Bitcoin’s secondary layers are often overlooked despite their undoubted ability to enhance Bitcoin’s potential for more advanced functionality. Much of the focus is directed at the Lightning Network and its ability to handle microtransactions at high speeds.
However, Secondary layers (or Layer 2) can effectively interface with smart contracts, leverage cryptographic techniques for advanced privacy, and create decentralized identity and access solutions associated with the blockchain.
This article will explore these fascinating layers and their potential use cases, considering how the future of Bitcoin will be determined beyond currency transactions. Bitcoin’s secondary layers are expected to provide the backbone of a complex ecosystem that will accelerate the growth of decentralized applications.
What are the secondary layers of Bitcoin?
The terms primary layer and secondary layer refer to the different networks within a single blockchain, which is the shared database that supports cryptocurrency and other projects.
The underlying layer (Layer 1), sometimes referred to as the original chain or the “mainnet,” is the blockchain itself and is fundamental to all operations. Secondary layers (Layer 2) on the other hand are secondary networks developed on top of the blockchain (Layer 1), enabling third-party integrations.
Secondary layers help reduce the load on the blockchain By taking advantage of his strengths And work around its limitations. These networks can process transactions externally which are then sent to the blockchain for processing and confirmation. As a result, the overall capacity of the blockchain can be increased, leading to ease of use and additional functionality.
The most famous secondary class is Lightning network Which uses state channels (a solution we’ll discuss later) to enable microtransactions on top of the blockchain. This involves users sending Bitcoin payments through an encrypted peer-to-peer (P2P) channel that works similarly to smart contracts, creating a simple, efficient and more cost-effective channel between sender and recipient.
What are the main benefits of Bitcoin’s secondary layers?
There are three keys Benefits of Bitcoin Sublayersto increase scalability and expand blockchain functionality while making it easier for businesses to comply with financial regulations.
Increase scalability
One set of transactions may take about ten minutes to process on the Bitcoin network, with an average of about seven seconds per transaction. This could lead to Network congestion At peak times and leads to higher transaction fees, affecting the feasibility of small transactions and point-of-sale transactions.
Bitcoin’s blockchain cannot be scaled because this jeopardizes security and decentralization, which are the two fundamental pillars of the network. Due to the high volume of transactions across the network, secondary layers are being leveraged more to process transactions “off-chain” to reduce pressure on the primary layer.
In terms of decentralized applications, by distributing data across a network of nodes, secondary layers reduce the risk of centralized failure points and attacks, enhancing the overall Security of application deploymentsIn addition to patches, updates and all other forms of changes.
Improved functionality and usefulness
The Bitcoin network is designed to enable transparent P2P transactions and provide resources for the digital currency to continue to grow in value. By focusing only on these two main functions, the Bitcoin network remains robust and secure, preventing any chance of being tampered with.
However, this would limit future innovations were it not for the secondary layers. Thanks to Layer 2, third-party developers can do this remarkably well Increase Bitcoin functionalityExpanding use cases and leveraging new web3 technologies such as NFTs and of course smart contracts.
compliance
With more secure payment channels, complying with regulations becomes much easier and inexpensive. Compliance is a key consideration for any business that accepts cryptocurrency payments.
Both secondary and blockchain layers In its current and future versionsThis may be the key to creating many of the tracking and security features that website owners and businesses need to use PCI compliant hosting (if they accept payments) Or spend six-figure sums on copious amounts of testing.
How do Bitcoin’s secondary layers work?
Secondary layers can work in different ways, and there are three main second layer solutions that you should be familiar with to help understand the operations.
- State Channels – This solution allows users to avoid high transaction fees, providing end-to-end encrypted payment channels for sending and receiving Bitcoin. State channels They are effectively mini-ledgers, and only the opening and closing balance are reported to the blockchain once the payment channel is closed, allowing users to make unlimited transactions without incurring transaction fees.
- Sidechains – Sidechains are independent blockchains that create a two-way bridge to the blockchain. This makes it possible to transfer data assets easily and quickly between different transaction chains. As an independent blockchain, sidechains can also integrate other secondary layer solutions.
- Aggregation Chains – Aggregation chains also allow users to perform a large number of transactions off-chain, consolidating individual transactions into a single block of data that is then reported to the blockchain. there Two types of assembly chains, Optimistic and ZK. Optimistic aggregations automatically validate all aggregated transactions, while ZK aggregations generate a single cryptographic proof of validation.
Developing more secure and faster systems is essential for both small and enterprise-level businesses as organizations rely on complex processes such as switching enterprise resource planning (ERP) software or… Increased Workday headcount. As third-party secondary layers become more advanced, these companies will likely increasingly rely on blockchain rather than cloud solutions, further accelerating the growth of the Bitcoin ecosystem.
What are some of the most popular secondary classes?
We’ve already discussed the most common secondary layer, the accelerator network, so to provide a more in-depth overview of Layer 2 capabilities, we’ll focus on some other commonly used solutions.
Root (RSK)
As a popular sidechain, Rootstock (RSK) is at the forefront of smart contract functionality on the Bitcoin blockchain. Its “two-way peg” system involves users sending Bitcoin directly to RSK where it is stored and secured in a digital wallet as Smart Bitcoin (RBTC). Users can withdraw RBTC from the regular Bitcoin blockchain.
RSK offers much faster transaction speeds than the Bitcoin network and is also compatible with Ethereum Virtual Machine (EVM)This makes it possible to execute smart contracts on the Ethereum-style blockchain.
Liquid network
Liquid Network is the solution that Improves transaction speeds But it also makes use of cryptographic techniques to improve the privacy of Bitcoin payments. It is another sidechain solution and works alongside the blockchain but uses its native asset Liquid (L-BTC) instead of standard Bitcoin. Liquid Network also uses two-way pegs, such as RSK, to convert BTC to L-BTC
RGB
RGB is a smart contract protocol and Bitcoin’s secondary layer connected to the Lightning Network. It allows users on the Lightning Network to design contractual agreements with the option to create a token or not. This system offers fast speeds and reduced fees while using the underlying blockchain as a mechanism to control ownership and confidentiality.
By interacting with the Bitcoin Blockchain and Lightning Network, RGB makes it possible to develop more third-party solutions to verify advanced blockchain-level automation and further reduce transaction fees.
Stacks protocol
This protocol enables self-executing smart contracts without the need to use a hard fork, and is a modification of the Bitcoin blockchain creating an entirely new blockchain. Hard forks often disrupt communities and cause instability, which is why they are avoided.
Instead, the Stacks protocol uses small blocks that provide high speeds and operate on them Unique Proof of Transfer (PoX) mechanism To connect them to the Bitcoin blockchain. This makes it extremely easy to run smart contracts and decentralized applications without leaving the Bitcoin ecosystem.
Conclusion
The Bitcoin Blockchain (its base layer) has many limitations because it is only designed to facilitate secure P2P transactions. This is why secondary layers are needed that allow third-party integrations to work alongside blockchain to provide innovations.
These layers can lead to lower transaction speeds, faster processing times with minimal network congestion, and the incorporation of advanced cryptographic privacy techniques.
In the future, secondary layers are expected to facilitate further growth, supporting the Bitcoin ecosystem to integrate a range of advanced decentralized applications that can revolutionize P2P transactions, point-of-sale payments, and much more.
This is a guest post by Kiara Taylor. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
