I heard a lot of people saying that no one can define L2 in Bitcoin Asia. The problem is that we have a definition, and most people want to ignore it. Marketing, uh.
“Bitcoin L2s” are the hottest thing on the street. People are using a bunch of terms to distract users from assumptions of trust and cancel Bitcoin's second season.
Why all this sudden energy? See, about a year ago, some teams figured out how to use Bitcoin as a layer that provides data for collection operations. Others are working on improving the trust assumptions related to bridging (also known as two-way bridging). Research has made great progress, and many projects believe that we will have aggregator-like blockchains by 2025.
2025? Some projects claim to be on the mainnet now?
Teams have exploited this energy and are prematurely promoting the standard thesis for scaling Bitcoin. Projects are launched with bridge contracts on non-Bitcoin blockchains, marketing themselves as Bitcoin L2s. Infrastructure providers are amplifying their message and boasting about Bitcoin's return.
But these solutions do not scale Bitcoin. They are completely independent central sidechains.
They say layers? More like layers of trust assumptions.
Definitions
A lot of these projects are trying to adopt the standard thesis to scale Bitcoin. This basically means that each aspect of the transaction lifecycle can have its own specialized system. Execution, transaction demand, and data availability can be managed by independent actors. Bitcoin will be the settlement layer at the base of everything.
It's not a terrible thesis when you dive into it. But its current implementation on Bitcoin is a little worse for wear.
A lot of new projects claim to be “collections”. The pools will use Bitcoin to provide data, publish their latest state root, and enough transactions to recalculate the state of the blockchain from origin to Bitcoin. If they want to scale up Bitcoin transactions, they also have a choice Trust to a minimuma bridge contract where users can deposit funds to mint currency in the pooled value.
Dig into some documentation sites and you'll see that none of these new projects (in production) are using Bitcoin to provide data. They want to use an alternative DA solution for performance. This means they want to be “Validiums” or “Optimums”.
These constructions are similar to sets. They are blockchains that similarly have bridge nodes with the parent chain, but use a different DA system. This improves performance, reduces costs, but comes with some security trade-offs.
In Validium's design, an L1 contract would be responsible for verifying a proof of validity associated with a specific state transition for settlement. After completing a specific state transition, the Validium bridge contract is able to process withdrawals for users who wish to exit the chain, including unilateral exits that users can submit themselves if state data is available. The optimizations are similar, but rely on fraud proof mechanisms rather than validity proofs.
But none of the production applications use an automated mechanism, on Bitcoin, that supports verification of SNARKs or fraud proofs…
Everything is verified on a completely different layer 1 or on their own licensed sidenet!
Most of these chains are configuring the Ethereum L2 SDK. They're either settling on Ethereum or on a fully centralized fork of geth that they've cobbled together.
So there is nothing to do with Bitcoin. It might settle on Ethereum, use the hottest DA layer, and have a powerful execution layer.
But it's not Bitcoin.
So side chains?
All new Bitcoin L2s are just standard sidechains. And when I say “benchmark sidechain,” I mean that they are running an alternate blockchain of the original blockchain for performance purposes. They also make security trade-offs by using an alternative DA layer to improve performance.
Bridge them with Bitcoin? Played by multiple tags.
So the general trust assumptions that users make are:
- Hopefully they won't be bothered by the multi-signatures running the Bitcoin bridge
- Hopefully the central serializer will embed and execute their transactions
- Trust the alternative DA layer to ensure data is readily available
- We hope that the central stabilizer will propagate state transitions to L1 nodes or we hope that centralized competitors will challenge the malicious state transitions.
- Trust the parent chain of the sidechain to validate (final) state transitions
- Trust the admin key so you don't upgrade the chain and steal user funds
Using a standard Bitcoin sidechain is a good thing if users know they can trust a completely centralized chain and bridge software to use their BTC. There are a couple of projects that are quite honest about this approach, and I've said publicly that I'm not completely against it from a go-to-market perspective.
The problem is that most teams skim the security details and try to make it seem like their builds are more or less similar to standard builds in Ethereum or other ecosystems.
Not all hope is gone
You may be reading this post and thinking that the whole situation has gone to hell and is not worth exploring. It may seem like it some days, but there's a lot of great R&D work being done around improved sideboard designs.
Teams like Setria And Alpen Laboratories They are looking to develop blockchains on top of Bitcoin. A lot of great work is being done from the BitVM community and ZeroSync team worked on improving bidirectional binding designs and developing the SNARK verification tool that works today. This work also inspires a number of bridging proposals from various clustering and sidechain projects.
You can't take the good out of the bad in these situations. It's not completely hopeless. But, all the nonsense we see in other ecosystems about complex expansion proposals, token incentives, and “progressive decentralization” roadmaps?
This comes out to Bitcoin a hundredfold.
So yeah. These new chains are not L2s.