Why is it said that the Bitcoin ecosystem will definitely surpass the Ethereum ecosystem?

Preface:

The Bitcoin ecosystem is not built on Layer 1. The Bitcoin blockchain is not Turing complete. Moreover, Bitcoin's minimalist UTXO and limited block space cannot handle complex data and calculations. Therefore, Layer 2 is necessary for Bitcoin to develop its ecosystem, and it must be a completely decentralized Bitcoin Layer 2. Several major upgrades of Bitcoin in the past 15 years have brought many technological innovations, but they have been ignored. Therefore, most people believe that the Bitcoin ecosystem cannot create a completely decentralized Layer 2 that can support large-scale ecological applications. This is a lack of awareness of the development of Bitcoin, a lack of understanding of the nature of Layer 2, and arrogance and prejudice towards the Bitcoin ecosystem.

The biggest obstacle to people's progress is arrogance and prejudice. I advise you to put aside your arrogance, learn with an empty cup, and correct your cognition. This article is to restore the reputation of decentralized Bitcoin Layer2.

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1. What is Layer2? What is the essence of Layer2?

The concept of Layer2 is well known because of the Ethereum ecosystem. However, the concept of Layer2 is not original to the Ethereum ecosystem, but comes from Bitcoin.

The original version of the code is retained in the Bitcoin 0.1 code, which was left by Satoshi Nakamoto. This code allows users to update transactions before they are packaged and confirmed by miners. If the balance of one user increases, the balance of another user will decrease accordingly. Once the user completes the transaction, they can only transmit a transaction result to the main chain network and then close their payment channel. Based on the "payment channel", the Lightning Network was later born. The Lightning Network is the earliest Layer2 of Bitcoin and the earliest and feasible Layer2 in the crypto world.

Therefore, when we talk about what Layer2 is, we cannot just follow the lead of Ethereum Layer2, nor can we use Ethereum Layer2 as the only criterion (after all, it took two years of development for Ethereum Layer2 to basically determine the feasibility of the design direction of roullp), but we should see the essence through the phenomenon and understand what the essence of Layer2 is. Only in this way can we design a practical Layer2.

Whether it is Bitcoin Layer2 or Ethereum Layer2, the background of their birth is that when the Layer1 main network cannot realize more complex and high-performance application scenarios, it is necessary to jump from Layer1 assets to Layer2 for implementation. Ethereum needs Layer2 to expand its performance, and Bitcoin needs Layer2 even more. For example, BTC can realize fast and efficient payment scenarios in the Lightning Network; ETH can cross to Arbitrum for faster, lower Gas and more complex smart contract scenarios.

Therefore, whether it is Bitcoin Layer2 or Ethereum Layer2, their essence is the same, which is to allow Layer1 mainnet assets to cross to Layer2 to achieve more complex and high-performance application scenarios. Therefore, the essence of Layer2 is a decentralized cross-chain solution + a high-performance and trustless second-layer network.

Therefore, whether it is Bitcoin Layer 2 or Ethereum Layer 2, some basic principles must be followed during design:

1. It is necessary to realize that Layer1 assets can cross to Layer2 without trust. This is the most important first step.

2. The ledger of the Layer2 network must be secure and trustless.

Only when the above two conditions are met at the same time can it be a practical and fully decentralized Layer2.

2. What are the similarities and differences in design between Bitcoin Layer2 and Ethereum Layer2?

Now that we have figured out the essence of Layer2 and the basic principles of Layer2 design, let’s take a look at the similarities and differences between Bitcoin Layer2 and Ethereum Layer2 in actual design.

1. It is necessary to realize the trustless transfer of Layer 1 assets to Layer 2

Cross-chain method between Ethereum Layer1 and Layer2: Layer2 officials first deploy a smart contract for custodial assets on the Ethereum mainnet. When a user transfers ETH from the Ethereum mainnet to Layer2, the user's ETH is locked in the smart contract and generates new ETH on the Layer2 network at a 1:1 ratio. When the user issues an instruction to cross back to the mainnet, the ETH on Layer2 is destroyed, and the smart contract on Layer1 is triggered to unlock the ETH to the user. This is the cross-chain implementation method of Ethereum Layer1 and Layer2. It is implemented through Ethereum's smart contracts and Layer1 and Layer2 network communications, and can achieve trustlessness.

So, how does Bitcoin's Layer2 achieve trustless BTC cross-chain?

Before the Bitcoin Taproot upgrade in 2021, it was not possible to achieve fully decentralized BTC cross-chain. However, the Taproot upgrade brought Schnorr signatures and MAST contracts, making fully decentralized Bitcoin cross-chain a reality.

Schnorr signature is a signature algorithm that is more suitable for Bitcoin than elliptic curve signature. Ethereum has always wanted to support this signature, but because upgrading the signature algorithm involves complex issues such as Ethereum's account system, Ethereum has not been upgraded to Schnorr signature. The biggest feature of Schnorr signature is the aggregate signature, which can realize 1,000 Bitcoin addresses to sign and manage the same asset. It can not only achieve the privacy of the signature, but also allow the data submitted by 1,000 signatures to be combined into one, completely solving the data accumulation problem caused by multiple signatures. Therefore, Schnorr signature can break through the original Bitcoin limit of up to 15 multiple signatures and realize completely decentralized signature management.

The Mast contract, full name Merkle Abstract Syntax Tree, uses the Merkle tree to encrypt complex locking scripts. Its leaves are a series of non-overlapping scripts. When spending, only the relevant scripts and the path from the script to the root of the Merkle tree need to be disclosed.

Simply put, Mast contract is equivalent to the function of VM (smart contract function), which can execute the given operation through instructions. For example, the combination of Mast contract + Schnorr signature can trigger Mast contract to let 1,000 nodes participating in decentralized asset management sign, so as to intelligently execute the entry, exit and spending of Bitcoin according to the rules set by the contract. There is no human intervention here, and it is completely executed by contract, thus realizing the decentralized management of Bitcoin. For details, please refer to the BEVM white paper: https://github.com/btclayer2/BEVM-white-paper

Let’s take the BTC Layer2 project BEVM as an example to see how the real BTCLayer2 achieves fully decentralized cross-chain?

When a user transfers BTC from the Bitcoin mainnet to BEVM, the user's BTC enters the contract address of 1,000 nodes. Then, at the same time, new BTC is generated in BEVM, the BTC Layer2 network, at a 1:1 ratio. When the user issues an instruction to transfer BTC from BEVM back to the mainnet, the BEVM network node will trigger the Mast contract, and the 1,000 nodes that manage assets will automatically sign according to the established rules and return BTC to the user's address. The entire process achieves complete decentralization and trustlessness.

From the above content, it can be seen that by using the combination of Mast contract + Schnorr signature brought by Taproot, Bitcoin can also achieve completely trustless cross-chain like Ethereum Layer2. This is the most important first step to achieve a fully decentralized BTC Layer2.

2. The ledger of the Layer2 network must be secure and trustless.

The ledger of Ethereum Layer2 is managed by the sorter. When processing transactions, the Layer2 ledger is roullp'ed and packaged to the Ethereum main network according to a certain ratio, generally 10:1, and then verified by the Ethereum node. However, the Ethereum Layer2 sorter (that is, the running node of the Layer2 network, generally only one node) is completely centralized and is operated and controlled by the Layer2 official. How can such a centralized design gain user trust? It is mainly through packaging the Layer2 ledger roullp to the Ethereum main network for miner nodes to verify. If the user does not trust the ledger, he can verify the ledger by initiating an off-chain report. Therefore, Op-Roullp is also called optimistic proof, which means that its trust assumption is optimistic that the official will not do evil. If it does evil, it can be proved by reporting. These combined designs can basically ensure that the Layer2 ledger is credible, but this also means that assets such as ETH on Ethereum Layer2 are not censorship-resistant and can be forcibly frozen by external forces, because the ETH Layer2 sorter is just one official node and can be centrally controlled. This will also lead to an upper limit on the size of ETH Layer2 assets, because many large funds will not dare to enter due to the problem of non-censorship resistance. Imagine if you have 100,000 ETH, would you dare to move these assets to an Ethereum Layer2 that is not censorship-resistant?

At the same time, two user-unfriendly problems arise here:

a. Since Op-Rollp has a 7-day reporting mechanism, when a user transfers ETH from Layer2 back to the Ethereum mainnet, at least a 7-day reporting period must be completed.

b. Since the ETH Layer2 sorter is completely controlled by a single official node of the project, the cross-chain and transaction fees of ETH Layer2 are exclusively enjoyed by the official project (it is reported that the monthly revenue of ETH Layer2 sorters such as Base and ZKsync exceeds US$5 million, and exceeds US$10 million at peak times), while Layer2 users cannot share these network growth dividends.

So, how does Bitcoin Layer2 make the ledger trustworthy?

Let’s take BEVM as an example. As mentioned earlier, BEVM realizes Bitcoin decentralized cross-chain through a combination of Mast contract + Schnorr signature. In order to achieve real-time communication between Layer2 and Layer1, BEVM’s network is a fully operational Bitcoin light node. Therefore, BEVM is a trusted network composed of 1,000 Bitcoin light nodes.

In order to ensure the absolute security of the Layer2 ledger and prevent network nodes from doing evil, BEVM draws on the economic game mechanism of the Bitcoin network. BEVM combines the nodes that host Bitcoin and the nodes that run the Layer2 network into one, that is, the nodes that run the Layer2 network through pledged assets are also the nodes that host BTC assets. At the same time, BEVM has designed a set of automated dynamic pledge mechanisms based entirely on economics, which ensures that the total value of BTC/mainnet tokens pledged by BEVM's Layer2 nodes is always greater than the value of the assets it hosts. The mechanism of economic game is used to ensure that the Layer2 network nodes have no motivation to do evil, thereby ensuring that the Layer2 ledger is absolutely safe and reliable.

In addition, the design of BEVM also brings two benefits that Ethereum Layer2 does not have:

a. BEVM's network nodes are completely decentralized and not controlled by a certain project party. Therefore, BTC on BEVM's Layer2 is censorship-resistant and cannot be frozen by any force. It can be accessed and exited with the Bitcoin main network at any time. Therefore, the trust problem of large funds can be solved.

b. Since the BEVM network is run by decentralized nodes, the cross-chain and network fees generated are shared with nodes and users, and are not exclusive to the project party.

3. The Right Path for Bitcoin Layer2

Through the comparison above, we can clearly see the similarities and differences between Bitcoin Layer2 and Ethereum Layer2. Due to the inherent differences between Bitcoin and Ethereum, when designing Bitcoin Layer2, we cannot copy the Ethereum Layer2 model. Instead, we should see through the essence of Layer2 and combine it with the characteristics of Bitcoin to embark on the right path of Bitcoin Layer2.

The correct design direction of Bitcoin Layer2:

1. Bitcoin Layer 1 is not Turing complete by nature. Bitcoin's extremely simple UTXO design and block space cannot verify and calculate complex data and programs. Therefore, it is not feasible to attempt to verify through the client or make improvements within Bitcoin's limited UTXO and block space. Not only is the implementation plan extremely complex, but improvements in the limited expansion space of Bitcoin Layer 1 can only support asset issuance at most. It is not feasible to expand to the higher-performance Layer 2. The only correct direction is to jump BTC to Layer 2 in a decentralized way, so as to achieve more complex and higher-performance scenario expansion.

2. The problem of Bitcoin's decentralized cross-chain to Layer2 must be solved. This is the basis of everything. It is difficult to gain user trust through traditional Bitcoin cross-chain methods such as Hash time locks, hooks, encapsulation, and multi-signatures. The technical combination of Mast contract + Schnorr signature brought by Bitcoin's Taproot upgrade in 2021 can solve the problem of Bitcoin's decentralized cross-chain, which is also a direction worth exploring for Bitcoin Layer2.

3. In terms of ensuring the security and reliability of Layer2 ledgers, we must not copy the model of Ethereum Layer2 and try to compress and package the BTC Layer2 ledgers to the Bitcoin chain for verification through roullp. This is not feasible because the Bitcoin blockchain does not support OP or ZKP verification, and miners will not participate in the verification of Layer2 ledgers. Storing these ledgers on the Bitcoin chain is just a proof and has no meaning. To ensure the security of Layer2 ledgers, we can learn the economic game mechanism of Bitcoin and design a node dynamic pledge mechanism through the level of economics and game theory, so that Layer2 network nodes have no motivation to do evil, thereby ensuring the security of Layer2 ledgers.

4. We all hope that Bitcoin will be upgraded at the BIP level again in the future, so that the Bitcoin network can verify OP or ZKP, and Bitcoin mining machines can perform ZKP calculations. At this time, ZK-roullp can enter the Bitcoin network, and then Bitcoin Layer2 can achieve a more ultimate solution. However, this may be something that can only be achieved in the next 5-10 years.

Based on the above analysis, we can see that the most feasible BTC Layer2 solution is based on the Mast contract + Schnorr signature brought by the Taproot upgrade, combined with the Bitcoin light node dynamic staking network to achieve real-time communication and network security between Layer2 and Layer1, thereby realizing a truly decentralized Bitcoin Layer2, which is exactly the solution that BEVM has already implemented.

4. Bitcoin Layer2 will definitely surpass Ethereum Layer2, and Bitcoin ecosystem will definitely surpass Ethereum ecosystem

Why do we believe that Bitcoin Layer2 will definitely surpass Ethereum Layer2, and the Bitcoin ecosystem will definitely surpass the Ethereum ecosystem?

We believe there are at least several reasons:

1. Currently, there is a fully decentralized BTC Layer2 solution available. Before there was a fully decentralized solution, the largest Bitcoin packaged asset was WBTC issued by the centralized institution Bitgo, which is currently worth about $6.5 billion. After the emergence of a fully decentralized solution (such as BEVM), it is predicted that the market can grow by more than 5-10 times, and the volume can reach $32.5 billion to $65 billion, which is much larger than the current $20 billion total TVL of ETH Layer2 (this data includes cross-chain ETH and other assets on ETH Layer2, and the actual cross-chain ETH is far from $20 billion).

2. Bitcoin is not Turing complete by nature, so Bitcoin needs Layer 2 more than Ethereum to develop its ecosystem. Therefore, in the future, a large number of BTC will go to Layer 2 to build various decentralized BTC applications. This is determined by market demand.

3. Bitcoin Layer2 can be more resistant to censorship than Ethereum Layer2, and can more easily gain the trust and favor of users, especially large funds.

4. The market value of Bitcoin is three times that of Ethereum. Currently, the total TVL of ETH Layer2 is about 20 billion US dollars, accounting for about 10% of the market value of Ethereum. According to the same ratio, if 10% of BTC enters Bitcoin Layer2 in the future, the entire TVL will reach 85 billion US dollars, which is three times the size of Ethereum Layer2.

Summarize:

We analyzed the essence of Layer2 and compared the design similarities and differences between Bitcoin Layer2 and Ethereum Layer2. We saw a feasible implementation plan for Bitcoin Layer2. At the same time, based on the advanced design of Bitcoin Layer2 and the rigid demand for Bitcoin's own volume and ecological development, we deduced that Bitcoin Layer2 will definitely surpass Ethereum Layer2.

Ultimately, the Bitcoin ecosystem will surpass the Ethereum ecosystem.