Basic Knowledge System of Bitcoin Layer 2 Network

The rise of Bitcoin inscriptions has brought new vitality to the Bitcoin ecosystem, allowing more people to refocus on Bitcoin. Some believe this has opened Pandora's box for the Bitcoin ecosystem. Among the many technological developments in the Bitcoin ecosystem, layer two construction is of utmost importance. This article draws on several well-known articles online, as well as discussions with multiple friends, to summarize the basic knowledge of Bitcoin layer two. It is hoped that this will inspire further ideas and attract more people to refine related thoughts, promoting the development of this field.

The blockchain world starts with Bitcoin and will end with the Bitcoin ecosystem. Ethereum is essentially an exploration of a sidechain technology of Bitcoin.

The concepts of "Layer 2 construction" and "Layer 2 network construction" are used interchangeably in this article. Layer 2 construction is a broader concept, but to align with common industry terminology, "Layer 2 network construction" will also be used.

1. The Mission of Layer 2

To understand the fundamental issues that need to be addressed in the construction of Bitcoin's second layer, we will first discuss the basic characteristics of blockchain systems.

1.1 The Fundamental Characteristics and Demands of Blockchain

We adopt the concept proposed by Vitalik: the blockchain is a "world computer". Understanding the various characteristics of the blockchain from this perspective will be clearer. Later, we will also analyze the development possibilities of this "world computer" based on the von Neumann architecture of computers.

Some basic characteristics of blockchain:

Transparency: This is a characteristic of the blockchain, the "world computer," regarding data storage and instruction execution, as well as an internal demand feature that requires global distributed nodes to participate in computation. This characteristic meets the users' right to know about the data and is a joint result of the internal collaboration requirements of this "world computer" and the external needs of the users.

Decentralization: This is an architectural feature of this "world computer". The degree of decentralization and fault tolerance is theoretically supported by the Byzantine Generals' Problem. Non-Byzantine General systems are theoretically not blockchain systems. The degree of decentralization is an important indicator of blockchain security and the basis for certain characteristics.

Security: Security is composed of internal demands generated by the architectural features of this "world computer" and external demands required by users. On a micro level, security is ensured by cryptographic-related technologies, and on a macro level, it is guaranteed by the decentralization of the architecture, thus it will not be affected by the forgery of micro data or the destruction of the macro architecture.

Computing Power: One of the main functions of the blockchain as a world computer is its computing power. This metric is generally evaluated by whether it is Turing complete. Some chains are deliberately designed to be Turing incomplete in order to maintain their main characteristics. For example, the Bitcoin network, where Satoshi Nakamoto not only made its code instructions Turing incomplete but also intentionally removed some instruction sets during its development to maintain its stability and security. All Turing complete technologies are aimed at expanding the computing power of the blockchain.

Performance: Under the same computing power, performance is another key capability of the blockchain computer. It is generally measured by TPS.

Storage: The blockchain is described as a "world computer," so it must have storage capabilities, that is, the ability to record data. Currently, it is primarily stored within blocks, while more specialized off-chain storage is still under development.

Privacy: Privacy is a sub-requirement in the "World Computer," which demands that the scope of permissions for data producers and users be maintained during the computation and storage processes. This is fundamentally driven by the external needs of the users.

There is also a comprehensive indicator of scalability, which generally refers to the scalability of the entire architecture, and this characteristic affects most of the fundamental features. At the architectural level, the scalability of the system is a very important metric.

Among the basic characteristics of these blockchains, most are constrained by the interdevelopment relationships of the impossible triangle. For example, the DSS conjecture refers to Decentralization (, Security ), and Scalability (.

In distributed systems, a similar impossible triangle is the CAP principle. CAP refers to the fact that in a distributed system, consistency )Consistency (, availability )Availability (, and partition tolerance )Partition tolerance ( cannot all be achieved simultaneously. Blockchain systems are distributed systems that involve the Byzantine Generals Problem, so the CAP principle also applies.

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) 1.2 The Role of Layer 2 Construction

What roles need to be completed in layer two construction? What functions does it provide? Layer two construction must address the shortcomings of layer one systems and accomplish tasks that are not suitable for completion on layer one systems.

From the blockchain characteristics summarized above, we can draw a preliminary conclusion that it is essential to expand these foundational capabilities: public transparency, decentralization, security, computing power, performance ( throughput ), storage, privacy, etc. In addition to these foundational capabilities from a technical perspective, there is also a very important economic issue that needs to be addressed, which is reducing costs. Typically, the comprehensive cost of executing transactions on a layer one network is quite high, necessitating the use of layer two networks to reduce these costs.

In summary, the solutions for increasing capacity, reducing costs, and customizing features are all about Layer 2 construction. As for customized features, they are currently not very apparent, or often hidden within the first two characteristics, which can be somewhat confusing. We can understand this as the characteristics of the Layer 1 network varying in necessity for different applications, allowing for a re-adjustment of the implementation of various features on Layer 2 for certain applications.

In layer two construction, the foundational capabilities of the blockchain will have various trade-offs, reducing some characteristics and even discarding some features in exchange for significant improvements in certain features. For example, some layer twos may reduce the degree of decentralization and security to improve performance; others, like the Lightning Network, may change the system's structure and settlement methods to increase throughput. Additionally, some enhance certain features without reducing foundational characteristics, such as the RGB processing method, which significantly increases privacy and censorship resistance but also raises the difficulty of technical implementation.

Reducing costs should be a fundamental requirement for all layer two constructions.

1.3 Why is it necessary to do layered design?

Layered design is a means and methodology for humans to handle complex systems. By dividing the system into multiple hierarchical structures and defining the relationships and functions between each layer, it achieves modularity, maintainability, and scalability of the system, thereby improving the design efficiency and reliability of the system.

For a large and extensive protocol system, using layering has obvious advantages. It makes it easier for people to understand, facilitates division of labor for implementation, and allows for modular improvements. Similar to the seven-layer model design of ISO/OSI in computer networks, in practical implementation, some layers can be merged; for example, the specific network protocol TCP/IP is a four-layer protocol.

The specific advantages of protocol layering:

1. Each level is independent of the others. A certain level does not need to know how its next level is implemented, but only needs to know the services provided by that level through the inter-level interfaces. This reduces the overall complexity of the problem. In other words, how the previous level works does not affect the work of the next level. Therefore, when designing the work for each level, as long as the interfaces remain unchanged, we can freely adjust the working methods within the level.

2. Good flexibility. When any layer changes, as long as the inter-layer interface relationship remains unchanged, the layers above or below will not be affected. When a certain layer experiences technological innovation or encounters issues during operation, it will not impact the work of other layers, and when troubleshooting, only the issues of that particular layer need to be considered.

3.Structurally separable. Each layer can adopt the most suitable technology for implementation. The development of technology is often asymmetric; the hierarchical division effectively avoids the wooden barrel effect, so the overall work efficiency will not be affected by the shortcomings of a specific aspect of technology.

4.Easy to implement and maintain. This structure makes it easier to handle the implementation and debugging of a large and complex system, as the entire system has been broken down into several relatively independent subsystems. During debugging and maintenance, each layer can be debugged separately, avoiding situations where problems cannot be found or resolved incorrectly.

5.Can promote standardization work. Because the functions of each layer and the services it provides have already been precisely described. The benefit of standardization is that any layer can be replaced at will, which is very convenient for use and research.

The layered modular design concept is a common approach in the technical field for handling large-scale functions that require collaboration among multiple people and continuous improvement of engineering projects. It is a method that has been tested in practice and proven to be effective.

2. Several Construction Ideas for Bitcoin Layer 2

There are three significant construction routes for Bitcoin's second layer:

###1( One type is based on a chain expansion route, similar to the second layer of EVM, which is a blockchain structure;

) One type is based on a distributed route, represented by the Lightning Network, which is a distributed structure.

(3) There is also a route based on a centralized system, represented by centralized indexing, which is a centralized structure.

The first two methods have their own characteristics, and there are already some products in use and products under exploration. For the first method, due to the vigorous development of Ethereum and the exploration of other Bitcoin imitation chains, layer two scaling based on the chain is relatively easier, with more reference cases available. The second method, based on distribution, is usually more difficult and develops more slowly, represented by the Lightning Network. The third method is quite controversial, as it does not seem to resemble a layer two construction, but appears to fulfill the functions of a layer two construction.

Which layer two construction plan is better? We use a market test result as a measure, whichever layer two network has a higher Total Value Locked (TVL() is the optimal plan. With the development of time and technology, this optimal plan will be a changing process.

For the definition of the second layer network of Bitcoin, as long as it relies on the Bitcoin network and establishes a technical association with the Bitcoin network, some features that are superior to the first layer of Bitcoin network are considered part of the second layer network construction of Bitcoin. In other words: as long as BTC is consumed as gas, and BTC is used as the underlying asset, any system that expands the performance of Bitcoin is considered second layer construction. Based on this judgment, we should recognize a third type of second layer network construction, namely centralized structure second layer construction.

The development of Bitcoin's technology itself, such as modifications to OP_RETURN, Taproot, Schnorr signatures, MAST, and Tapscript, should be designed for the purpose of connecting layer one and layer two. These technologies should not be used to develop excessive features, as no matter how much the layer one network expands, there won't be a qualitative breakthrough; layer two construction is essential. However, in the absence of better Bitcoin layer two products, these technical capabilities connecting layer one and layer two will be overused for a period of time.

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) 2.1 Layer 2 Construction Based on Blockchain

Early Bitcoin imitation chains explored various avenues, such as "Colorcoin"( colored coins), "CovertCoins" and "MasterCoin"; various scalability Bitcoin imitation chains, like BCH( Bitcoin Cash), BSV### Bitcoin SV(, BTG) Bitcoin Gold(; various sidechain technologies are all based on the expansion construction cases of chains, which can be considered a broad sense of Layer 2.

Including Ethereum, which is also an exploration of improvements based on Bitcoin. In the absence of success in persuading other project teams, Vitalik formed his own team to address the imperfections of Bitcoin: the UTXO unaccounted system, the non-Turing complete execution language, poor scalability, and other issues, publishing a white paper to develop a new generation of blockchain systems. Although Ethereum's exploration is not a direct second-layer construction on Bitcoin, it is broadly an exploration of chain-based construction.

Ethereum for Bitcoin