After the inscription, will the next explosion in the BTC ecosystem be Bitcoin Layer-2?

Inscriptions have been popular for a while. After Meme and miners carnival, the market began to look for new opportunities in the #BTC ecosystem.It seems that many people believe the breakout point in the future will be Bitcoin Layer2.

So let’s take a look at Bitcoin Layer2s today.

This article has more than 3,000 words, a large amount of information, and novel viewpoints. It will take some time to read. It is recommended to save it and read it carefully:

This article is divided into 3 parts:

1️⃣、Bitcoin Layer2 10 years ago

2️⃣、Bitcoin Layer2 development

3️⃣. Analysis of several new Bitcoin Layer2 on the market

1, ZTC Global(@ZTCGlobal）

2, B² Network（@BsquaredNetwork）

3, BL2（@BL2_official）

4️⃣, related summary

1. Previous life of Bitcoin Layer2

Actually, the controversy over Bitcoin Layer2 is not something that just arose recently. It has been under discussion since 2015 and continues until now. There have been intense debates within the BTC community in the past.

The maximum size limit for the BTC blockchain is 1M, which greatly restricts the number of transactions that can be accommodated in each block. These debates have gradually formed two factions: the scaling faction and the core (conservative) faction.

Core believes that: a sidechain should be developed outside the main chain, and the technical solution is to build a second-layer network protocol (such as the Lightning Network). This has led to the emergence of various consortium chains, private chains, and cross-chains.

The current status quo is that BTC continues to operate in small blocks. Since it is a small block, there is a ceiling for the total number of transactions for miners, and there is also a ceiling for the income of each transaction. For example, the acceptable range for a user’s transaction is a few hundred Gas, no matter how high it is, Users choose to trade off-chain and on alternatives such as Bitcoin Layer2, which will lead to less income for miners in Gas.

The scaling faction believes that the 1M block capacity is too small and there is a ceiling for gas fee income. When the gas fee is too high, users will go to the Lightning Network to wait for Bitcoin Layer 2 transactions, resulting in a decrease in miners’ income.

This won’t do, we must scale up and increase the block size to 8MB, 32MB, or even higher capacity, so that users can all transact on the main network. This way, miners will be able to make money without much effort.

And so the biggest fork of BTC came, the first fork being BCH, which led to the explosive wave in 2017 after ICOs. Various fork coins of BTC were flying everywhere, making many people overnight millionaires, while others saw their fork coins become worthless overnight. Looking back at that year, I also invested in various fork coins with my BTC, only to end up with nothing.

The scaling community is not so united, and internal quarrels continue. On November 16, 2019, BCH hard forked into BCH SV and BCH ABC.

To sum it up:

Bitcoin Cash aims to scale the network through on-chain methods, and its community believes that Bitcoin Cash will continue the vision of “peer-to-peer electronic cash” proposed by Satoshi Nakamoto.

On the other hand, the Bitcoin project initiated by Satoshi Nakamoto has taken the path of off-chain scaling under the leadership of the Core development team, such as payment channels (like the Lightning Network). This is achieved through Segregated Witness (SegWit, 2017) and the Lightning Network to achieve off-chain scaling.

2. Development of Bitcoin Layer2

There were many early Bitcoin Layer2s, such as Lightning Network, Rootstock, Stacks, Liquid Network…

Today we will not explore the technical aspects of classical Bitcoin Layer 2, as many strong technical concepts have shown mediocre market performance (such as EOS).

Regarding layer 2 protocols, there is an illustration in a book I published in 2018 that shows the layer 2 concepts for BTC and ETH during that time. They were the Lightning Network and Raiden Network.

After 2019, the Ethereum ecosystem flourished (after the removal of ICOs), leading to the emergence of numerous Ethereum Layer2 solutions and the tremendous wealth effect brought by NFTs. Some individuals within the BTC community seem to realize that history could repeat itself on Bitcoin, just as it did on Ethereum.

Therefore, in January 2023, the NFT protocol Ordinals made its debut on Bitcoin. On March 8th, Yuga Labs held an auction on Ordinals, selling 288 BTC NFTs for a total value of $16.5 million.

The Ordinals protocol, released by Casey Rodarmor in January 2023, proposes an idea:

Can we arrange these Satoshis in a certain order, assign them an ordinal number between 0 and 2,100,000,000,000,000, and then connect them to other information: pictures, text, videos, or even a string of code. Each Satoshi thus becomes unique and irreplaceable.

This is equivalent to giving Bitcoin the native ability to create NFTs.

Doesn’t it sound amazing? In fact, this protocol relies heavily on Segwit in 2017 and Taproot upgrades in 2021.

The Taproot upgrade brings new levels of privacy, security, and scalability to the Bitcoin network. While it has always been possible to attach data to Bitcoin through technical means, you could basically only pump 4Mbs of data, and no more.

Ordinal NFT is based on the Ordinal theory, but the current implementation of Ordinal NFT also relies on the technical updates of Segregated Witness (SegWit) and Taproot to the Bitcoin protocol in 2017 and 2021.

It’s important to note that these updates were not developed with the purpose of enabling these new types of NFTs.

However, since both updates increased the amount of data stored in a block — meaning there is now space to store images, videos, and even games — it inadvertently made the deployment of Ordinal NFTs possible.

3. Analysis of several new Bitcoin Layer2 on the market

With the popularity of cryptocurrencies, there have been many Bitcoin Layer2 related projects. Today, we will not comment on the existing Bitcoin Layer2 ecosystem, but rather analyze a few projects from this week.

This article does not provide any investment advice, it is only my opinion on new projects. Due to the high risks associated with new projects, please do your own research. It is possible that a project may shut down shortly after I finish writing this, so always be prepared for the worst.

Since new projects require a large number of users to participate, before the projects are implemented, the technical innovations mentioned by the projects are usually only available in whitepapers or PPTs. Therefore, the most common way for projects to attract more attention is through marketing. So, we will focus on strong marketing and weak technical aspects in the following content.

（1）BL2（@BL2_official）

This week, BL2 launched on the Turtsat platform and gained a lot of popularity through whitelist giveaways.

From a technical perspective:

BL2 is built on the VM general protocol and the BTC security layer, aiming to establish a dynamic BTC Layer 2 ecosystem by creating dApps and smart contract platforms.

The project will be compatible with EVM and introduce assets from the Ethereum ecosystem through cross-chain bridge applications, fully integrating the BTC and ETH ecosystems.

Personal opinion:

BL2 is working on a fundamental protocol and preparing to create a BTC smart contract platform compatible with EVM, which will take some time for technical development. The project is currently not open source, and there is no information about its funding. Currently, they are only preparing to launch their own token and have done a good job in terms of marketing, but there is a certain market risk involved.

（2）B² Network（@BsquaredNetwork）

B² Network is preparing to create a Rollup based on Bitcoin’s zero-knowledge proof that is compatible with the Ethereum Virtual Machine (EVM). This Rollup will serve as a blockchain platform.

In terms of marketing:

B² Network has also done a good job, but not as impatient. They have experimented with a “Christmas NFT” to test the waters, and the results were good. Currently, they have not adopted the IDO method to attract users, but have developed a task system and plan to launch tokens through airdrops. The project has also launched a million Grant program to attract more Dapps to join.

Personal opinion:

In terms of operations, B² Network follows the Ethereum Layer 2 approach, using airdrops to attract users, attracting project parties to settle in, and then financing (it seems to have already received financing).

（3）ZTC Global（@ZTCGlobal）

From a technical perspective:

ZTC Global utilizes various technical protocols such as BRC-20/BRC-Y and BRC-420 to develop a Bitcoin Layer2 platform with no low Gas fees. The platform plans to first develop two games and a SocialFi to attract users, while simultaneously attracting other Dapps to join and complete the ecosystem.

Current progress: ZTC has currently issued a set of inscriptions (nearly 80U per card), with almost 70% already minted. According to official announcements, ZTC will end the minting process on January 7th at 24:00 UTC-8 and then proceed to develop secondary transactions. After the inscription minting process is completed, placing orders and engraving will not require any gas fees.

Inscription purpose:

According to the official whitepaper, inscription holders will receive token, NFT, and WL airdrops before the games go live.

Marketing:

ZTC Global is not a project that excels in marketing, therefore the project does not have high popularity, coupled with a long minting period. This has allowed competitors to take advantage and attack the project’s weakest points, causing the market to have two different opinions about the project, both positive and negative.

Personal opinion:

ZTC still has great potential as the project team has already burned 70% of the tokens. Tomorrow, the minting process will end and trading will commence. However, the future development of the project mainly depends on the progress of technical development. If you hold inscriptions from the project team, you can decide whether to stay or leave based on the situation after the inscription trading opens.

4. Summary

Bitcoin Layer2 is not a completely new concept.

Many layer 2 technologies have emerged in the past 10 years, and many of them have achieved great success. However, those protocols were projects that were pushed from top to bottom before the Ordinals protocol appeared.

Since 2019, the Bitcoin community has seen the tremendous success of the Ethereum ecosystem and believed that the narrative on Ethereum could be replicated on BTC. At that time, it was a phase of exploration and experimentation.

The emergence of the Ordinals protocol made the Bitcoin Layer2 concept possible. This attracted the attention of community developers, entrepreneurs, VCs, and institutions.

More hot money entered, bringing a more prosperous ecosystem market, which has a significant impact on the development of BTC. This will increase the market value of BTC or activate BTC’s L2.

Now there are many new Bitcoin Layer2 projects, and I am optimistic about this field, so I have been researching in this direction. Currently, I only include three projects with high popularity this week for personal analysis.

There are always risks in projects, so the analysis does not represent investment advice. We welcome corrections or the introduction of other BTC L2 conceptual projects in the comments section. Let’s exchange ideas!

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