Introduction

With the continuous development of blockchain technology, Bitcoin not only exists as a cryptocurrency, but its ecosystem is also constantly expanding and deepening. The Bitcoin expansion ecosystem covers a variety of Layer 2 solutions and applications. These extensions not only improve Bitcoin’s transaction speed and efficiency, but also provide support for smart contracts, decentralized finance (DeFi), and non-fungible tokens (NFT). and other emerging areas provide support. These innovations have made Bitcoin's application scenarios more extensive, no longer limited to value storage and peer-to-peer payments, but can meet more complex and diverse needs, promoting the progress of the entire blockchain industry.

However, with the expansion of the ecosystem, security issues have gradually emerged. New technologies and applications bring more potential risks and challenges, and how to ensure system security while improving functions has become the key. Issues such as security vulnerabilities, attacks, and technical flaws not only threaten the security of users' assets, but may also affect the overall stability and trust of the Bitcoin network. This article written by ScaleBit, a subsidiary of BitsLab, will provide an in-depth discussion of the construction process of Bitcoin’s expanded ecosystem, the security incidents faced, and the future prospects for security. By analyzing current technical solutions and security challenges, it aims to provide valuable insights and suggestions for the development of the Bitcoin ecosystem, ensuring that it can still maintain a high degree of security and reliability during its continuous expansion.

What is the Bitcoin expansion ecosystem?

The Bitcoin expansion ecosystem mainly refers to the various expansion solutions and application ecosystems developed around the Bitcoin basic network. Bitcoin was originally designed mainly for peer-to-peer payment and value storage, but with the development of blockchain technology, the Bitcoin community and developers are also exploring how to add more functions on its basis, especially in smart contracts, On decentralized finance (DeFi), NFT and more efficient transaction expansion.

How does the Bitcoin expansion ecosystem work?

The operation of Bitcoin's expanded ecosystem mainly relies on extended technologies and protocols built on or outside the Bitcoin main chain. These technologies and protocols make Bitcoin Can support more diverse application scenarios. The following are bitsThe operating principles of several key technologies in the currency expansion ecosystem:

(1) Lightning Network

Lightning Network is one of the most mature and widely used solutions for Bitcoin Layer 2. By establishing payment channels, it moves a large number of small transactions from the main chain to off-chain, thereby significantly increasing the transaction speed of Bitcoin and reducing handling fees.

Trend: The infrastructure of the Lightning Network is constantly improving, the user experience is also improving, and more and more merchants are beginning to support Lightning payments.

Challenges: Liquidity issues and routing efficiency still need to be further optimized, especially in large-amount transaction scenarios.

Source: https://lightning.network/lightning-network-presentation-time -2015-07-06.pdf

(2) Liquid Network (LQ)

Liquid Network is an open source Elements-based Blockchain platforms run sidechains designed to enable faster transactions between exchanges and institutions. It is governed by a distributed consortium of Bitcoin companies, exchanges, and other stakeholders. Liquid uses a two-way peg mechanism to convert BTC to L-BTC and vice versa.

Liquid supports confidential transactions and tokenization, making it suitable for enterprise applications. If Bitcoin is the value layer of the internet, and Lightning is the peer-to-peer payments network in a Bitcoin-powered financial system, then Liquid is the financial layer, adding multi-asset support and financial instruments like securities and commodities.

Compared to Lightning, Liquid is a Layer 2 solution for Bitcoin that focuses on facilitating larger and more complex transactions, such as issuing and trading assets ( such as securities and stablecoins). Liquid has a built-in confidential transaction function that hides transaction amounts and asset types, while Lightning mainly uses its chainProvides privacy when transacting. While Lightning excels at micropayments and day-to-day transactions, Liquid is better suited for institutional finance, asset issuance, and cross-border transactions.

More than 50 exchanges have adopted Liquid Network, which has facilitated billions of dollars in transactions, proving its role in increasing the use of Bitcoin. Effectiveness in utility aspects in institutional trading. Liquid Network is able to provide faster settlement times to exchanges, thereby increasing liquidity in the Bitcoin market and allowing institutions to operate more efficiently and securely.

Source: https://docs.liquid.net/docs/technical-overview

(3) Rootstock Basic Framework (RBTC)

Rootstock Since its birth in 2015, Is the longest running Bitcoin sidechain and is the Its mainnet was launched in 2018. It is unique in that it combines Bitcoin’s Proof-of-Work (PoW) security with Ethereum’s smart contracts. As an open source, EVM-compatible Bitcoin Layer 2 solution, Rootstock provides an entry point to the growing dApp ecosystem and is committed to being fully trustless.

Similar to Liquid, Rootstock also uses a two-way peg mechanism so users can easily swap between BTC and RBTC. RBTC is the native currency on the RSK blockchain and is used to pay miners for processing transactions and contracts. Liquid focuses on fast, private transactions and asset issuance, while Rootstock expands Bitcoin’s DeFi and dApp ecosystem with smart contracts.

As of this writing, Rootstock’s total value locked (TVL) exceeds $170 million, with a market capitalization of $380 million.

(4) B² Network

B² Network’s technical architecture includes two layers: Rollup layer,Data Available (DA) layer. B² Network aims to redefine how users think about Bitcoin’s second layer solutions.

B² uses ZK-Rollup as the Rollup layer. The ZK-Rollup layer uses the zkEVM solution and is responsible for executing user transactions and output-related proofs within the second-layer network. The user's transaction is submitted and processed at the ZK-Rollup layer. The user's state is also stored in the ZK-Rollup layer. Batch proposals and generated zero-knowledge proofs are forwarded to the data availability layer for storage and verification.

The data availability layer includes distributed storage, B² nodes and the Bitcoin network. This layer is responsible for permanently storing a copy of the Rollup data, validating the Rollup’s zero-knowledge proof, and ultimately performing final confirmations on Bitcoin.

Distributed storage is a key aspect of the B² Network, which serves as the repository for ZK-Rollup user transactions and their associated proofs. By decentralizing storage, the network fundamentally improves security, reduces single points of failure, and ensures data immutability.

In order to ensure data availability, B² also writes a Tapscript script to the Bitcoin network in each Bitcoin block, as shown below. The script anchors Rollup’s data paths and zero-knowledge proofs for efficient storage in decentralized storage during this period, a process that is cost-effective and generates 6 transactions per hour. Therefore, when verifying, users will compare transactions one by one with the Taproot script data on Bitcoin Layer1 to ensure the ultimate credibility of the Rollup data.

(5) Stacks Protocol (STX)

Since launching on mainnet under the name Blockstack in 2018, Stacks has become the leading Bitcoin Layer 2 solution.

Source: https://docs.stacks.co/stacks-101/proof -of-transfer

Stacks connects directly to Bitcoin, allowing smart contracts, dApps, and NFTs to be built on Bitcoin, significantly extending the capabilities of Bitcoin into more than just a store of value. It uses a A unique proof-of-transfer (PoX) consensus mechanism that ties its security directly to Bitcoin without modifying Bitcoin itself.

Stacks has over 9,900. The total value locked (TVL) of $10,000, its established infrastructure and growing developer community make it a project that cannot be ignored in this space.

(6)Babylon

Babylon's vision is to extend the security of Bitcoin to protect the decentralized world. By leveraging the three aspects of Bitcoin — Its timestamping service, block space and asset value — Babylon Ability to deliver the security of Bitcoin to numerous Proof-of-Stake (PoS) chains, creating a more robust, unified ecosystem

Babylon's Bitcoin staking protocol. Adopting a remote staking method, Babylon's staking protocol overcomes the lack of smart contracts through cryptography, consensus protocol innovation and optimized use of the Bitcoin scripting language, allowing Bitcoin holders to do so without bridging to PoS. Babylon's innovative protocol eliminates the need for bridging, encapsulation, and custody of staked Bitcoins. p>

A key aspect of Babylon is its BTC Timestamp protocol. It timestamps events from other blockchains onto Bitcoin, allowing those events to enjoy Bitcoin's timestamps like Bitcoin transactions. This effectively borrows the security of Bitcoin as a timestamp server. The BTC timestamp protocol achieves fast equity unbundling, composable trust, and reduced security costs to maximize the liquidity of Bitcoin holders. The protocol is designed as a modular plug-in that can be used in a variety of different PoS consensuses. algorithm and provides a basis upon which a reset protocol can be built.

After discussing various technical solutions for Bitcoin to expand its ecosystem, we can clearly see these innovations It not only significantly improves the performance and functionality of the Bitcoin network, but also provides a solid foundation for the diversification of its application scenarios.. However, as the development ecosystem continues to expand and technology becomes increasingly complex, security issues have also emerged and become an important aspect that cannot be ignored. New extension technologies introduce more potential risks and attack vectors, making the overall security of the system more challenging.

In this context, ensuring the security of Bitcoin's expanded ecosystem is not only related to the protection of user assets, but also related to the stability and trust of the entire network. Therefore, this section will detail the vulnerabilities of the Lightning Network in 2023, providing a valuable reference for future security protection.

Security incidents in Bitcoin’s expanding ecosystem

Bitcoin’s expansion technology in October 2023 - A potential security vulnerability was discovered in the Lightning Network. Developer Antoine Riard announced the details after discovering the vulnerability.

This vulnerability is called "replacement cycling attacks" and may endanger the security of funds flowing through the Lightning Network, resulting in transaction delays or failure. Processed as intended, potentially triggering risk of loss of funds within Bitcoin Lightning Network channels.

This incident highlights that in the rapidly developing expansion ecosystem, security must always be given top priority. Developers and communities need to continuously monitor and improve existing scaling solutions to prevent potential security threats and ensure the safety of user funds.

Bitcoin’s prospects for expanding ecological security

Although the Bitcoin ecosystem has made significant progress in improving transaction efficiency and functional diversity, its security still needs to be continuously strengthened. This section will discuss the development direction and challenges of the future Bitcoin expansion ecosystem in terms of security.

Bitcoin's expanded ecosystem aims to solve the transaction throughput problem of the main chain while ensuring security and decentralization.

Trust model for off-chain transactions: Bitcoin’s expanding ecosystem uses off-chain technology to increase transaction speed. Developers need to ensure that the trust mechanism for off-chain transactions is reliable enough. . For example, the two-way payment channel in the Lightning Network needs to use multi-signature technology and ensure that the closing process of the channel is safe to prevent funds from being frozen or lost.

Privacy and transparency: Channel transactions on the Lightning Network can be completed without being made public. Although privacy is improved, it also increases the difficulty of supervision and potentially leads to malicious behavior. Layer 2 networks need to strike a balance between privacy and transparency, and enhance compliance by selectively disclosing some transaction records.

User experience and security: The complexity of expanding the ecosystem brings difficulty to user operations. For example, the channel management of the Lightning Network may be unfriendly to ordinary users, increasing the Risk of operational errors. Bitcoin's expanding ecosystem can improve user experience and reduce security risks by designing more friendly interfaces and simplified operations tools.

Looking to the future, the expansion of the Bitcoin ecosystem requires continuous optimization of technical solutions, improvement of user experience, and strengthening regulatory cooperation while maintaining decentralization and security. regulations to achieve more robust and widespread applications.

Summary

Bitcoin expands its ecology through a variety of Layer 2 solutions and innovative protocols. It has significantly improved the functions and transaction efficiency of the Bitcoin network, and promoted the development of emerging fields such as smart contracts, DeFi, and NFT.

However, with the continuous expansion of the ecosystem, security issues have gradually emerged, which require great attention from developers and the community. In the future, while the Bitcoin ecosystem is pursuing higher transaction throughput and diversified applications, it must continue to strengthen security mechanisms, optimize user experience, balance privacy and transparency, and ensure that it is more widely implemented on the basis of decentralization and security. and steady development.

Read the full text of the report: https://bitslab.xyz/reports-page