BTC Sidechain and UTXO + Client Verification

Last year, because of the popularity of Inscription, everyone began to shift their attention from Ethereum to Bitcoin, especially institutions, which began to spend money to lay out the Bitcoin ecological infrastructure. Recently, BEVM, BOB and other Bitcoin Layer2 completed projects ranging from millions, up to tens of millions of financing, coupled with the recent launch of Nervos’s RGB++ and the casting of Seal, making CKB (Common Knowledge Base) a Bitcoin Layer2 network, which is the first layer of the Nervos Network and is responsible for storing all transactions. Data and smart contracts) are soaring in popularity.

Today, let’s learn about Bitcoin Layer2. There are many Bitcoin Layer 2 currently on the market. We simply divide them into four categories: Bitcoin sidechain, UTXO+ client verification, Roullp and Taproot Consensus. This article is divided into upper and lower parts. Let’s introduce the first two categories today.

01. The goal of Bitcoin Layer2

As the leader of crypto, Bitcoin can outperform 95% of assets after a round of market trends. However, everyone is still not satisfied with the status quo and hopes to give Bitcoin more things. Compared with other public chains, Bitcoin has problems such as slow transaction speed, long confirmation time, high transaction fees during congestion, and limited smart contract functions, making it impossible to directly build complex applications.

Bitcoin Layer2 is an additional layer built on top of Bitcoin to increase transaction speed, reduce transaction costs and increase scalability. It achieves these goals by processing transactions off-chain and saving intermediate state. This speeds up transaction confirmations, reduces transaction fees, and increases overall system capacity and throughput. Layer2 aims to improve the performance of Bitcoin and make it more suitable for a wide range of applications.

02. Bitcoin sidechain

The Bitcoin sidechain is an independent blockchain system connected to the Bitcoin main chain. It is generally an independent blockchain connected to the main chain through a two-way cross-chain bridge. It allows users to lock Bitcoin on the main chain and then conduct transactions and operations on the sidechain.

Through sidechains, users can achieve more flexible and diverse functions, such as supporting other crypto-asset payments, stateful smart contracts, faster settlement and higher privacy. However, because the sidechain requires a set of independent verification nodes and needs to verify transactions by itself, it will face problems such as too few nodes, centralization, and the inability to inherit the security of Bitcoin. The following are some representative projects of sidechain development:

Stacks

Stacks is positioned as the smart contract layer of Bitcoin, aiming to introduce smart contracts and Dapps into the Bitcoin system, and connect itself to the Bitcoin main chain through the unique Proof of Transfer (PoX) consensus mechanism. Stacks allows developers to build smart contracts and DApps. In the technical architecture of Stacks, there are core layers and subnets to choose from. The core layer is highly decentralized but has lower throughput, while the subnets are less decentralized but can achieve higher throughput.

Stacks uses the Clarity smart contract language to create Dapps and performs Nakamoto upgrades to improve network performance. The Nakamoto upgrade allows Stacks to not only settle Bitcoin transactions but also achieve 100% resistance to Bitcoin reorganization and speed up block production. It issues stablecoins based on SBTC to increase DeFi composability. Stacks aims to achieve a high degree of decentralization and scalability and bring smart contract functionality and Dapp capabilities to the Bitcoin system.

The current ecosystem of Stacks has been developed for 5 years, but most projects have received mediocre response or are in a stagnant state. Stacks’ Nakamoto upgrade has been in development for a long time and is expected to launch on mainnet at the end of the month. Its Token STX is currently the leader in Bitcoin Layer 2, with a market value of nearly 5 billion US dollars.

RSK

RSK (Rootstock) is positioned as Bitcoin Layer2 that supports smart contracts and focuses on DeFi. RSK has no native Token and introduces RBTC as payment transaction fee. The goal is to become the cornerstone of financial inclusion.

RSK utilizes the security of Bitcoin to protect smart contracts and transactions by merging production blocks, where Bitcoin block producers mine both Bitcoin and RSK blocks at the same time. It is compatible with the Ethereum Virtual Machine (EVM). Developers can use Solidity to write smart contracts and port Ethereum Dapps to RSK. In addition, RSK has established a RIF network to provide various infrastructure services such as DeFi, storage, domain name services and payment solutions to meet user needs.

At present, except for RIF, no other ecological projects have emerged, and their performance is weak. RSK launched the third batch of funding plans last month, with a total amount of US$2.5 million.

Liquid Network

Liquid is a Bitcoin sidechain and transaction settlement network launched by Blockstream. Its goal is to provide functions such as fast settlement, strong privacy and digital asset issuance. It serves institutions and asset issuers, provides asset issuance and circulation services based on Bitcoin sidechains, and promotes faster Bitcoin transactions and Tokenization of digital assets. Liquid focuses on simple protocols, security, and privacy. Liquid is similar to RSK mentioned above in that they both rely on alliance multi-signatures to issue anchor tokens, but the degree of decentralization is different. In addition, Liquid focuses more on security, while RSK focuses more on usability.

Liquid is considered a consortium chain because it is a sidechain for institutional services. In addition, it is mainly used for asset issuance and transactions and is not friendly to smart contract functions.

Lightning Network

The Lightning Network is a scaling solution built on the Bitcoin network and is designed to increase the speed of Bitcoin transactions, but its network does not support smart contracts. It enables fast and cheap micropayments by introducing Layer2 payment channels. In the Lightning Network, participants can open a special payment channel and conduct multiple transactions within the channel without recording each transaction on the Bitcoin blockchain. Only when the channel is closed will the final transaction results be submitted to the Bitcoin main chain for settlement.

Through the Lightning Network, users can make almost instant payments without having to wait for confirmation from the Bitcoin main chain. This can greatly increase the speed of transactions and reduce transaction fees. Lightning Network uses smart contract technology and multi-signature mechanism to ensure the security of transactions between participants.

Application scenarios of Lightning Network include micropayments and games. It provides users with a convenient, fast and low-cost payment method, and also provides developers with a platform to build applications based on the Lightning Network.

On April 3, Coinbase partnered with Lightning Network payment solutions provider Lightspark to integrate the Bitcoin Lightning Network for all of its customers. Currently, there is nearly $320 million in USD capacity in Lightning Network payment channels.

Overall, the Layer2 of the Bitcoin sidechain track is composed of relatively “old” projects, and although they have been in the works for a long time, the actual progress is not satisfactory, and they are relatively behind in terms of technology and implementation. .

03. UTXO+client verification

UTXO+ client verification is a scaling solution for the Bitcoin UTXO account model (UTXO: Unspent Transaction Output, which can be simply understood as a receipt that has not been used. It attempts to perform off-chain ledger calculations based on Bitcoin UTXO, and the authenticity of the ledger is ensured through client verification. The goal of this solution is to retain the original characteristics of Bitcoin while achieving layer2 ledger sharing and security.

But in fact, the implementation of this plan is very difficult. Because Bitcoin is not designed to support complex calculations, and it is very complicated to integrate additional tasks into the UTXO model. This solution emphasizes the native nature of Bitcoin, but may ignore the feasibility and difficulty of actual operation.

Currently, most projects on this track are still in the white paper stage and have not made much progress. Some representative projects are introduced below:

RGB

RGB is a Bitcoin Layer2 solution designed to be built based on the Bitcoin UTXO model and the Lightning Network. Its goal is to encapsulate data compression into each UTXO of Bitcoin and ensure asset security through client-side verification.

The design idea of ​​RGB is to bind off-chain RGB transactions with the UTXO of Bitcoin transactions. It combines RGB’s asset ownership and status with Bitcoin’s UTXO operations and control by sealing proof of RGB transactions and asset ownership in Bitcoin’s UTXO. However, the development of RGB is progressing slowly because the multiple technical points involved are difficult to implement. Although RGB is considered an orthodox solution, its implementation difficulties and functional limitations slowed its development progress.

RGB++

The RGB++ is a protocol proposed by Nervos Lianchuang at the beginning of the year inspired by the RGB protocol. With the main idea similar to RGB, it also calculates, executes and verifies transactions off-chain, and then settles on the Bitcoin chain. The difference is that RGB++ adopts different ideas in verifying transactions and assets.

Nervos takes advantage of the same POW+UTXO structure as Bitcoin and combines it with the innovative “isomorphic mapping” technology to successfully replace the client verification of the RGB protocol with CKB. In this way, Nervos maintains security and Bitcoin While using the same currency, it also realizes the expansion of the functions and flexibility of the RGB protocol. This migration does not sacrifice too much privacy while providing users with more ways to use and manage digital assets. RGB++ can obtain Turing-complete smart contract execution capabilities while reusing the security of Bitcoin.

In this way, CKB becomes the execution layer and DA data layer of RGB++ assets. However, it not only supports the RGB++ protocol but also other Bitcoin layer-one assets such as Runes and Atomical, as long as they are based on the UTXO accounting model.

Recently, CKB has gained popularity, and here we briefly introduce UTXO Stack, developed by a company incubated by the Nervos ecosystem fund. UTXO Stack is a Bitcoin Layer2 issuance platform based on the UTXO model, aiming to help developers quickly build Bitcoin Layer2 chains based on the UTXO architecture. It provides a modular toolkit that allows developers to easily construct their own Layer2 chains and integrate them into the Nervos ecosystem.

UTXO Stack also natively supports the RGB++ protocol and utilizes CKB as the data availability layer, bringing more application scenarios and development opportunities to the Bitcoin ecosystem. This architecture enables RGB++ protocol and UTXO Stack to work together, providing strong technical support for the development of the Bitcoin ecosystem.

BitVM

BitVM is a concept proposed by Robin Linus, the leader of the ZeroSync project, aiming to enhance the programmability of Bitcoin. It enables developers to run complex contracts on the Bitcoin network without altering the basic rules and consensus mechanisms of Bitcoin. Currently, it is still in the theoretical stage.

BitVM provides a method for implementing complex contracts on the Bitcoin network while maintaining its security and decentralization. By introducing new concepts and roles for virtual machines, it offers developers more programming capabilities and innovation space. To increase flexibility, BitVM needs to move most computational processes off-chain and only include relevant proofs on-chain. The core idea is to abstract complex smart contracts as fraud proofs and execute these proofs on the Bitcoin script. Users can initiate challenges when asset transactions encounter problems and verify the authenticity of transactions through fraud proofs.

Currently, the practical feasibility and technical details of BitVM are still controversial and require further observation and research.

04. Summary

In conclusion, although there is optimism about the future development of Bitcoin Layer2, existing Layer2 projects are currently lukewarm. New projects, due to their technical complexity, are mostly in the whitepaper stage and still have a long way to go before implementation. The recent emergence of RGB++ has attracted some attention. What are your thoughts on the future development of RGB++? Feel free to comment and discuss.

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1. This article originally titled “Overview of Popular BTC Layer2 Projects: BTC Sidechain and UTXO + Client Verification” is reproduced from [anews]. All copyrights belong to the original author [Day]. If you have any objection to the reprint, please contact the Gate Learn team, the team will handle it as soon as possible.

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