Original title: Bitcoin Layers: Tapestry of a Trustless Financial Era (Part 1 of 4)

Original author: Kyle Ellicott, Yan Ma, Darius Tan, Melody He, Spartan Group

Original compilation: 0xNirvana

"Bitcoin Ecological Layer: Pulling Back the Curtain of the Trustless Financial Era" is a report on the development of all aspects of the Bitcoin ecosystem. research report. This report was co-authored by the Spartan Group team, Kyle Ellicott, and several experts who provided feedback and insights and generously gave their time to review the final version of this article. This report was drafted in December 2023 and the data contained in it are current at the time of writing. This article is the first in a series of four articles.

Bitcoin capital worth more than $850 billion has still not produced benefits

Bitcoin network The stability and security not only give BTC lasting value, but also enable it to accumulate considerable capital: according to data at the time of writing this report, the market value of Bitcoin has exceeded US$850 billion. However, the network faces a series of significant challenges, such as programming capabilities, technical scalability, and cultural consistency of the developer community. These issues have hindered development efforts on the Bitcoin network since its inception, and underutilized capital has resulted in large amounts of funds remaining dormant.

Major changes in the Bitcoin ecosystem may activate its huge potential

In order to activate these dormant Funding, it is crucial to fully utilize the potential and capabilities of the Bitcoin network. Currently, developers and builders are already working on technologies based on Bitcoin or close to it to provide smart contracts and scalable, fast transactions to enable new use cases. Therefore, Bitcoin's positioning is gradually surpassing the commonly assumed role of just a "store of value (SoV)" and will steadily become the "basic technology platform for building trustless financial systems" as it was once envisioned. However, each of these approaches has significant limitations, such as flexibility, performance or security model aspects.

Ordinals brings about a renaissance of Bitcoin builders

At the same time, the introduction of Inscription marks a major cultural shift towards using Bitcoin Layer-1 for applications other than store of value (SoV), including "NFT on the Bitcoin ecosystem" and further innovation on the Ordinals protocol, For example, recursive inscription, BRC-20, etc. It is worth noting that this additional use case for L1 puts further pressure on its performance and scalability, and Bitcoin’s fees are also significantly higher.

The Bitcoin ecological layer solves the scalability problem

The "Bitcoin ecological layer" (Bitcoin Layers) A concept that emulates Ethereum’s layered architecture and represents a strategic response to Bitcoin’s limitations. These different ecological layers bring various functions, such as programming capabilities, increased transaction speed, data availability, and application functions. This approach leverages Bitcoin’s security and stability while also unlocking Bitcoin’s vast funding potential. Previously, the Lightning Network has served as a Layer-2 protocol for fast payments, but other ecological layers can provide more complex functions in addition to fast transactions and scalability, such as smart contracts.

The strategic necessity of Bitcoin Layer-2 solutions

In order to ensure the Bitcoin network In terms of security and decentralization, according to the original design, Bitcoin L1 will always have specific innate limitations, namely the lack of smart contract programming capabilities and slow transaction speed. However, major upgrades such as SegWit and Taproot have solved some problems, but as gas fees continue to rise (this year, Bitcoin gas fees once increased by more than 280% compared with last year, and at the same time, Ethereum gas fees once increased by more than 160%) , the strong demand for Bitcoin block space, etc., have highlighted the need for more sophisticated Layer 2 solutions. For example, Stacks will announce an important upgrade "Nakamoto Release" in Q2 2024. The Satoshi upgrade promises to turn Stacks into the Bitcoin Layer-2 the market really needs: a Layer 2 that supports smart contracts, allows applications to use BTC as their asset, and inherits 100% of Bitcoin’s reorganization security (Reorg Security) and finality (Finality), and provide fast transactions. From a strategic level, increasing the available Layer-2 options will help drive innovation and scalability by introducing competition and stimulating developer interest.

The Bitcoin ecosystem is fully ready for institutionalization

In 2024 Before the Bitcoin halving event, the continued development of Bitcoin Layer-2 is gradually shaping a more scalable and safer ecosystem. Perhaps due to the increasing interest of institutions in this field, multiple Bitcoin spot ETFs have been approved. Bitcoin has stood at the forefront of a new, trustless financial paradigm that perfectly integrates traditional and decentralized systems. cutting edge.

[1] Note: As of this writing, Bitcoin’s market cap is $855 billion - https://messari.io/project/bitcoin

[2] Note: According to YCharts data, on December 1, 2023, the average Bitcoin transaction fee level was US$6.469, a decrease from US$6.700 yesterday, and a significant increase from US$690 in the same period last year. 282.7%. For details, please visit: https://ycharts.com/indicators/bitcoin_average_transaction_fee

[3] Note: According to YCharts data, the current average transaction fee level of Ethereum is US$1.346, an increase from US$1.314 yesterday, and a significant increase from US$0.513 in the same period last year, an increase of 162.3%. For details, please visit: https://ycharts.com/indicators/ethereum_average_transaction_fee

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