network, which is a distributed structure.

• (3) There is also a route based on a centralized system, represented by a centralized index, which is a centralized structure.

The first two methods are very distinctive, and there are already some products in use and products under exploration. For the first method, due to the booming development of Ethereum and the exploration of other Bitcoin imitation chains, chain-based second-layer expansion is relatively easier, and there are more reference cases. The second distributed method is usually more difficult and develops more slowly, represented by the Lightning Network. The third method is very controversial because it does not look like a second-layer construction, but it seems to have completed the function of a second-layer construction.

Which second-layer construction plan is better? We use a market test result as a measure to mark which second-layer network has the highest TVL (Total Value Locked) is the best solution. With the development of time and technology, this best solution will be a process of change.

For the definition of Bitcoin's second-layer network, as long as it relies on the Bitcoin network, establishes technical connections with the Bitcoin network, and has some characteristics that are better than Bitcoin's first-layer network, it is considered Bitcoin's second-layer network construction. In other words, as long as BTC is consumed as gas, BTC is used as the underlying asset, and the system that expands Bitcoin's performance is considered a second-layer construction. Based on this judgment, we should recognize the third type of second-layer network construction, that is, the second-layer construction of the centralized structure.

The development of Bitcoin's technology, such as modifying OP_RETURN, SegWit (Segregated Witness), Taproot (Segregated Witness Upgrade), Schnnor Signature, MAST, Tapscript should be designed for the purpose of connecting the first and second layers, and these technologies should not be used too much to develop functions, because no matter how much the first-layer network is expanded, there will be no qualitative breakthrough, and the second-layer construction must be carried out. However, in the absence of better Bitcoin second-layer products, these technical capabilities that connect the first and second layers will be overused for a period of time.

Early Bitcoin imitation chains have made various explorations, such as "Colorcoin", "CovertCoins" and "MasterCoin"; various Bitcoin imitation chains with expanded capacity, such as BCH (Bitcoin Cash), BSV (Bitcoin SV), BTG (Bitcoin Gold); various sidechain technologies are all cases of chain-based expansion construction, which can be said to be a broad second-layer.

Ethereum is also an improvement exploration based on Bitcoin. When Vitalik failed to persuade other project teams, he formed a team to publish a white paper and develop a new generation of blockchain system to address the imperfections of Bitcoin: UTXO's accountless system, non-Turing completeness of the execution language, poor scalability, etc. Although Ethereum's exploration is not a direct second-layer construction on Bitcoin, it is a chain-based construction exploration in a broad sense.

Ethereum's improvement exploration of Bitcoin's imperfections, as well as the development and verification of the second layer on Ethereum, provide a reference case for the development of a chain-based second-layer network on Bitcoin. Various Rollup solutions, cross-chain solutions, message channel technology, and Ethereum's own sharding technology (from the perspective of the layered thinking of dealing with complex systems, perhaps this idea of solving multiple problems at one level is wrong) have made the Ethereum technology ecosystem flourish, making many people once believe that the development direction and future of the public chain have been determined, and the ecosystem represented by Ethereum has won. In fact, this is also a manifestation of the relative maturity of the second-layer construction based on the chain. However, the second-layer construction based on the chain is only one way of second-layer construction. It has its own advantages and disadvantages, and other second-layer technologies are needed to improve the entire second-layer ecology.

The second-layer construction based on the chain in Bitcoin generally includes two typical chain types, one is the account model compatible with EVM, and the other is the UTXO model similar to Bitcoin. Existing cases (we use the broad second-layer definition) include: Ethereum, Polygon, Bsc, Arbitrum, etc. are all EVM account models, and CKB (Nervos) and Chia are all UTXO models.

In the following chapters, we will introduce some cases in more detail in the introduction of the Bitcoin second-layer projects that have been running.

In addition, the second-layer projects that have been successful on Ethereum will also be added to the second-layer construction of Bitcoin based on the chain. For these second-layer projects on Ethereum, the workload and challenges of transforming to the second-layer on Bitcoin will be less. In the development and theoretical achievements of Ethereum's rollup maturity and modularization, this type of second-layer construction will become the mainstream of the expansion discussion and the fastest solution.

How successful will this transformation be? It remains to be tested. We can make some preliminary judgments based on the advantages and disadvantages of this chain-based second-layer construction.

What are the advantages and disadvantages of chain-based second-layer construction?

(1)The disadvantage of this solution is that the second-layer based on the chain is generally still limited by the limitations of the blockchain structure, and the performance improvement is limited. It either makes the system more centralized or reduces the interval between block generation and increases the block capacity, and the security is generally reduced. So the second-layer construction on the second layer is generated, which is the so-called Layer3 or Layer4.

(2)The advantages are: this solution maintains most of the basic characteristics of the blockchain, and generally solves the problem of Turing completeness, and the transaction fee is significantly reduced, which expands the capacity of the first-layer network to a certain extent. Moreover, this solution has abundant construction cases, and the technical implementation is relatively easy. There are already many exploration cases. The migration of upper-layer applications is also very convenient. It is a faster implementation method. I believe that this method will produce more second-layer networks.

Roughly speaking, due to the expansion limitations of this method, there should be many projects based on the second layer of the chain structure. There may be one or more second layers in each vertical field. Each project must complete its own unique second-layer construction to meet the needs of certain applications. Its value will also be determined by the number and total value of applications on it.

In the second-layer construction, there are also some constructions based on distributed systems. In this scheme, the structure and framework of the second layer are no longer the structure of the blockchain, but a distributed system based on Channel. The Lightning Network is a typical representative.

A distributed system consists of a limited set of processes and a limited set of channels. In order to transmit messages in a distributed system, the data, events, and channels that need to be controlled are already a set of relatively complex problems. The Channel we refer to here is the upper-level channel concept, such as the payment channel in the Lightning Network and the message channel in Nostr, rather than the underlying concept of the specific technology Channel in the distributed network.

In the second-layer construction of distributed systems, there are two categories:

(1) Only completing value transfer, similar to the Lightning Network;

(2) Both completing value transfer and completing Turing-complete technology, such as RGB;

In the second-layer construction scheme based on distribution, because it is value transfer, there are many difficulties that exceed the original message transmission, such as the total value capacity in the channel, the rigor of transactions, and the inability to consume twice. These problems all exceed the difficulty of message transmission. Therefore, the development of distributed second-layer construction is not as fast as that of chain-based second-layer construction, and there are not many mature cases.

If you want to complete Turing-complete calculations on such a second layer, that is, to build a Turing-complete virtual machine system on Channel, it will be more difficult. For example, the RGB protocol is to achieve Turing-complete calculations on a distributed system through client verification and Single-use-seals.

The existing cases of distributed second-layer construction based on distributed systems in Bitcoin include: Lightning Network, RGB, are there more famous cases? If we look at it according to the standards of generalized second-layer construction, does Nostr also belong to the second-layer construction of distributed systems with Channel mechanism? When sorting out Ethereum materials, I saw that there are cases of using Channel in Ethereum documents: Connext, Raiden, Perun, which can be used as an exploration direction for in-depth researchers.

In the following chapters, I will introduce the Bitcoin second-layer projects that have been running, and will introduce Lightning Network and RGB in more detail.

What are the advantages and disadvantages of distributed systems based on distribution?

(1)The advantages of this solution are generally that the system is more decentralized, the second-layer network can accommodate countless nodes, the privacy and anti-censorship capabilities are better, and there is unlimited scalability, so the performance becomes extremely large in theory.

(2)The disadvantage of this solution is that the technical implementation is complex. The routing algorithm, value splitting and packaging algorithm in the huge distributed system are relatively complex. Compared with information transmission, there is still a lack of engineering implementation experience and infrastructure in value transmission. This is also one of the reasons why the Lightning Network has always been considered to be slow in development.

In addition, it is a very big challenge to implement a Turing-complete system in this system, that is, Channel+computing, which can definitely be achieved in theory, but is still in the early experimental stage in practice. RGB is a typical representative of this situation.

Once a breakthrough is made in the second-layer construction based on a distributed approach, it will greatly promote the development of upper-layer applications. The decentralized ability formed by its huge distributed nodes and the Turing-complete code execution ability will better support the next generation of Internet applications, which is the "Mass Adoption" scenario that everyone is talking about.

Generally speaking, there are only a few parallel projects in the second layer of the distributed structure based on Channel. There are two main reasons. One is the unlimited scalability of such a system, and the other is the high technical difficulty of implementation. Therefore, such a system requires a more open design and concept to accommodate more people and teams. And based on this second-layer infrastructure, the application development team will also promote the development of this second layer, for example, the BiHelix project based on RGB.

Should we have this classification? There should be controversy.

Centralized index structures like Ordinals, or indexers of certain functional nodes are centralized structures, and they are also a second-layer construction idea. However, this construction idea will be less recognized because the second layer is too centralized and the expansion of the first layer network is very limited. The second layer of this centralized structure depends on the first layer network for its basic features of various blockchains. The second layer only serves as some simple calculation and statistical functions. The second layer sometimes seems to be a temporary existence that can be replaced by another second layer at any time, and its importance does not seem to be that high. But from the perspective of On-Chain and Off-Chain, and from the perspective of improving the capabilities of the first layer network, this centralized structure is also a second-layer expansion.

In addition to Ordinals, there should be centralized exchanges as examples of this system. Projects in this situation will not be introduced in the following cases.

Advantages and disadvantages of the second layer construction based on a centralized system:

(1)The advantage is that the centralized system is very mature, with countless available cases and optimization solutions, complete Turing completeness and excellent performance.

(2)The disadvantage is that the second layer is extremely centralized, and all the basic features of blockchain rely on the first layer network.

Roughly speaking, there should be fewer projects based on the second layer of the centralized structure, and even a phased existence. After the distributed structure based on the chain structure and the channel matures and improves, most of the second-layer constructions of the centralized structure will disappear, or only a few centralized second layers with characteristic scenarios will remain. At the current stage, because the centralized system is very mature, it can well meet the scenarios of On-Chain data and Off-Chain calculations when it can write data on the basic chain. It is the easiest mode to implement the primary application of the current Bitcoin ecosystem and is widely used.

From the perspective of the second layer construction structure, there are blockchain-style structures, distributed system structures, and centralized system structures. This is a common classification of system structures: Centralised, Decentralised, Distributed. From this perspective, it is easier for us to understand the characteristics and applicable scenarios of each type. The three types of second layers have their advantages and disadvantages. In the future, in the complete Bitcoin ecosystem, all three types should be distributed according to different scenarios.

I use this diagram to refer to Vitalik's article: The Meaning of Decentralization, link URL: https://medium.com/@VitalikButerin/the-meaning-of-decentralization-a0c92b76a274

There are often some disputes about this diagram, and some people think that the symbols of Decentralised and Distributed are reversed. From the perspective of control and decision-making, this dispute should be eliminated and Decentralised and Distributed can be better understood. For Centralised (A) in the diagram, there should be no dispute from many perspectives, so we only compare decentralization and distribution. Decentralised is actually a kind of multi-centralization (for a more precise explanation, please refer to Professor Hong Shuning's article "Decentralization is the most fundamental feature of blockchain, but do you have a misunderstanding of decentralization?"). Its control and decision-making still require the participation of certain central nodes. At this time, control and decision-making are called consensus. For example, in Bitcoin, only full nodes with mining capabilities have the ability to determine the generation of new blocks and the content written into new blocks. Those nodes without mining capabilities are read-only nodes or verification nodes. In POS and DPOS chains, this situation is more obvious. Only consensus nodes can decide what to generate and write into new blocks. The difference between synchronous and asynchronous algorithms in consensus protocols is also more obvious, which determines the number of nodes that can be accommodated in the blockchain network. In a distributed system, there is no obvious center at all, only nodes. Any node can join or leave the network at any time. Its control and decision-making are local, which is also one of the reasons why distributed systems can achieve very high performance. Does this eliminate the common controversy between Decentralised and Distributed?

In addition, the blockchain community often discusses Layer 3 and even Layer 4 above the second-layer construction, which is a generalized second-layer construction. It is a completely different concept from Layer 3 and Layer 4 in the five-layer structure of the Web3 technology stack proposed by Gavin Wood. Layer 3 and Layer 4 in the Web3 technology stack are a classification method for application protocols.

Schematic diagram of the 5 layers of Gavin Wood's Web3 technology stack and the generalized second-layer construction of the chain

What impact will these second-layer constructions have on upper-layer applications? With the basic characteristics provided by the blockchain system: openness, transparency, decentralization, security, computing capabilities, throughput, storage, privacy, etc., upper-layer applications will be built on these second-layer extensions and will interact with each other on these second layers. The second-layer extensions based on blockchain-style structures, distributed structures, centralized structures, and some centralized applications will produce real, large-scale Web3.0 applications.

This section is from another article, "Observing Bitcoin Layer2 from the perspective of the state machine can get more thoughts and conclusions." Here I directly quote the summary table and some conclusions. For the system architecture of Web3.0 applications, please also refer to that article.

Through the above table, we can roughly summarize the characteristics of blockchain structure, distributed system structure, and centralized structure.

(1) Blockchain structure

The biggest advantage of blockchain structure is that it solves trust-related problems (the role of ledgers) and can record the change process of data (state transition), so that data and computing rules become trusted data and trusted computing.

The biggest problem of blockchain structure is poor performance. There are two reasons for this. First, the blockchain structure cannot remove some computing scenarios. All requests are processed in a full computing manner. For example, partial computing and global computing, local data and global data, temporary data and permanent data. Second, the blockchain structure has a clear performance ceiling. If the second layer is expanded through the chain, the number of transactions supported is also limited.

In order to expand the performance of the blockchain structure, multi-layer construction is required, and it needs to be used in combination with heterogeneous systems.

From the above table, only the blockchain structure can realize the trustless ledger function. Therefore, if a system wants to realize the trustless ledger function, it must include the blockchain system. However, the performance requirements of large-scale applications require the blockchain system to be combined with other systems to meet the needs.

(2) Distributed systems

In the table above, we can see the obvious advantages of distributed systems: decentralization, performance, and scalability are all excellent, but the only feature is that the implementation of functions is relatively complex. In addition, distributed systems do not have the ability to trustless ledger.

So if we can use distributed systems in the second-layer construction based on the first-layer ledger function of Bitcoin, theoretically, we can maintain the basic characteristics of the blockchain while achieving unlimited performance expansion. Bitcoin + Lightning Network is a representative example of this. The performance of this combination is 7 TPS * ∞ of Bitcoin.

The reason for achieving Turing completeness in a distributed system is that the cost of recording and running smart contracts in a blockchain system is very high because it is global data and global code. Therefore, smart contracts are also suitable for layered theory, limiting the storage and execution of smart contract code to participants.

(3) Centralized systems

In the table above, we can see that the advantage of centralized systems is that the engineering implementation is relatively simple, which is due to the simple internal logic control and simple calculation. Similarly, centralized systems do not have the ability of trustless ledger. The advantages of centralized systems are not prominent. If you are processing small-scale data, or processing temporary data and temporary calculations, it will be relatively suitable.

The second-layer construction of the centralized system can serve as a supplement or transitional solution to the other two methods.

(4) Comprehensive analysis

In the era of value(vs information), through the above content, we can see that it is difficult to achieve the effect of meeting the needs by relying on a single system. This is also a practical demand for the second-layer development of the Bitcoin ecosystem. However, how to combine these three systems requires a lot of exploration. Let us first analyze it theoretically. In the face of different needs, there will be different combination structures.

First, from the design idea of protocol layering, the Bitcoin network does not need Turing completeness. It is a global trust machine that only needs to save data that requires global trust and the trajectory of data changes. According to this most basic requirement, the instruction set of Bitcoin can be reduced to a minimum. Other functions are left to the upper-layer extension to complete.

General small applications can be completed on a single blockchain. Slightly larger systems are suitable for completion on the second-layer construction of blockchain + blockchain. But for large-scale applications, the preferred solution is to use blockchain system + distributed system.

Through the combination of multiple system structures, the limitations of the basic theory of a single system can be broken. For example, the blockchain system is limited by the DSS impossible triangle, but if the blockchain system + distributed system is used, the impossible triangle of decentralization D, security S, and scalability S can be solved. Other combinations, blockchain + centralized system, can also solve the scalability problem to a certain extent. Distributed system + centralized system can solve the limitations of the CAP triangle in the distributed system.

This section is from another article, "Analysis of Bitcoin Layer2 System Architecture, Finding the Right Path to Blockchain Capacity Expansion and Capabilities Expansion" and supplemented to the basic knowledge system of Bitcoin Layer2.

In the ecological development of blockchain, two important tasks are needed: capacity expansion and capabilities expansion. The author summarizes three construction paths from the analysis of Bitcoin Layer2 system architecture and the application architecture of Web3.0:

(1) Path 1: Chain-based Layer 2 construction (mainly completing capabilities  expansion, partially achieving capacity expansion)

This path is relatively easy to implement in theory, and Ethereum's Layer 2 construction has provided many running cases. Therefore, in the final Web3.0 application architecture, the construction based on Bitcoin Layer1 network + Chain Layer2 is this implementation path. As shown in Path 1 in the figure.

(2) Path 2: Strong capacity expansion of blockchain (mainly relying on the capacity expansion of distributed systems)

This path is the best way to achieve the capacity expansion of blockchain systems, that is, blockchain + distributed systems, which can expand the transaction capacity TPS to infinity. The current Bitcoin + Lightning Network is a representative of this path. As shown in Path 2 in the figure.

(3) Path 3: Strong expansion of blockchain (capabilities expansion based on capacity expansion)

This path is the most difficult way to expand capacity, that is, to achieve capabilities expansion based on the strongest capacity expansion plan. The current RGB system is an example of this implementation method, as shown in Path 3 in the figure.

With the first-layer network and the second-layer construction, what is the connection between the two? Or how are the two directly related? One is a direct technical connection, for example, through a two-way lock or bridge technology link. The other is a correlation outside the system, such as Bitcoin and Ethereum. Although there is no direct connection, people transform BTC into WBTC to flow on Ethereum, and there is not even any technical connection. It is just that individuals adjust the positions of Bitcoin and Ethereum based on price fluctuations. This is a correlation outside the system.

Here we only discuss the technical correlation, and these related technologies are completely closely related to the structure and characteristics of the second layer. Later, we will refer to the von Neumann structure from a more macro perspective to judge the development of the blockchain-related ecology.

We have mentioned the development of Bitcoin technology, such as the modification of OP_RETURN, SegWit (Segregated Witness), Taproot (Segregated Witness Upgrade), Schnorr Signature, MAST, and Tapscript, which should be designed for the purpose of connecting the first and second layers, and are the basic technical elements connecting the first and second layers in the Bitcoin ecosystem. These connection technologies are an important part of thinking about the construction of the second layer. Although there are some BTC connection technology implementation plans on the network, such as using HashLock, or threshold signatures, MPC, etc., these solutions have limited functions and are not suitable for more complex functions and more segmented requirements. It is still necessary to use the basic technical elements generated for connection in the Bitcoin ecosystem.

BEVM's first and second layer connections are representative, and more functions built with the above basic elements are used. Its BTC L2 solution of Shnorr signature + MAST contract + Bitcoin light node network is a good case for learning to connect the first and second layers.

In addition to these basic technical elements connecting the first and second layers, the specific connection technology will vary due to the different structures of the second layer construction. I will first give a general introduction to some types of connection technologies. Common technologies that connect the first-layer network and the second-layer network of blockchains are as follows:

Cross-chain technology: Through cross-chain technology, different blockchains can interoperate and realize the connection between the first-layer network and the second-layer network. Cross-chain technology can realize the cross-chain transfer and interaction of assets, so that data and value can flow between different blockchains.

Segregated Witness technology: Isolated verification technology can isolate the transaction data in the first-layer network, and then verify and process it through the second-layer network. This method can reduce the burden of the first-layer network and improve the overall throughput and efficiency.

Side chain technology: Side chain technology is a technology that connects the main chain and the side chain. Through the side chain, data transmission between the first-layer network and the second-layer network can be realized. The side chain can separate some specific functions and applications from the main chain to improve the overall performance and scalability.

State Channel technology: State Channel technology is a solution based on the second-layer network. By establishing a communication channel outside the chain, transactions can be carried out outside the chain and submitted to the first-layer network only when needed. State Channel technology can increase the speed and throughput of transactions and reduce transaction costs.

Plasma technology: Plasma technology is an expansion solution based on the second-layer network. By sharding the transaction data of the first-layer network and then verifying and processing it through the second-layer network, higher throughput and scalability can be achieved.

Common second-layer structures include blockchain structure, distributed system structure, and centralized system structure. Most of the common connection technologies mentioned above can only be used in one structure due to the different structures of the second layer, so we will not discuss them in depth here.

With the maturity of the second-layer construction, there are more specific technologies or cases, and even not technical-level associations but only economic-level associations.

What are the reference indicators for examining the quality of the first-layer and second-layer linking technology? The indicators we roughly see are:

• Can the first layer verify the transactions of the second layer?

• Can the assets of the first layer escape smoothly when the second layer collapses?

• Will the connection technology reduce certain characteristics of the system?

• …….

The content of the first-layer and second-layer linking technology should be better summarized and improved when there are more cases of second-layer construction. These connection technologies are currently completed by the second-layer builders. Whether there will be independent products like cross-chain bridges in the future is still hard to say.

This section is more about raising questions and giving us participants and builders more to think about.

In the previous section, we have used the concept proposed by Vitalik: blockchain is a "world computer". Since both can be called computers, this "world computer" can be compared and analyzed with the von Neumann structure of traditional computers.

blockchain world computer the von Neumann structure of traditional computers

The five major components of a von Neumann computer are: arithmetic/logic unit, controll unit, memory(Storage), input device, and output device. In the blockchain, the "world computer" system, there are similar components, and the connection part of these five components should also be taken seriously, because in a distributed system, the connection part has a greater impact.

The development law of the "world computer" is very similar to the development law of traditional computers. Compared with the development of traditional computers, the blockchain system is still in a stage similar to that before x286, and is still expanding its processing power and storage capacity. It has simple peripherals and can do very limited things.

Several comparisons between the development of traditional computers and the development of the "world computer":

(1) The expansion of the CPU (arithmetic/logic unit and controller unit) is like the current expansion of the computing power and throughput of the first and second layers;

(2) The expansion of memory will gradually change from competing for space on the chain to using real blockchain storage. The current first and second layer on-chain storage space is like the registers, first-level cache, and second-level cache in traditional computers. In the future, there will be professional blockchain storage methods such as memory, hard disk, and external storage. The current way of writing data will also change greatly in the future.

(3) Input devices and output devices, in the blockchain system, are oracles. These input and output devices have not been reflected much in the second-layer construction, and there will be more demand in upper-layer applications.

(4) Some special chains and functions in the blockchain are very similar to the GPU, special device cards, special peripherals and other components in traditional computers.

(5) On-chain applications and upper-layer applications are also evolving and separating functions step by step, just like traditional computers have not yet distinguished between operating systems and application software.

(6) Many current blockchain applications are financial applications, which are very similar to early traditional computers, mostly used for scientific research and military applications. With development, they are slowly moving towards enterprises, families, and individuals. Blockchain applications will also have a similar development trend, from early financial applications to more extensive applications.

From the construction of the second layer, there is still a lot to discuss about the comparison between traditional computers and the "world computer" of blockchain, which will not be described in this article.

In this article, we mainly introduce those Bitcoin Layer 2 projects that have been successfully operated, referring to some research reports and industry reports. These Layer2 constructions have been in operation for a certain period of time, and most of them have been brewing or started from 2015-2019. Some newer projects, if they have characteristics, will also be introduced. We will see that these cases are basically based on the second-layer construction of chains, and the only distributed system construction based on channels is the Lightning Network. If the second-layer construction of Ethereum is included, the Raiden Network is also a design case based on Channel, but its current development does not seem to be successful, so it will not be introduced in this article. Ethereum's Plasma technology is a design solution for a sub-chain based on Channel, which seems to be a combination of chain and Channel. I personally think that its main feature is a second-layer design based on chain, and I will not discuss it too much here.

1. Lightning Network (based on distributed second-layer construction)

Lightning Network is a second-layer solution built on the Bitcoin blockchain, designed to solve the problems of Bitcoin's scalability and low transaction speed. The Lightning Network was first proposed in 2015 and began to be fully implemented in 2018.

The main features of the Lightning Network are fast, low-cost and scalable. It establishes a series of payment channels so that Bitcoin transactions can be carried out inside the channel without being recorded directly on the blockchain. This can greatly reduce transaction confirmation time and transaction fees, and support a large number of parallel transactions. The Lightning Network relies on the RMSC protocol to ensure the security and reliability of transactions, and HTLC solves the routable scalability. The scalability of its architecture gives it very large performance.

Since its launch, the Lightning Network has received widespread attention and adoption. More and more Bitcoin users, exchanges and merchants have begun to use the Lightning Network for fast cross-chain transactions and real-time payments. In addition, developers are also constantly improving the performance and user experience of the Lightning Network, providing it with more functions and scalability.

Although the Lightning Network provides significant improvements in scalability and transaction speed, it still faces some technical and adoption challenges. For example, aspects such as the stability of the network, routing algorithms and user interfaces need to be continuously improved. However, with the passage of time and technological advances, the Lightning Network is expected to become an important payment solution for Bitcoin and other cryptocurrencies, providing users with a faster and low-cost transaction experience.

2.Liquid (chain-based second-layer construction)

Liquid is a sidechain solution launched by Blockstream in 2015. As the first sidechain of Bitcoin, Liquid aims to provide a faster, more secure and private transaction solution to meet the needs of professional users such as financial institutions and exchanges.

One of the main features of Liquid is the fast transaction confirmation time. Compared with Bitcoin's confirmation time of about 10 minutes, Liquid's transaction confirmation time is only 2 minutes. This allows users to trade faster and quickly complete fund transfers when needed. Another important feature is Liquid's transaction privacy. Liquid uses Confidential Transactions technology, which allows the transaction amount to be hidden and only the parties involved in the transaction can view the specific amount. This helps protect the privacy of transaction participants.

Liquid also has a higher transaction throughput. By using Federated Peg technology, Liquid is able to support a large number of parallel transactions and anchor on the Bitcoin network to achieve interoperability with Bitcoin. This allows Liquid to handle more transaction volume and improve the overall system throughput.

Since its launch, Liquid has gradually grown in the cryptocurrency industry. More and more exchanges, financial institutions and enterprises are beginning to adopt Liquid as their trading and fund settlement solution. At the same time, Blockstream continues to launch new features and improvements to further improve Liquid's performance and security.

In summary, Liquid is a Bitcoin sidechain solution launched by Blockstream that aims to provide fast, private and high-throughput transactions. It meets the needs of professional users by shortening transaction confirmation time, providing transaction privacy and increasing transaction throughput. Over time, Liquid has been widely used and developed in the cryptocurrency industry.

3. Rootstock (RSK) (chain-based second-layer construction)

Rootstock (RSK) is a smart contract platform built on the Bitcoin blockchain that aims to provide Ethereum-like functions to the Bitcoin ecosystem. Rootstock was first proposed in 2015 and officially launched in 2018.

The main features of Rootstock are two-way anchoring with Bitcoin and smart contract functions. Through the two-way anchoring with Bitcoin, Rootstock is able to use Bitcoin as its main asset to achieve security and stability. At the same time, Rootstock supports smart contract functions, enabling developers to build and execute smart contracts with automation functions on its platform.

Since its launch, Rootstock has gradually been recognized and adopted in the Bitcoin ecosystem. It provides Bitcoin users and developers with more functionality and flexibility, enabling Bitcoin to support a wider range of application scenarios, such as decentralized finance (DeFi), digital asset issuance, and supply chain management.

However, compared with other smart contract platforms, Rootstock has developed relatively slowly. Its expansion in terms of user and developer communities still requires more efforts. Nevertheless, the development prospects of Rootstock are still considered positive, and it has the potential to become one of the important smart contract platforms in the Bitcoin ecosystem.

4. RGB (Based on distributed + Turing-complete second-layer construction)

The story of RGB can be traced back to 2016, when Giacomo Zucco wanted to use Peter Todd's client verification and one-time seal concepts, develop a better colored coin and bring these tokens to the Lightning Network (this is where the name "RGB" comes from). It is an open protocol built on the Bitcoin blockchain that aims to provide richer functions for the creation, trading and management of digital assets. RGB is a scalable and confidential Bitcoin and Lightning Network smart contract system developed by the LNP/BP Standard Association. It adopts the concepts of private and common ownership, is a Turing-complete, trustless form of distributed computing, and does not require the introduction of non-blockchain decentralized protocols for tokens.

RGB is designed to run scalable, robust, and private smart contracts on UTXO blockchains (such as Bitcoin) to realize all possibilities. With RGB, developers can perform complex multi-category smart contracts such as token issuance, NFT casting, DeFi, DAO, and more.

The RGB protocol is a client state verification and smart contract system that runs on the second and third layers (off-chain) of the Bitcoin ecosystem based on the concepts of client-side validation and single-use-seals.

5. Stacks (chain-based second-layer construction)

Stacks (formerly Blockstack) is a decentralized computing platform built on the Bitcoin blockchain. Stacks was first proposed in 2013 and conducted its first coin offering (ICO) in 2017. Its main features are providing decentralized identity authentication, storage, and smart contract functions.

The core feature of Stacks is to support the development and execution of decentralized applications through the security and stability of Bitcoin. It adopts a consensus mechanism called "Stacking" to achieve consensus by allowing users holding STX tokens to lock a certain number of tokens and participate in network verification. This mechanism provides incentives for users and increases the security of the network.

In terms of development, Stacks has become one of the important platforms in the field of decentralized applications. It has attracted a group of developers and projects to join, built numerous decentralized applications, and provided rich tools and development documentation. Stacks also cooperates with other blockchain projects to expand its ecosystem and application scenarios.

6. Other Bitcoin Layer2 Projects

With the popularity of Bitcoin, many new projects have been generated. Among them, there are many projects initiated by Chinese, and these new projects such as B² Network, BEVM, Dovi, Map Protocol, Merlin, Bison, etc. also have certain characteristics.

B²Network was established in 2022. It is a Bitcoin Layer 2 network developed based on ZK-Rollup. It is compatible with EVM and can enable EVM ecosystem developers to seamlessly deploy DApps. It is a typical case of the transfer of Ethereum Layer 2 technology to the Bitcoin ecosystem.

The original BEVM team was founded in 2017 and explored a variety of Bitcoin extension applications. The BEVM concept proposed in 2023 is a decentralized Bitcoin L2 compatible with EVM. BEVM is based on technologies such as the Schnorr signature algorithm brought by the Taproot upgrade, allowing BTC to cross-chain from the Bitcoin mainnet to the second layer in a decentralized manner. Since BEVM is compatible with EVM, all DApps running in the Ethereum ecosystem can run on BTC Layer 2 and use BTC as Gas. On November 29, 2023, BEVM released a white paper.

Dovi was founded in 2023 and is a Bitcoin Layer2 compatible with EVM smart contracts. In November 2023, Dovi officially released a white paper. The white paper introduces that Dovi integrates Schnorr signatures and MAST structures to improve transaction privacy, optimize data size and verification process; a flexible framework for issuing various asset types other than Bitcoin, realizing cross-chain asset transfer.

The Map Protocol team was established relatively early. Originally, it was mainly engaged in cross-chain protocols, which is the connection technology between the first and second layers we introduced earlier. After the Bitcoin ecosystem became popular, it was able to build a second-layer construction based on the chain soon. The ability to cross-chain the current inscription assets and reduce transaction fees will attract some project parties and applications.

From the official website, it is easy to see the properties of Merlin Chain's Bridge. It transfers assets on BTC to the second-layer network and reduces transaction fees. It is a typical representative of solving pain points first. From the official website introduction and some research reports, Merlin is a Bitcoin Layer2 solution that integrates ZK-Rollup network, decentralized oracle and on-chain BTC anti-fraud module. The project was launched by Bitmap Tech. They are a distinctive team. The Bitmap.game and BRC-420 "blue box" Ordinals assets they launched have good reputations.

Founded in 2023, Bison is a Bitcoin-native zk-rollup that can increase transaction speed while implementing advanced functions on native Bitcoin. Developers can use zk-rollup to create innovative DeFi solutions, such as trading platforms, lending services, and automated market makers. From its official website, Bridge is also an important feature. Cross-chaining Bitcoin assets and completing upper-layer asset applications are the entry points for many projects.

From the above relatively new projects B² Network, BEVM, Dovi, Map Protocol, Merlin, and Bison, they have quickly completed the reduction of transaction fees and met the needs of Bitcoin's first-layer asset transactions. They all involve cross-chain assets. Teams that already have cross-chain protocols can do it faster. Teams that have experience in second-layer construction have more advantages in upper-layer applications. These newer projects are all based on the second-layer construction of the chain, taking advantage of the original technical accumulation and short-term explosive power advantages. These projects are somewhat homogeneous. How will they develop in the future? What will be the result of the competition with distributed second-layer construction service providers? There is still a lot of observation to be done. From the experience of the second-layer projects on Ethereum, after the issuance of tokens, many projects will lie flat after taking advantage of hot marketing. Will the second layer of Bitcoin be like this?

From the projects currently running on the second layer of Bitcoin, we can roughly see that the well-known second-layer Bitcoin projects were established relatively early and have been exploring related technologies for a long time. However, because the basic technology of the Bitcoin ecosystem has not been formed, most of the projects are not exciting enough, or are overshadowed by the brilliance of Ethereum and the Ethereum ecosystem. With the maturity of the Bitcoin basic protocol, especially the formation of the underlying basic technologies such as Segregated Witness, Taproot, Schnorr Signature, MAST Merkle Abstract Syntax Tree, Tapscript, etc., the connection technology between the first layer and the second layer has developed well, so the things that the Bitcoin ecosystem can do are becoming richer. From the second-layer projects of Bitcoin that are already running, we can see that some are builders of the original Bitcoin ecosystem, another part is the builders of the second layer of Ethereum, and another part is from the builders of connection technology. No matter which direction the project comes from, it is necessary to use these newly generated Bitcoin basic connection technologies. The more comprehensive and diversified the use methods are, the better the support for the second layer will be.

Where the funds are, there is the heat, and it will attract more funds to gather. Bitcoin currently has a market value of about 1000 billion US dollars. Its ecological development is weak, but it has the potential to explode. Therefore, many projects have claimed to carry out Bitcoin's second-layer construction. Here we will not mention the specific names of these projects, but classify the entrants of these projects to see their characteristics and their respective advantages and disadvantages.

1. Existing Bitcoin second-layer construction projects

Existing Bitcoin second-layer projects, especially those that have been developed for many years and have accumulated certain advantages, can they be rejuvenated with the help of this Bitcoin heat? Will it flourish? There is a lot of uncertainty.

There are two criteria: one is the aforementioned, which second-layer network has a higher total locked value TVL in the end, and which Bitcoin second-layer will win. The other is the structural type of the second layer. The second-layer construction based on the chain, because of its expansion characteristics, will accommodate more parallels, and the second-layer construction based on the distributed can only accommodate relatively few competitors.

The existing second-layer projects also need to give full play to their accumulated advantages, and use new technologies to establish new advantages, attract more applications to enter the platform, so that they have the opportunity to rejuvenate and strive for more market share. If they fail to attract more applications to enter, such old projects are likely to eventually sink or transform. In fact, such projects can also cooperate or merge with the projects that have no technical accumulation at all, but have established a community through a certain consensus, in exchange for greater development.

In addition, if those old projects can have advantages in the accumulation of distributed second-layer construction technology, they can fully intervene in the distributed second-layer construction, and it will be more effective by providing guidance for upper-layer applications.

2. Newly entered Bitcoin second-layer construction projects

Newly entered Bitcoin second-layer construction projects generally do not have too many accumulated advantages, but this gives such teams a latecomer advantage, and they can study the latest technology, first solve those lightweight and most attractive needs, and attract a certain number of applications to enter. It is best to have a team that already has experience in second-layer construction in the Ethereum ecosystem or other ecosystems, which is more suitable for quickly entering the second-layer construction of Bitcoin. Such projects can consider selecting chain-based second-layer construction, which will be faster and more advantageous.

Teams with no experience or advantages can refer to the third case to see whether they can screen out users and accumulate funds through community consensus.

3. Bitcoin second-layer projects that have no accumulation but want to enter

I didn’t understand much about projects that promote entering Web3.0 without any technical accumulation or community accumulation, and I probably thought these projects were CX projects. But through the inscription phenomenon, those communities that have generated a large community consensus through a certain inscription, such as sats, ordi, rats, not only have many members, but also have accumulated a certain amount of funds. Such projects can completely start a new second-layer construction from scratch, integrate upper-layer applications into the community through the power of the community, and it is possible to build the second layer. Such a second layer is likely to be selected as a chain-based second-layer construction, because it is simple and fast, and through the power of the community, DID (decentralized identity), DAO tools, DeFi applications, and other upper-layer applications are built on the second layer of the community, and they do not need to build it themselves, but only need to introduce mature product parties and share revenue with them. This may form a small ecosystem. Such projects place high demands on community building, foundation management, and decision-making mechanisms.

4. Development of upper-layer applications

With the rapid development of Bitcoin's second layer, the huge amount of funds dormant on BTC has begun to be reawakened, and because of the eyeball effect, it will attract more new users to enter the Web3.0 field. In addition, the rapid development of Bitcoin's second-layer technology will lay a solid foundation for Mass Adoption. The upper-layer applications will start with the current financial applications, and gradually introduce those applications that require high performance, large traffic, and frequent interactions, such as Gamefi, SocialFi, etc., without chain-based applications crashing or poor service experience. The development of Bitcoin's second layer will bring a lot of opportunities and solid infrastructure to upper-layer applications, and when mature, it will bring more opportunities to more Web3 teams that are not so native.

In any case, the Web3.0 era has just begun, and it is still in its infancy and early stages. It requires a lot of exploration and construction. Many countries and regions have not yet fully opened up to many new things in Web3.0. Web3.0 requires a lot of construction, which will give each project team more opportunities. A team that constantly perceives new developments and technologies, constantly adjusts, and continuously participates in the construction of Web3.0 will definitely reap rewards at some stage and in some field.

This article was written based on my reading of a large number of industry articles and my participation in TwitterSpace, offline exchanges and many other activities. Inspired by the speeches of many people, some prominent influencers and factors are as follows:

(1) Mr. Dashan of Waterdrop Capital, who has written many articles, given us many lectures on ThreeDAO, and participated in many Space activities he participated in.

(2) Some in-depth technical content was obtained by listening to Mr. Hong Shuning’s lectures, watching his videos, and communicating with him offline, such as routing problems in distributed systems and RGB’s Turing completeness problem.

(3) Many articles on www.btcstudy.org. This website has a wealth of knowledge.

(4) Interview program with Jan Xie, chief architect of Nervos (CKB).

(5) I have read a lot of BIP protocols, Segwit, Taproot, ordinarys, brc20, Atomical and other content.

(6) Other blockchain knowledge, including layered design ideas and von Neumann structure comparison, comes from the knowledge accumulation of several books I wrote in the past few years, of which 5 have been published, "Blockchain Knowledge - Popular Edition", "Blockchain Knowledge - Technical Edition", "Turing Blockchain", "Blockchain Economic Model", "Web3.0: Building the Digital Future of the Metaverse"; and 3 books on Ethereum, which have been partially written but not published. These contents refer to many native protocols, white papers, and technical principles of blockchain. The output of these contents is also the result of many people. I just collected and sorted them out. Gradually, I understood the correlation between these underlying principles and many technologies and possible future application scenarios.

(7) Discussions and thinking with team members when designing related products in our project(MiYou).

(8) "Decentralization is the most fundamental feature of blockchain, but do you have some misunderstandings about decentralization? ”, Hong Shuning

Thank you very much to Dashan, Elaine Yang, Hong Shuning and other technical experts from SatoshiLab. They read this article and gave a lot of feedback and revision suggestions. They strictly checked the accuracy of the concepts cited in the article until we could find the original references. I really appreciate this rigorous habit!

Thank you very much to all the contributors and participants who have improved my knowledge system.

Author twitter:

Fushaoqing: https://x.com/fushaoqingbj

SatoshiLab: https://x.com/satoshilabs

ThreeDAO: https://x.com/ThreeDAOspace

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