July 15, 2024
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Crypto

Exploring Bitcoin L2: Possibilities Beyond Lightning

Bitcoin's secondary layers are often overlooked despite their undoubted potential to enhance Bitcoin's potential for even more advanced functionality. Much of the focus is on the lightning network and its ability to handle microtransactions at high speeds.

However the secondary layers (or layer 2) can efficiently manage smart contracts, leverage cryptographic techniques for advanced privacy, and establish decentralized identity and access solutions that are connected to the blockchain.

This article will explore these fascinating layers and their potential use cases, considering how they may define the future of Bitcoin beyond currency transactions. Bitcoin's secondary layers are expected to provide the backbone of a complex ecosystem that accelerates the growth of decentralized applications.

What are the secondary layers of Bitcoin?

The terms primary layer and secondary layer refer to the different networks within a single blockchain, the shared database that powers cryptocurrencies and other projects.

The primary layer (layer 1), sometimes referred to as the main chain or “mainnet”, is the blockchain itself and is fundamental to all operations. On the other hand, the secondary layers (layer 2) are Secondary networks that are developed on the blockchain (layer 1), allowing third-party integrations.

Secondary layers help reduce the load on the blockchain Leveraging your strengths and overcome its limitations. These networks can process transactions externally which are then sent back to the blockchain for processing and confirmation. As a result, the overall capacity of the blockchain can be increased, resulting in greater usability and functionality.

The best known secondary layer is The Lightning Network which uses state channels (a solution we will discuss later) to enable microtransactions over the blockchain. This involves users sending Bitcoin payments over an encrypted peer-to-peer (P2P) channel that works similarly to smart contracts, creating a simple, efficient, and more cost-effective channel between sender and receiver.

What are the key benefits of Bitcoin secondary layers?

There are three keys Benefits of Bitcoin Secondary Layersto increase scalability and expand the functionality of the blockchain, while making it easier for businesses to comply with financial regulations.

Increased scalability

A single set of transactions can take about ten minutes to process on the Bitcoin network, with an average of about seven seconds per transaction. This can result in network congestion during peak hours and lead to higher transaction fees, affecting the viability of microtransactions and point-of-sale transactions.

The Bitcoin blockchain cannot be scaled, as this compromises security and decentralization, the two main pillars of the network. Due to the high volume of transactions on the network, secondary layers are being leveraged more to process transactions “off-chain” reduce stress on the primary layer.

In terms of decentralized applications, by distributing data across a network of nodes, secondary layers reduce the risk of centralized points of failure and attacks, improving overall quality. Security of application deployment processesas well as patches, updates and all other forms of changes.

Improved functionality and usability

The Bitcoin network is designed to enable transparent P2P transactions and provide the resources for the digital currency to continue growing in value. By focusing solely on these two core functions, the Bitcoin network remains robust and secure, preventing any possibility of manipulation.

However, this would limit future innovations if it were not for the secondary layers. Thanks to layer 2, third-party developers can Increase Bitcoin's functionalityexpanding their use cases and leveraging new web3 technologies like NFTs and, of course, smart contracts.

Compliance

With more secure payment channels, adhere to regulations It becomes much easier and cheaper. Compliance is a key consideration for any business accepting cryptocurrency payments.

Secondary layers and blockchain, both in its current and future iterationscould be the key to establishing many tracking and security features that site owners and businesses need to use to PCI Compliant Hosting (if they accept payments) or spend six-figure sums on large quantities of testing.

How Bitcoin Secondary Layers Work

Secondary layers can work in different ways and there are three main layer 2 solutions that you should be aware of to help understand the processes.

  • State Channels – This solution allows users to avoid high transaction fees by providing end-to-end encrypted payment channels to send and receive Bitcoin. state channels They are effectively micro-ledgers and only the opening and closing balance is reported to the blockchain once the payment channel is closed, allowing users to make unlimited transactions without incurring transaction fees.
  • Sidechains: Sidechains are an independent blockchain that creates a two-way bridge to the blockchain. This makes it possible to easily and quickly transfer data assets between different transaction chains. As an independent blockchain, sidechains can also integrate other secondary layer solutions.
  • Rollup Chains: Rollup chains also allow users to perform a large number of transactions off-chain, merging individual transactions into a single block of data that is then reported to the blockchain. There is Two types of roller chains, optimist and ZK. Optimistic rollups automatically validate all consolidated transactions, while ZK accumulations generate a single cryptographic proof as validation.

Developing safer and faster systems is essential for both small and medium-sized businesses. Company Level where organizations rely on complex processes such as changing ERP software or Performing staff augmentation in Workday. As third-party sub-layers become even more advanced, these companies are likely to become increasingly reliant on blockchain rather than cloud solutions, further accelerating the growth of the Bitcoin ecosystem.

What are some of the most popular secondary layers?

We have already talked about the most popular secondary layer, the Lightning NetworkSo, to provide a more detailed overview of Layer 2 capabilities, we will focus on some of the other commonly used solutions.

Rootstock (RSK)

As a popular sidechain, Rootstock (RSK) is at the forefront of smart contract functionality on the Bitcoin blockchain. 'two-way plug' system It involves a user sending Bitcoin directly to RSK, where it is stored and secured in a digital wallet such as Smart Bitcoin (RBTC). Users can then withdraw RBTC from the regular Bitcoin blockchain.

RSK offers significantly faster transaction speeds than the Bitcoin network and also supports Ethereum Virtual Machine (EVM)allowing smart contracts to be executed on the Ethereum-style blockchain.

liquid network

Liquid Network is a solution that improve transaction speed but also takes advantage of cryptographic techniques to Improving the privacy of Bitcoin paymentsIt is another sidechain solution and works alongside the blockchain but uses its own native asset Liquid (L-BTC) instead of the standard Bitcoin. Liquid Network also uses a two-way peg like RSK, converting BTC into L-BTC.

RGB

RGB is a smart contract protocol and a secondary layer of Bitcoin that is linked to the Lightning network. Allows users on a Lightning network design contractual agreements with the option to create an issuing token or not. This system offers high speeds and low fees while using the primary blockchain as a control mechanism for ownership and confidentiality.

By interacting with the Bitcoin blockchain and the Lightning network, RGB enables further development of third-party solutions to investigate advanced automation at the blockchain level and further reduce transaction fees.

Battery protocol

This protocol allows for the automatic execution of smart contracts without the need to use a hard fork, an adjustment to the Bitcoin blockchain that creates an entirely new blockchain. Hard forks can often disrupt communities and cause instability, so they are usually avoided.

Instead, the Stacks protocol uses microblocks that provide high speeds and work in A unique proof-of-transfer (PoX) mechanism to connect them to the Bitcoin blockchain. This makes it extremely easy to execute smart contracts and decentralized applications without leaving the Bitcoin ecosystem.

Conclusion

The Bitcoin blockchain (its main layer) has many limitations as it is designed solely to facilitate secure P2P transactions. That is why secondary layers are required to allow third-party integrations to work alongside the blockchain to provide innovations.

These layers can generate lower transaction speeds, faster processing times with minimal network congestion, and integrate advanced cryptographic privacy techniques.

In the future, secondary layers are expected to facilitate even greater growth, supporting the Bitcoin ecosystem to integrate a range of advanced, decentralized applications that can revolutionize P2P transactions, point-of-sale payments, and much more.

This is a guest post by Kiara Taylor. The views expressed are solely her own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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