The Dilemma and Solutions of the Bitcoin Layer 2 Track

Since August 2023, the development of the Bitcoin Layer 2 track has been disappointing. Whether it's the projects that are already launched or those that have yet to go live, the overall performance has been unsatisfactory. This situation has raised concerns about the prospects of this track.

The root cause is not the background of the investment institutions or the capabilities of the team. Many projects have received support from well-known institutions, and the teams are quite strong. The deeper reason may lie in the technical architecture itself.

A recent technical white paper made a key point: Layer 2 projects that cannot share the consensus security of Bitcoin will struggle to survive. Although this assertion is sharp in wording, it makes a lot of sense.

The reason why Ethereum Layer 2 has been successful is that they are able to share Ethereum's consensus security. Users trust these Layer 2 solutions, essentially based on their trust in the Ethereum network. However, most Bitcoin Layer 2 projects currently are actually independent chains combined with multi-signature wallets, lacking substantial connection with the Bitcoin network and unable to share its consensus security.

This has led to a lack of trust among users in these so-called Bitcoin Layer 2 solutions, and the market response is naturally tepid.

Consensus security is at the core of blockchain networks, maintaining network security through nodes across the network at the consensus level. Different public chains adopt different consensus mechanisms, but the level of security mainly depends on the cost required to attack the network.

Taking Bitcoin as an example, to initiate an effective attack, one needs to control over 51% of the network's computing power, and currently, this cost exceeds 200 billion USD. In contrast, the attack cost on the Ethereum network is about 46 billion USD. This means that the consensus security level of the Bitcoin network is much higher than that of Ethereum.

Shared consensus security refers to the ability of a subchain or Layer 2 to borrow the consensus mechanism of the main chain to ensure its own security. For example, Polkadot's parachains share the security of the main chain, while Ethereum Layer 2 utilizes its security mechanism by recording states on the mainnet.

Data shows that the total locked value of Bitcoin Layer2 is only about 1/30 of that of Ethereum Layer2, with an average market value also far below the latter. This reflects the lack of confidence in the funding market for Bitcoin Layer2.

Theoretically, given the high security of the Bitcoin network, its Layer 2 should be more attractive than Ethereum's Layer 2. However, the reality is quite the opposite, and the reason lies in the fact that most Bitcoin Layer 2 solutions cannot share Bitcoin's consensus security.

The Lightning Network is one of the few Layer 2 solutions that can share Bitcoin consensus security. Despite the lack of token incentives, it still attracts a large number of Bitcoin participants. This is precisely because users trust its security, which is on par with Bitcoin.

The Lightning Network relies directly on Bitcoin's consensus rules and security by creating and closing payment channels on the Bitcoin main chain. Each time the channel state is updated, a new commitment transaction is generated, which can be broadcast to the main network when needed to ensure the safety of funds.

However, the limitation of the Lightning Network is that it only supports payment functions and does not support complex smart contracts. New technological solutions are attempting to upgrade its nodes to a chain structure that supports smart contracts while maintaining the security of the Lightning Network, in order to achieve further expansion of Bitcoin functionalities.

Overall, for Bitcoin Layer 2 to achieve real development, it must return to Bitcoin itself and study how to share its consensus security. Exploring expansion solutions based on the Lightning Network that support more functionalities may be the most feasible direction for development at present.