Author: Jon Charbonneau Source: DBA Translation: Shan Oba, Golden Finance

Introduction

Bitcoin’s top Layer 2 networks (L2) will unlock one of the largest markets in crypto.

The potential is obvious: Bitcoin (BTC) has a market value of nearly $2 trillion and is gradually surpassing gold to become the world's largest asset. A network platform that can dominate the use of Bitcoin is destined to become a giant in the future.

Currently, most people try to understand Bitcoin L2 through the lens of Ethereum L2. However, this kind of analogical thinking often leads to wrong conclusions, including:

1. Underestimating the market size: Bitcoin L1 lacks programmability, which means that Bitcoin The market opportunity for L2 is essentially greater than that of Ethereum L2.

2. Ignore the factors that determine the "winner": Compared with Ethereum L2, Bitcoin L2 has higher security requirements, and security will be Play a more important role early on.

3. Underestimating the possibilities that can be built: Recent technological breakthroughs have made it possible to build Bitcoin zero-knowledge rollups (ZK-rollups), and these technologies are optimistic -ZK bridging (with "1-out-of-n" trust assumptions). Even more surprising is that these innovations will arrive sooner than expected. Possible future Bitcoin upgrades may even be completely trustless (e.g., support direct ZK verification and remove the “1-of-n” mechanism).

In this article, we will use a broader definition of L2, including from trust-based (such as side chains) to trust-minimized types (such as ZK-rollups) of all types, but primarily focused on fully programmable L2 rather than more specialized protocols such as payment channels.

The potential market of Bitcoin L2 is larger than that of Ethereum L2

We start with the first misunderstanding: underestimating the potential market (TAM) of Bitcoin L2.

The market opportunity of Bitcoin L2 is far greater than that of Ethereum L2. This conclusion is partly obvious because Bitcoin’s market capitalization is approximately 4.7 times greater than Ethereum’s, but more importantly for the following fundamental reasons:

1. The purpose of Ethereum L2 is to expand

Ethereum L1 provides a complete programmable execution environment, and its L1 storage The status value of L1 is much higher than that of L2, although L1 is slow and has low throughput. What L2 does is provide the same functionality as L1, but faster and cheaper. L1 is still where the “real money” is, while L2 is more of a “testing the waters” place.

2. The purpose of Bitcoin L2 is expansion and programmability

Bitcoin L1 Lack of programmability features. And programmability is the key to unlocking stronger privacy, a better self-custody experience, and basic BTC DeFi. If L1 is unable to provide these capabilities, then this leaves huge room for building Bitcoin’s dominant execution layer.

Currently, most market participants use Ethereum L2 as a model to understand Bitcoin L2, but the correct comparison object should be Ethereum L1. The winning Bitcoin L2 will become Bitcoin’s execution layer—the infrastructure that powers the core of the best crypto assets.

Just ask yourself: If Bitcoin L1 were fully programmable, would you use it? I definitely will. Thankfully, however, Bitcoin L1 does not offer this universal programmability, as this simplicity is one of the core strengths of Bitcoin’s nature as a currency. However, the value of layering this functionality onto L2 is undeniable, and L2 now has the opportunity to make it happen.

Considering that the execution layer usually exhibits extremely strong power-law distribution characteristics:

• Ethereum: Ethereum L1 remains the most valuable execution layer, dominating indicators such as revenue, DeFi lock-up volume (TVL), and stablecoin issuance. The size of L2 is much smaller than L1.

•Bitcoin: We can also expect that Bitcoin L2 will have a long-tail distribution, and the largest Bitcoin execution layer will gradually widen the gap. However, due to the lack of programmability of L1, the dominant execution layer of Bitcoin must be L2. The only question is: which L2 will emerge as the winner?

Just as Ethereum L1 does for ETH, I believe that the dominant Bitcoin execution layer must:

1. Significantly enhance Bitcoin’s Functionality (such as better privacy, friendlier self-hosted user experience and basic DeFi functionality)

2. Do not significantly weaken the core advantages of Bitcoin (such as secure self-custody, resistance to confiscation, and permissionless use).

Therefore, security Safety will be the decisive factor

L2 security

Ethereum L2: speed before security

Let’s now look at the second misunderstanding: thinking that Bitcoin L2 The high security is irrelevant because Ethereum L2 users are not security sensitive

Observe the current Ethereum L2:

•Secure L2: The three stage 2 rollups currently online are almost unknown.

•Unsafe type L2: Users put billions of dollars into "L2" deposit contracts without hesitation, and these contracts are controlled by unidentified 3/5 multi-signatures, with no verification mechanism and no chain. Even Base is only in the first place. Stage 0. Optimism and Arbitrum have entered Stage 1, but have taken many shortcuts (e.g. Optimism has had no verification mechanism for years, while Arbitrum still has a whitelist). ="text-align: left;">From this, many people have concluded that the success of Bitcoin L2 needs to prioritize speed and ignore security to quickly attract users. This is the so-called "speed > security".

Some even go further and believe that Rollups and verification bridging are failed experiments. Users do not seem to care about L2 security, and L2 does not seem to have enough motivation to achieve complete decentralization. p>

Bitcoin Does L2 have higher security requirements?

1A common rebuttal is that Bitcoin L2 security is more important because Bitcoin holders are more sovereign-minded and risk-averse than Ethereum holders.

I do not completely agree with the above two views:

•According to the current Ethereum L2 Conclusions drawn from user usage patterns are misleading. The security of Bitcoin L2 will be more important than Ethereum L2 and needs to be taken seriously earlier.

•But this is not because there is a significant difference in the risk appetite of Bitcoin and Ethereum holders. I don't think there is a fundamental difference in this regard. Regardless of the assets they hold, large capital holders are mostly rational in their assessment of risk.

Therefore, I believe that BTC and ETH holders are equally sensitive to security risks. Additionally, due to an over-focus on those early ETH L2 users, many have underestimated thesensitivity of most capital to the security risks of bridging.

If capital is really interested in bridging Security is highly sensitive, so why is a large amount of ETH still flowing to insecure bridges?

The answer is actually very simple - users show their preference for high security by not bridging!

Currently, only about 2.5% of the ETH supply is bridged to L2, and ETH ETFs already hold more than that. Even hardcore Ethereum supporters understand that the current security of L2 (which is simply used to hold ETH) is actually less secure than an ETF. Security concerns are hindering large capital flows to L2.

The risk of the bridge being hacked may lead to the return of assets to zero, which brings high hidden costs to capital. Low safety = high risk = high cost of capital = less capital inflows.

The reality is that most capital here behaves quite cautiously and risk-averse. You might gamble on L2 with your risk capital (degen capital), but leave your main capital (the more risk-averse capital) in L1.

So when we look at the current usage patterns of L2 bridging, we are really only seeing the appetite of this small subset of venture capital:

1. We cannot conclude that "L2 bridge security is irrelevant" just because mainstream L2 prioritizes speed over security, and these "less secure" L2s attract more ETH. Most capital expresses its high need for security by avoiding bridging.

2. We can conclude that in this small portion of venture capital, the difference in security between existing L2s is not a decisive factor.

Prioritizing speed over security is indeed the right strategic decision in these early days of Ethereum L2. They need to come online quickly to capture market share. Among its target market (risk-seekers), incremental improvements in L2 security are unimportant.

For example: when friend.tech first launched, you might put a few dollars in Base if you wanted to try it out. If you want to chase a new AI concept coin on Base, you'll invest some cash. Whether Base has a complex ZK verification mechanism or time-lock contract upgradeability has little impact in this case.

There is a reason why Ethereum L2 is targeting smaller risk markets, as Ethereum L1 was always going to attract more serious capital (at least in the early days).

•You can complete basic ETH DeFi operations on L1.

•You don’t need another high gas limit, EVM copy of the same application to reap the benefits of ETH.

•Using L1 is safer than bridging to L2, while the higher fees of L1 are acceptable for large transactions (even with serious capital) .

The situation with Bitcoin is completely different:

•Bitcoin L1 is essentially not native Supports most basic functions.

•This changes Bitcoin L2 compared to EthereumThe value proposition and target user groups of Fang L2.

•This also changes the most important properties of Bitcoin L2 and Ethereum L2.

Absolute security and relative security

In the competition for Bitcoin L2, both absolute security and relative security are crucial.

We illustrate this through two examples. To simplify the discussion, assume that we can precisely quantify the "security level" of an L2 bridge:

In the first example, assume that Base's security has improved significantly, but you still choose Ethereum L1. The reason is this: the basic DeFi protocol can be used almost everywhere, and L1’s high gas fees have almost no impact on large transactions (the incremental cost approaches 0). Therefore, most user actions (such as lending, token exchange, anonymous transfers, re-staking, etc.) prefer to use L1 directly when possible.

In the second example, assume that Bitcoin L2 is as secure as Ethereum L2, but users must use Bitcoin L2. Although limited operations can be performed on Bitcoin L1 through DLC and the like, most features are still unavailable. Therefore, users are more dependent on Bitcoin L2.

The optimization direction of L2 depends on the target user group:

•Ethereum: Ethereum L2 does not over-optimize for incremental security because for its target market (risk-seekers), additional security does not lead to more business growth. Therefore, prioritizing speed over security is the primary strategy. Security will only become a bottleneck when L2 starts competing directly with L1 to attract large capital.

•Bitcoin: With Bitcoin L2, security will become key sooner. Currently, the basic needs of both risk-lovers and risk-averse individuals are not being met. Occupying the most secure Bitcoin execution layer will be extremely valuable, and this market is still open.

Two key points to win:

•Absolute security: Assume that the most secure Bitcoin L2 is only 50% secure. Currently, all programmable execution layers using Bitcoin require the "honest majority" assumption (and sometimes even rely on more fraught security practices). If the security of L2 does not meet my minimum acceptable level, I will either choose to stay on L1 and forego desired operations (such as harvesting revenue or enhancing privacy), or move to a centralized product (which is a worrying trend at the moment).

• Relative security: If there is an L2 that meets the minimum acceptable security and can complete my target operation, then I will choose the L2 with the same other conditions. L2 is the safest case.

Compared to Ethereum, building Bitcoin's preferred programmable execution layer is a huge market in itself, with relatively few competitors:

< p style="text-align: left;">•Less competition: There are not many teams in the world capable of promoting the cutting-edge development of Bitcoin L2 technology. Developing Bitcoin-related technology is extremely difficult, requiring several breakthrough research results in the past year alone to advance current state-of-the-art designs, and many more technical challenges will need to be solved in the future. However, most Bitcoin L2s take shortcuts and sacrifice security.

•The market is huge: Head L2 will attract the vast majority of applications, capital and developers. Bitcoin’s limited decentralization capability (DA) also determines that only a few execution layers can take full advantage of its security guarantees.

Although there will still be some risk-loving Bitcoin capital flowing to L2 with compromised security, this market is smaller and more competitive. In fact, the security L2 that ultimately "wins" is likely to host a lot of this activity as well, since speculation tends to follow projects that appear valuable or interesting. For example, the NFT craze on Bitcoin over the past year has clearly been speculative, and Bitcoin is not optimized for these, but users are still willing to pay high costs to participate because it is "fun."

Furthermore, the eventual "winning" L2 is likely to scale to attract more users willing to accept lower security compromises. For example, they may expand to selective data availability (volitions) and L3 layers to provide lower-cost non-Bitcoin DA options.

Alpen Labs

Bitcoin’s dominant L2 needs to be as close to Bitcoin as possibleSafety is particularly critical here. Therefore, building this L2 must rely on the team at the forefront of Bitcoin scaling R&D. In addition, Bitcoin culture may also play an important role, so the team also needs to be truly serious Bitcoin supporters with a long-term commitment to realizing the Bitcoin vision.

DBAs consider Alpen Labs to be this team. They are building Strata, which we expect will become the dominant execution layer for Bitcoin. Specifically, Strata is a Bitcoin-based zkEVM Rollup (using SP1) powered by hybrid optimistic-ZK bridging technology.

Alpen Labs has been working to scale and enhance Bitcoin with zk-SNARKs since 2022. They are undoubtedly one of the most impressive and principled teams we have ever seen. We are very pleased to be able to support them.

They have made unparalleled contributions to the field, work that ultimately led to the design of Strata:

: left;">•Trey Del Bonis: In early 2022, Trey released a design plan on how Bitcoin ZK-Rollup works.

•John Light: Later in 2022, John wrote the landmark "Bitcoin Validity Rollup Report", bringing Bitcoin Rollup into the public eye , ignited a large amount of research work in this field.

•Simanta Gautam: In January 2023, several members of Alpen Labs (including Sims) co-authored "ZK-Rollup on Bitcoin: Technical White Paper" ” (summarized in BTC++’s presentation).

•Liam Eagen: In April 2024, Liam co-authored the breakthrough paper "On Proving Pairings" (summarized in a presentation at the DBA's Annual Research Day), This is critical to implementing Strata Bridge. He also co-authored other important research, such as Shielded CSV: Private and Efficient Client-Side Validation.

In addition, they help popularize concepts through easy-to-understand resources, such as David Seroy's whiteboard course on Bitcoin Rollup and Strata bridging technology based on BitVM2. The team is growing.

This high-caliber team is necessary to build the most secure Bitcoin bridging technology, now and in the future. With possible future Bitcoin soft forks (such as re-enabling OP_CAT), the design will further evolve and be enhanced to provide even better bridging solutions.

Strata

Let's dive into Strata's design.

ZK-Rollup: basic functions

In fact, building a ZK on Bitcoin -Rollup is relatively "simple". You can easily launch a sovereign ZK-Rollup, utilize Bitcoin blocks to store the Rollup data, and create proof of its validity. Rollup clients can easily verify data availability and correctness, ensuring its security.

However, if you want to establish a two-way bridge between Bitcoin and Rollup, things are much more complicated. This bridging is the key to transferring BTC into Rollup, but to achieve this we need a mechanism for Bitcoin nodes to verify off-chain execution.

In October 2023, Robin Linus's BitVM paper proposed a mechanism for optimistic verification on Bitcoin, which was a major breakthrough. However, the initial implementation was relatively cumbersome and inefficient, had some open security issues, and the prospects for practical implementation were unclear.

This technology has made significant progress over the past year. As the technology matures, some early concerns, such as liquidity pressures, have been alleviated. Strata Bridge is a hybrid optimistic-ZK bridging technology inspired by the BitVM2 paper. Alpen Labs worked with other members of the BitVM Alliance to lay the foundation for its bridging technology. Strata Bridge is based on the original BitVM design and optimized with multiple latest research findings to make it more practical, scalable, capital efficient, and secure.

Ultimately, Strata was able to build a Bitcoin-based ZK-Rollup, implemented via a hybrid optimistic-ZK bridge 1/n trust assumption for BTC. This is Strata.

If you want to dive into the technical details, I recommend David Seroy's Strata Bridge whiteboarding course, as well as Alpen Labs' blog post where they detail the design and Prototype implementation.

This is no longer the BitVM of a year ago, let alone the "honest majority" sidechain today. The security model of 1/n is already excellent, and future Bitcoin upgrades (such as OP_CAT) may enable L1 to support direct ZK verification, enabling a completely trustless design.

Strata Devnet has been online and open source for several months. The complete Strata Bridge implementation will be released with the public testnet in a few weeks, and the mainnet is expected to go live within the year.

The current market seriously underestimates the latest advances in Bitcoin L2 technology.

Make Bitcoin more powerful

As a Bitcoin supporter and Alpen Labs investor, my goal is not only to make Strata more powerful in the existing Bitcoin L2 To "win" in the market, we hope that the entire market can develop and grow.

Bitcoin is already the best crypto asset. It has a fascinating story (e.g. it was the first crypto asset, had an anonymous founder). Its basic economic properties are also impeccable (e.g. fixed supply).

However, BTC has other functional shortcomings compared to traditional assets such as gold and other crypto-assets such as ETH and USDC. It lacks native strong privacy, scalability, speed, ease of self-custody, interoperability with other assets, basic DeFi functionality, and more. These features are very important. This is why on-chain USD stablecoins continue to cannibalize the off-chain USD. The strength of a given asset as a "money" depends on many different properties, andProgrammable money is stronger.

Unfortunately, for BTC to be scalable and programmable today, it must completely sacrifice some of its other best features - self-custody, resistance to Seized and used without permission. So, can we have our cake and eat it too?

A better L2 is needed to bring this functionality and scalability to BTC without making any sacrifices. They will release BTC the same way crypto orbit releases USD. They will make BTC a better currency.

Specifically, BTC is currently mainly used as a SoV ("digital gold"). It is rarely used as a UoA or MoE ("electronic cash"). Adding the features described here will enhance BTC’s capabilities for all three currencies. Making BTC more usable is obviously necessary if BTC aspires to become a MoE and UoA. However, I often hear the argument that if BTC limits its ambitions to SoV ("digital gold"), then it doesn't need this. I strongly disagree. Even digital gold needs privacy, better self-hosting, and scalability. If BTC ownership and usage becomes primarily custody and centralization (without even a reliable decentralized fallback), it will be hard-pressed to even beat shiny gold. Additionally, you should be able to put your SoV to work - BTC is the original collateral (e.g. for DeFi) and is currently underutilized.

If we cannot safely add scalability and functionality to BTC, then users will be forced back into the hands of intermediary financial institutions. We've been working hard to get rid of this institution for a long time:

If we don't make BTC self-custody and private payments easier and more scalable, We will eventually be dominated by dominant BTC custodians and payment providers.

If we don't enable basic BTC DeFi, we will end up with BTC CeFi.

If we don't build the most secure and decentralized L2 bridge, we will end up like cbBTC, even in the so-called "DeFi" ecosystem Create centralized bottlenecks.

This has long been known, asAs Hasu described it many years ago, “We have to make sure we can meet sufficient market demand with trustless capacity, otherwise custodial banking systems will forever hold back the base layer.” Modern L2 technologies like Strata are essential to ensuring that this never happens Happening is crucial.

Additionally, as block rewards disappear, these L2s are the best way to provide Bitcoin miners with a stable security budget in the long term. It’s unclear whether simple L1 BTC transfers will be enough to meet demand. Expanding the use of Bitcoin as a DA layer appears to be the most effective way to provide stable income. It will diversify BTC activity types and enable more activity (in the same amount of L1 data, you can accommodate more L2 transactions than L1 transactions), thereby increasing the economic density of L1 transactions. Bitcoin is unique in that it is actually able to continuously charge a premium for DA given that there is a need to use BTC with a minimum level of trust. I think this is likely to happen because currencies have the strongest network effects among cryptocurrencies, and BTC is the king.

No matter what type of Bitcoin supporter you are, introducing these features is crucial:

•Bitcoin Evangelist: The main goal is to make Bitcoin have a positive impact on society.

•Bitcoin Mercenaries: The main goal is to get the price of $BTC to rise, even if this may come with a managed surveillance social utopia.

For Preachers, privacy, scalability and ease of use are necessary conditions for Bitcoin to have a positive social impact.

These features make Bitcoin a better currency for mercenaries, thereby increasing adoption and price. Additionally, Bitcoin’s security budget also needs to be addressed, which is critical to its long-term impact and price growth.