Bitcoin Ecological Layer: Pulling Back the Curtain of the Trustless Financial Era (1)

Author/Contributor: Kyle Ellicott, Yan Ma, Darius Tan, Melody He, Chinese translation: 0xNirvana, Deep Tide

"Bitcoin Ecological Layer: Opening Up Without Trust "The Curtain of the Financial Era" is a research report on the development of various aspects of the Bitcoin ecosystem.

This report was co-authored by the Spartan Group team, Kyle Ellicott, and a number of 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 accurate as of the time of publication. This article is the first in a series of four articles.

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

The stability and security of the Bitcoin network not only give BTC lasting value, but also allow it to accumulate Considerable capital has been raised: According to data at the time of writing this report, Bitcoin has a market capitalization of over $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 funds, 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 its commonly assumed role as a mere “store of value (SoV)” and will steadily become the “tool for building a trustless financial system” that it was once envisioned to be. Basic technology platform”. However, each of these approaches has significant limitations, such as flexibility, performance or security model aspects.

Ordinals has brought about a renaissance for Bitcoin builders

At the same time, the introduction of Ordinals marks a move towards using Bitcoin Layer-1 for storage of value. A major cultural shift in applications beyond (SoV), including "NFT on the Bitcoin ecosystem" and further innovations on the Ordinals protocol, such as recursive inscriptions, 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.

Bitcoin ecological layer solves the scalability problem

The concept of "Bitcoin ecological layer" (Bitcoin Layers) imitates the layered architecture of Ethereum and represents the development of Bitcoin. Strategic responses to 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, Lightning Network (Lightning) has been used 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 security and decentralization of the Bitcoin network, according to the original design, Bitcoin L1 will always have specific Innate limitations, namely 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 to last year, at the same time, Ethereum Gas fees 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 Upgrade" in Q2 2024. Release).

The Satoshi upgrade promises to transform 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 is 100% inherited from Bitcoin. Reorganize security and 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 prepared for institutionalization

The continued development of Bitcoin Layer-2 is enabling a scalable environment ahead of the Bitcoin halving event in 2024 A stronger and more secure ecosystem is gradually taking shape. 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.