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@ BEVM｜BTCLayer2
2024-11-20 04:10:19PeterG (X: PeterG2100) November 19, 2024
TLDR
1. Limitations and Controversies of Layer2:
- Bitcoin’s Layer2 (e.g., Lightning Network) does enable off-chain scaling by leveraging Bitcoin’s UTXO model and SPV (Simple Payment Verification) mechanism, but it lacks substantial innovation.
- Ethereum’s Layer2, while sharing Ethereum’s security, fails to address the core issue of scaling and primarily serves to expand token use cases.
- The article criticizes Layer2 as more of a business tool for project teams, disconnected from decentralized consensus mechanisms, offering minimal actual value to retail users.
2. Why Bitcoin Doesn’t Need Layer2: - Bitcoin’s core value lies in its self-sufficiency and decentralized network. - Expansion solutions (e.g., WBTC) primarily aim to integrate Bitcoin’s value into the broader crypto ecosystem. - Bitcoin’s network does not require additional technological improvements; most expansion proposals lack originality and risk deviating from Bitcoin’s decentralized ethos.
3. Future Narrative of Bitcoin: - Bitcoin’s transformation from "digital gold" to "on-chain currency and governance system for AI" is seen as its key future direction. - The Bitcoin network can act as critical infrastructure for decentralized governance in an era where humans and AI coexist. The Super Bitcoin vision posits that Bitcoin’s growing consensus capabilities and security make it uniquely suited to meet future AI governance needs.
4. Shift in Entrepreneurial Focus: - The article suggests that Bitcoin’s network potential remains underexplored. Future entrepreneurial opportunities lie in leveraging its decentralized control system for AI safety and public governance. - Bitcoin Layer2 is losing appeal, while the Bitcoin network itself offers broader developmental possibilities.
Conclusion: Bitcoin Layer2 has limited value as a scaling tool, serving more as a narrative and business strategy. Bitcoin’s future lies in its decentralized network’s ability to support broader societal, technological, and governance demands. This perspective represents the deeper value Satoshi Nakamoto envisioned for Bitcoin.
When I wrote the title, I knew it would upset many people. However, I may have simply pointed out an inconvenient truth no one wants to admit.
Since June 2023, I’ve been closely following the Bitcoin Layer2 space, dedicating significant time to studying Bitcoin’s scaling technologies. I’ve tracked several technically sophisticated teams like Stacks, BEVM, Bihelix, Bool Network, and solutions like BitVM and RGB.
After thorough research, I realized that Bitcoin Layer2 might indeed be a fallacy. The reality is that Bitcoin doesn’t need Layer2—rather, the crypto industry needs Bitcoin. Moreover, Layer2 solutions are fundamentally just business ventures, not blockchain innovations. Most importantly, Layer2 doesn’t genuinely help scale Layer1; it merely repurposes Layer1 tokens for applications, often by copying existing Layer1 use cases without introducing new ideas.
My first validation of this perspective came from BEVM’s Super Bitcoin whitepaper. I’ve followed this Bitcoin startup team since June last year. They were among the earliest promoters of Bitcoin Layer2 in the Chinese-speaking world. Yet in 2024, they pivoted 180 degrees, abandoning the Layer2 direction entirely in favor of a new strategy called Super Bitcoin. For details, you can refer to their latest whitepaper—it’s quite an interesting read. Why did one of the earliest proponents of Bitcoin Layer2 abruptly change course? Is Layer2 truly a fallacy? And what is Bitcoin’s ultimate narrative? Let me share my insights.
Layer2: A Misguided Demand That Doesn’t Scale Layer1
The concept of Layer2 originated with Bitcoin. Satoshi Nakamoto described "Simple Payment Verification" (SPV) in Chapter 8 of the Bitcoin whitepaper. SPV allows transactions to be verified without downloading the entire blockchain, enabling efficient off-chain transaction validation.
This idea gave birth to the Lightning Network, which fully implements SPV principles. The Lightning Network is meaningful because it’s fast, cost-efficient, and inherits Bitcoin’s network security, effectively providing genuine transaction scaling for Bitcoin.
Ethereum later adopted a similar Layer2 model. However, while Ethereum Layer2 solutions share Ethereum’s security, they fail to genuinely scale Ethereum. Instead, they only expand use cases for the ETH token, with no real innovation.
The Lightning Network achieves Bitcoin "scaling" via SPV and Bitcoin’s UTXO model, which contrasts sharply with Ethereum’s account-based model. Any Layer2 solution is inherently incapable of addressing the limitations of Ethereum’s account-based model.
Here’s a simplified explanation:
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Bitcoin’s UTXO model mirrors cash transactions between individuals. Transactions can be conducted in parallel and verified locally without requiring global consensus or centralized entities. This model allows concurrent processing and localized state changes without needing a unified global state tree.
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Ethereum’s account model resembles traditional banking accounts, requiring a global state tree to compute balances and update states for each transaction. This reliance on a global state tree hampers Ethereum’s ability to process transactions in parallel.
For Ethereum to achieve true scaling, it must fundamentally improve the efficiency of state updates. Currently, no Ethereum Layer2 solution addresses this issue because it’s intrinsic to Ethereum’s design.
Recent proposals like Ethereum’s BeamChain attempt to integrate SNARKs (Succinct Non-Interactive Arguments of Knowledge) to enhance verification efficiency by compressing and limiting the data requiring validation. While this can partially improve state update capabilities, it doesn’t solve the core problem of Ethereum’s dependence on the global state tree. BeamChain merely accelerates a single-lane highway, whereas Bitcoin’s UTXO model offers unlimited parallel lanes.
In short, Ethereum Layer2 can’t truly scale Ethereum. Ultimately, Ethereum must address its own limitations. Meanwhile, Bitcoin’s Lightning Network is not a Layer2 solution per se but an application leveraging Bitcoin’s inherent UTXO and SPV capabilities for faster transactions. Thus, neither Ethereum Layer2 nor Bitcoin Layer2 fundamentally scales Layer1. At best, Layer2 solutions create new use cases for Layer1 tokens without altering Layer1 itself.
Layer2: A Business Model, Not a Blockchain Revolution
A glaring issue is that most Layer2 solutions are centralized. Layer2 lacks consensus mechanisms and nodes; it operates solely via an official sequencer controlled by the project team.
Essentially, all Layer2 solutions are private chains without miners or consensus mechanisms.
For instance, a typical PoS chain token serves purposes like staking for nodes, paying gas fees, or participating in governance. In contrast, Layer2 tokens lack node staking (no consensus, no nodes), rely on Layer1 tokens for gas, and have only speculative governance utility. With Layer2 being centralized, what governance is there?
Moreover, since Layer2 sequencers are controlled solely by the project team, they collect all gas fees. This revenue model is often more lucrative than token issuance. For example, before launching its token, ZKSync generated $3–5 million monthly in gas fees, totaling $72–100 million in two years—possibly more than they’ll earn post-token launch.
This is why I say Layer2 is just a business. Users chase token airdrops while projects profit from gas fees, ultimately leaving users with tokens of little utility.
Seeing this, more players are building their own Layer2 solutions, including giants like Samsung, Visa, and crypto projects like Uniswap with its UniChain. These entities realize they can monetize their own ecosystems rather than enriching third parties. For instance, Coinbase’s Layer2 initiative makes perfect sense given its vast user base.
However, this commercialization of Layer2 has little relevance to retail users. It’s a business model for Layer2 operators, with users as consumers. Layer2 tokens struggle to gain consensus, and this centralization explains the waning interest in both Ethereum and Bitcoin Layer2.
Bitcoin Doesn’t Need Layer2; The Crypto Industry Needs Bitcoin
The largest crypto project leveraging Bitcoin is WBTC, which exemplifies the industry’s need for Bitcoin’s "digital gold." Before WBTC, Ethereum’s financial ecosystem was isolated from Bitcoin. With Bitcoin dominating over 50% of the crypto market, integrating Bitcoin became essential for other ecosystems.
However, this integration reflects the industry’s need for Bitcoin, not Bitcoin’s need for expansion. Bitcoin’s intrinsic value lies in its sufficiency and decentralization. Expansion solutions largely rehash existing ideas with little innovation.
Realizing this, I’ve lost interest in schemes to "improve" or "expand" Bitcoin. Bitcoin doesn’t need these solutions. The crypto industry—and perhaps humanity—needs Bitcoin.
Bitcoin’s Ultimate Narrative: Beyond Digital Gold
A profound question emerges: Can Bitcoin exceed $1 million by evolving beyond "digital gold"? The answer lies in Bitcoin’s role as on-chain currency for AI and its decentralized governance mechanism for AI systems.
The Super Bitcoin whitepaper suggests that Bitcoin’s decentralized state transition machine, powered by ever-growing mechanical consensus, can meet the governance and security demands of a future AI-driven world. As the most decentralized system, Bitcoin offers trust and reliability unmatched by any other network.
This vision extends Bitcoin’s narrative to its second growth curve: transitioning from "digital gold" to "on-chain AI currency and governance system." By aligning Bitcoin with humanity’s and AI’s future needs, this narrative maximizes Bitcoin’s value.
Conclusion
Bitcoin Layer2 is an outdated, uninspiring entrepreneurial direction. As Bitcoin becomes a national reserve currency, its network’s untapped value offers unparalleled opportunities. The future lies in harnessing Bitcoin’s decentralized network for broader societal, technological, and governance needs. This may be the true legacy Satoshi Nakamoto left for humanity—a vision of trust, decentralization, and infinite potential.
Satoshi Nakamoto may truly have come from the future.