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Looking for Cheaper BTC Transactions? Layer-2s Might Be the Solution

By Evan Jones05/09/2024

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Though many Bitcoin miners were likely wondering what their revenue would be like after the halving, the simultaneous launch of Runes Protocol led to there being $107.8 million in revenue for miners on April 20. While the Runes Protocol isn’t designed to be a way to reduce transaction costs and increase speeds for Bitcoin, it is a Bitcoin Layer-2. 

There are certainly other Bitcoin Layer-2s looking to help with those issues though, and we’re going to take a look at the leading BTC layer-2s in this article. Let’s start by looking at the benefits and challenges currently facing Bitcoin L2s. 

A Quick Recap of Bitcoin Layer-2 Benefits and Drawbacks

The main purpose of Bitcoin Layer-2s is to make the main blockchain layer (layer 1) more efficient. Their benefits include reducing transaction costs, increasing transaction speeds, and allowing the creation of decentralized applications that have the security of the Bitcoin blockchain network. They work much in the same manner that Ethereum Layer-2s do.

The main issues and drawbacks which Bitcoin L2s currently face are mostly related to adoption. Bitcoin L2s are complex, which means the most basic crypto users are likely to find the way they work confusing, as some already do with Ethereum L2s. Some of them also require a lock up of liquidity, which isn’t something every user is interested in doing. 

Some L2s are also more centralized than many Bitcoin users would like, which hinders their appeal. Perhaps the biggest issue and drawback for Bitcoin L2s is trying to be both useful and interoperable with existing infrastructure, as it is a hard line to walk with current development.

Leading Bitcoin Layer-2s

Now that we’ve looked at the purpose of Bitcoin L2s and their potential drawbacks, we can take a look at some of the leading L2s being built on Bitcoin. These are in no particular order.

Stacks (STX)

Stacks (STX) is a Bitcoin L2 that is meant for smart contracts. The Bitcoin base layer isn’t capable of executing smart contracts, which is why an L2 like Stacks has a good use case. Stacks settles transactions on the Bitcoin base layer, while allowing Bitcoin to be used as a smart contract asset. 

A significant Stacks development is the Nakamoto release, aimed at deepening the integration with Bitcoin by enabling the Stacks network to write directly to the Bitcoin blockchain. It introduces sBTC, a bitcoin-pegged asset on the Stacks layer that can be used in facilitating decentralized asset exchange and enhancing network utility.

Stacks uses a Proof of Transfer consensus mechanism, giving it complete knowledge of the full Bitcoin state, enabling it to read from Bitcoin at any time. All transactions on Stacks are automatically hashed and settled on the Bitcoin L1. STX blocks are secured solely by Bitcoin hashpower, meaning that to re-order Stacks blocks or transactions, an attacker would have to hack Bitcoin itself.

The Lightning Network

The Bitcoin Lightning Network is built on top of Bitcoin’s base layer and uses smart contracts and bidirectional payment channels to essentially remove the need for block confirmations. This means that if you and your recipient are both using the Lightning Network, the transaction will be instant and the fee will essentially be zero. The Lightning Network can handle 1,000,000 transactions per second and they are instantly finalized with almost no fee. This makes it extremely well suited for micropayments.

There is no token for the Lightning Network, it’s simply a layer which can be accessed by anyone with a Lightning-capable Bitcoin wallet.

The main limitation of using the Lightning Network is whether all parties involved use it. Meaning if you’re using the Lightning Network, but the retailer or platform isn’t, then you’ll have to instead send funds on the main Bitcoin network. 

This can be doubly frustrating because BTC held on the Lightning Network is separate from the mainnet, meaning if you sent all your funds to the Lightning capable wallet, you’d have to send some back to the mainnet. However, places that are serious about Bitcoin almost always have Lightning Network channels open.

Elastos (ELA)

Elastos (ELA), was founded in 2017 and is a blockchain-powered internet version aiming to be Bitcoin’s Web3, but referred to as SmartWeb. ELA’s recent breakthrough was the introduction of BeL2, an L2 solution that leverages their SmartWeb technology to revolutionize Bitcoin transactions. 

BeL2 extends the efficiency and scalability of the Bitcoin network through smart contracts, the way Stacks aims to. Successful implementation will enable Bitcoin to power a smart economy and effectively release the liquidity of hundreds of billions of dollars in staked Bitcoin assets.

ELA boasts extremely high security and credibility in its network, thanks to over 50% of Bitcoin’s hash power protecting it through merged mining

Merlin (MERL)

Merlin Chain is a Bitcoin L2 that was launched in early 2024. The Merlin Chain is designed to enhance Bitcoin’s scalability and efficiency through ZK-Rollup technology, which is something you’ve likely seen when reading about Ethereum L2s. ZK-Rollup technology compresses transaction data significantly, which enables faster and cheaper transactions relative to Bitcoin’s base layer.

Merlin Chain also integrates a decentralized oracle network and on-chain BTC fraud-proof modules, for improved transparency and security. MERL is the governance token of the layer.

Closing Thoughts

Bitcoin L2s are somewhat newer than their Ethereum counterparts, but the launch of Ordinals on the network in 2023 has helped push the concept of L2s forward in the community. Having access to Bitcoin’s security but with faster transaction speeds and low costs are just some of the reasons that L2s are starting to become more popular. 

If Bitcoin L2s are able to succeed and create a vibrant DeFi ecosystem on par with Ethereum’s, it will be interesting to see what happens to the market.

Article tags

Beginner
bitcoin
guide
Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

Further reading

Is Bitcoin Useful for Micropayments of Less Than $5? image
Is Bitcoin Useful for Micropayments of Less Than $5?03/30/2023
What to Do if You Suddenly Acquire a Significant Amount of Bitcoin image
What to Do if You Suddenly Acquire a Significant Amount of Bitcoin03/08/2024
What Are the Biggest Crypto Mistakes for Beginners? image
What Are the Biggest Crypto Mistakes for Beginners?02/13/2023
Do Individuals Still Mine Bitcoin? What Are the Alternatives? image
Do Individuals Still Mine Bitcoin? What Are the Alternatives?03/23/2023

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