Technical Analysis of Bitcoin Layer 2 Projects

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It is widely known that Ethereum's Layer 2 technology is currently the most successful Layer 2 solution. Compared to the scaling solutions of Polkadot and Cosmos, Layer 2 technology not only effectively inherits the security of Layer 1 but also allows for truly permissionless access to building Layer 2. As the pioneer of the blockchain ecosystem, Bitcoin's scalability has long been criticized, seriously impacting the development of its ecosystem.

What are the current Layer2 projects for Bitcoin?

We have selected leading projects of different technical types. Among them, the following three projects are quite representative.

Lightning Network：https://lightning.network/

Launched mainnet in 2018, it is currently the only officially recognized scaling solution by the Bitcoin community. It enables peer-to-peer transactions, resulting in unlimited TPS (transactions per second). The current TVL (total value locked) is 300 million USD.

Stacks：https://www.stacks.co/

Launched mainnet in 2019, it uses the innovative Proof of Transfer (PoX) consensus mechanism. The current TVL is 100 million USD, and it supports the development of on-chain smart contracts.

MerlinChain：https://merlinchain.io/

Launched mainnet in February 2024, it is an EVM-compatible Bitcoin Layer 2, allowing Ethereum ecosystem smart contracts to be directly deployed on Merlin. The current TVL is 1.2 billion USD, with Bitcoin used as the gas fee.

Analyze the characteristics of Bitcoin Layer 2

We can analyze the current Bitcoin Layer 2 from the following dimensions.

BTC Bridge: The ranking of projects in this dimension is as follows.

  1. Lightning Network: BTC are locked in Bitcoin's multi-signature addresses, which are jointly managed by the payer and the payee, without the need for third-party custodianship.

  2. MerlinChain: It manages BTC based on multi-signature addresses, which are managed by third-party custodial institutions (BitVM Federation).

  3. Stacks: Due to the use of the Proof of Transfer (PoX) consensus mechanism, BTC bridging requires centralized DeFi projects, which increasing security risks.

Security: The ranking of projects in this dimension is as follows.

  1. Lightning Network: It is based on Bitcoin's multi-signature and hash time-lock opcode, requiring no third-party custodianship of funds, enabling quick peer-to-peer transactions.

  2. MerlinChain: Uses Bitcoin for zero-knowledge proofs. Its consensus layer submits ZK Proofs to the Bitcoin chain, ensuring the correctness of transaction execution through the ZK mechanism.

  3. Stacks: Due to the use of the Proof of Transfer (PoX) consensus mechanism, it does not inherit Bitcoin's security and does not utilize Bitcoin-based zero-knowledge proofs. However, its unique consensus mechanism allows only Bitcoin miners to participate in its mining process, which helps enhance its consensus security.

Ecosystem Development: The ranking of projects in this dimension is as follows.

  1. MerlinChain: As an EVM-compatible chain (supporting Solidity development), Ethereum smart contract code can be directly deployed on MerlinChain. Therefore, it can directly attract projects from the Ethereum ecosystem.

  2. Stacks: The smart contract development language is Clarity, which is relatively niche, leading to slow ecosystem development.

  3. Lightning Network: Does not support smart contracts, being used solely for payment scenarios.

Introduction to Other Similar Bitcoin Layer 2 Projects

BitLayer: This project is of the same type as MerlinChain.

Similarities:

  • BTC cross-chain is also managed through multi-signature wallets by third party (BitVM Federation).

  • Uses Bitcoin for zero-knowledge proofs, submitting ZK Proofs to the Bitcoin chain.

  • Uses BTC as gas fees.

Differences:

  • Supports smart contract development using both Solidity and Cairo.