What are Bitcoin Layers? The World of Bitcoin Layer 2
If you’ve heard of Bitcoin and blockchain technology, you’ve probably heard of what is called the “Blockchain Trilemma.” It’s a term that illustrates how the biggest challenge for developers is finding out how to balance security, decentralization and scalability on a blockchain in the cryptocurrency world. This is the case even for all blockchains like Bitcoin and Ethereum.
Bitcoin was designed as a decentralized crypto payment network, trustlessly powered by its users without central intermediaries. As a result, the Bitcoin network was built to prioritize security and decentralization, but that came at the expense of its scalability.
Concerns around Bitcon’s limited scalability and throughput has, over the years, led developers to build innovative scaling solutions that expand the Bitcoin main chain’s capabilities while retaining its core ethos. Layer 2 solutions (L2s), in particular, have become key. These solutions for Bitcoin have been rapidly gaining steam, offering everything from greater anonymity to application versatility and accessibility while benefiting from Bitcoin’s solid security model.
Understanding L2 blockchains and the different ways they work will be crucial for wallet users. The Bitcoin ecosystem has developed in large part thanks to Bitcoin L2 protocol technology and will remain a vital part of the blockchain's evolution – and the evolution of wallets – for years to come.
What Do We Mean By Bitcoin Layer 2 and Layered Scaling Solutions?
Bitcoin layers (we’ll refer to them as L2s more broadly) are protocols and networks that act as a second layer built on top of the base Bitcoin blockchain. L2s generally leverage the underlying blockchain’s security to enable faster Bitcoin transactions, lower fees, and more advanced functionality.
L2 solutions essentially move BTC and BTC-based transactions off-chain for processing before settling the transaction data back to the Bitcoin layer 1 (which we use to refer to the main blockchain network). This helps with scalability by handling more transactions per second off the L1.
There are various types of layered solutions for Bitcoin including sidechains, state channels like Lightning, emerging rollup approaches and smart contract platforms like Stacks. Together, these layers on top of the Bitcoin blockchain unlock more programmability and expressiveness as they process digital asset activity.
Each one of these layers offers their own solutions for building on top of Bitcoin and how transactions are processed. Sidechains, for example, are separate blockchains that peg to and settle on Bitcoin while state channels operate between two users to facilitate rapid payments back and forth. Emerging technologies like rollups also allow for faster transaction validation while ensuring that transfer information remains hidden.
By leveraging Bitcoin’s security while optimizing throughput off-chain, L2 solutions aim to bring greater speed, scalability, functionality and financial privacy to Bitcoin applications.
Bitcoin Layers and Bitcoin Wallets
As Bitcoin’s layer 2 ecosystem expands, efforts have been made to integrate L2 protocols to enhance the user experience. The combination of Bitcoin wallets and layered solutions greatly unlocks the utility that users want for managing and putting their Bitcoin-secured assets to work.
For wallets, supporting layer 2s like Lightning could lead to faster transaction speeds and lower network transaction fees. This would, in turn, allow for Bitcoin users to more efficiently conduct transactions in their wallet applications. Furthermore, these solutions can also enable wallets to offer increased privacy protections for users as they conduct transactions.
These are all important developments for Bitcoin wallets as more users engage with Web3 applications. The programmability offered by these emerging technologies has helped unlock DeFi, NFT marketplaces, tokenized assets and additional peer-to-peer use cases built on top of Bitcoin. Today’s wallet users, in fact, have a much wider range of platforms and protocols at their fingertips than they did years before.
The need for users to access the growing decentralized application space is why Bitcoin wallets have made it a priority to integrate L2 technology. As Bitcoin matures into its role as the secure base layer for the internet of tomorrow, seamless wallet integrations with layered protocols like Lightning are critical to unlocking Bitcoin’s full potential across the DeFi space and beyond.
Examples of Bitcoin Layers
A number of layers already exist that have demonstrated great promise in addressing the Bitcoin network’s scalability issues. Examples include the Lightning Network and Stacks.
The Lightning Network is a well-known Bitcoin layer 2 solution. It focuses on payments by operating as a network of payment channels. These payment channels with Lightning nodes at their core give users the ability to tap into instant, high-volume peer-to-peer micropayments.
By handling transactions off-chain and settling net balances on Bitcoin’s L1, Lightning allows for exceptionally fast and cheap payments that aren’t feasible directly on the main chain. The speed and ease with which Lightning handles transactions has actually led to a big push among the crypto community for its widespread adoption.
The Stacks blockchain is a platform dedicated to unlocking smart contract functionality on Bitcoin. It has played a big role in the evolution of Bitcoin DeFi over the years, as it allows for dApps to be built on top of the Bitcoin main chain while leveraging its high level of security and decentralization. The Bitcoin layer has also been a pioneer of NFTs on Bitcoin and was a driving force behind the popularization of Ordinal inscriptions following the Ordinals protocol launch.
Stacks also has its own smart contract language, Clarity, along with its own Proof of transfer (PoX) consensus mechanism model. Users can also participate in the Stacking process to contribute to the network.
Integrating Leather with Blockchain Layers
Leather, as many of you know, began in the Stacks ecosystem. It leveraged the Bitcoin layer to build what is now the most popular Bitcoin wallet today.
But Leather aims to be a Bitcoin wallet for the entire ecosystem. Our team has been working on L2 integrations that would give our users a complete Bitcoin experience with a versatile, adaptable Bitcoin wallet.
Layered solutions hold much of the key to making Bitcoin scalable. As a result, they’re also the key in giving our users even more platforms and protocols to put their Bitcoin-secured assets to use. While a number of layers already exist today with their own viable ecosystems, a number of other L2 projects have popped up as of late, demonstrating the community’s dedication to finding ways to directly address Bitcoin’s scalability challenges.
Connect to Web3 applications built on Bitcoin with the Leather browser wallet app. Download Leather – the Bitcoin wallet for the rest of us – today.