This article is summarized from Self-discipline Space: Bitcoin Layer2 Year, How to Layout?

Merlin Chain is a Bitcoin Layer 2 solution that integrates key modules such as ZK-Rollup network, decentralized oracle network, and fraud proof on the Bitcoin chain. It focuses on empowering native assets, protocols, and application ecology of Bitcoin Layer 1, enabling them to continue to innovate and amplify asset potential on Layer 2 network. Merlin Chain is a subsidiary product line of Bitmap Tech. Bitmap Tech (formerly known as RCSV) has long been deeply involved in the Bitcoin ecosystem, with a total market value of over $500 million. The BRC-420 "Blue Box" issued by Bitmap Tech has become one of the most popular assets in the Ordinals protocol.

Its founder Jeff is a long-term cultivator of the Bitcoin ecosystem and the youngest recipient of Forbes 30 Under 30. In his past entrepreneurial experiences, he has received financing from top institutions such as Red Shirt Capital, IDG Capital, BAI Capital (Thomson), Wuyuan Capital, and Oasis Capital.

Bitcoin asset issuance capacity upgraded, Ordinals drive ecological breakthrough

Last year, the introduction of the Ordinals protocol brought a significant breakthrough to the Bitcoin ecosystem, enabling the blockchain that has existed for over a decade to issue assets. Prior to this, Bitcoin did not have this functionality. In contrast, Ethereum itself has interest-bearing capabilities, making its ecosystem and applications quite rich, and allowing for a large amount of interaction between various Ethereum Layer2s.

With the emergence of protocols such as BRC-20, BRC-420, and ARC-20, Bitcoin users can now engrave assets on the chain, resulting in millions of new inscriptions, some of which have even successfully landed on major exchanges such as Binance and OKEx. The launch of these new protocols has achieved a new milestone in asset issuance for Bitcoin.

During the bull market, the market value ratio of Ethereum's ERC-20 assets to Ethereum itself often exceeds 1:1. Currently, the total market value of Bitcoin-related assets is approximately between 4 to 5 billion US dollars, far below Bitcoin's own market value of over 840 billion US dollars. If Bitcoin-related assets can reach a ratio of 1:1 with Bitcoin's market value, their growth potential will be enormous.

Therefore, from a financial perspective, the demand for Bitcoin is very clear - high net worth assets require better liquidity. In order to transform Bitcoin from a stored asset worth 800 billion to 1 trillion or even tens of trillions with more liquidity and leverage, more builders need to participate.

Meanwhile, users have already noticed that there are certain limitations to trading and interacting on the Bitcoin layer 1. In order to meet the demand for faster and more diverse interaction scenarios and product applications, the emergence of Layer 2 is imperative. Both developers and venture capitalists have reached a consensus on this trend.

It can be seen that in the next one to two years, builders need to think deeply about how to make Bitcoin Layer2 develop more healthily and robustly, and bring more innovation.

Embrace True Decentralization and Challenge Traditional Business Models in Web3

The fully permissionless and open-source nature of protocols such as BRC-20 brings unique appeal to Bitcoin Layer2. Users can freely participate and invest based on community choices, potentially gaining huge returns or facing the risk of zero, forming an interesting game. Jeff believes that Layer2 can further develop on this basis and provide more innovative asset issuance methods.

Unlike traditional Web3 projects where the project team holds a large amount of tokens, Bitcoin Layer2 needs to explore a new business model to achieve fair token distribution while ensuring transparency and sustainable revenue for the project team. This model encourages project teams to drive asset development through development and innovation, rather than opaque means of profit-making.

It is worth noting that the openness and open source nature of Bitcoin provide possibilities for the combination of applications. Jeff's team, Bitmap Tech, previously developed Recursive and Bitmap products based on this composability, allowing all applications to be built on the open source foundation of the chain, which is expected to bring significant innovation to fields such as entertainment, social and metaverse.

The market's acceptance of cutting-edge innovation takes time, but it is undeniable that these innovations will drive the development of the Bitcoin ecosystem and bring new experiences to users.

Opportunities and Risks in the Prosperous Wave, Reflections Behind Market Heat

With the current total market value of Bitcoin-related assets at around 4 to 5 billion US dollars, there are already over 100 Layer2 projects. Jeff vividly compares this phenomenon to banks having numerous projects but lacking depositors, indicating that the market may be experiencing an overheated phase. Although this has raised concerns about the true value of the market, it is certain that there is a clear demand from users and interest from institutional investors.

Users face significant transaction friction on Bitcoin Layer1, including high transaction costs and low liquidity. For institutional investors, participating in Bitcoin Layer1 projects that use fair launch is also a challenge. Layer2 can solve the transaction friction of Layer1, improve asset liquidity, and institutional investors can also indirectly participate in the Bitcoin ecosystem by investing in Layer2 projects and contribute to the development of this field.

With the establishment of Layer2 environment, the Bitcoin ecosystem is expected to usher in an application explosion, and popular applications may emerge in active communities such as Bitmap that are native to Bitcoin. However, many Layer2 projects currently rely too much on funds and users from the Ethereum ecosystem, deviating from the original intention of Bitcoin Layer2.

Institutional investors are seeking low-cost, long-term investment opportunities on Layer2. Jeff's analysis indicates that after a period of chaos lasting 3 to 6 months, more high-quality applications are expected to emerge.

However, while chasing the good news, it is important to pay attention to the security of the project, especially the security of cross-chain bridges. If the security issues of the project are not properly addressed, then no matter how popular the project is, its prosperity is fragile. Considering the countless bridge attacks that have occurred in the Ethereum ecosystem, multi-level protection mechanisms and the use of cross-chain bridges under the joint supervision of third parties are particularly important.

Recently, there is a possibility of launching a Bitcoin Layer2 EVM sidechain. However, due to the incompatible asset models of Bitcoin and EVM chains, there are significant potential risks in the cross-chain process. Jeff's team developed Merlin Chain and chose to develop a cross-chain bridge independently, and together with partners, designed security mechanisms and efficiency compensation. As developers and project parties, they must proceed with caution to ensure the security and stability of the project in a bustling market.

Native assets lead the wave of success, long-termism achieves ecological prosperity

Jeff predicts that within the next year, there will be a native asset based on Bitcoin Layer2 that will achieve significant success, with a very high market value. This success story will be a huge affirmation of the Layer2 ecosystem, attracting more user participation. At the same time, there is also the possibility of an explosive application, similar to past successes like Axie Infinity, StepN, or The Sandbox. These applications will drive the development of the Bitcoin ecosystem and bring new vitality to the market.

Project parties should adopt a long-term attitude and focus on providing continuous services and support for native Bitcoin users and assets. Native Bitcoin users and communities are the most loyal and supportive core group in the Bitcoin ecosystem, and their participation and support are crucial for the long-term development of the project. In addition, the project should focus on empowering native Bitcoin assets, rather than just introducing assets on other chains such as Ethereum. Only by providing applications and value for native assets can the project promote the growth of the Bitcoin ecosystem itself and achieve long-term success.

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