Basic Knowledge System of Bitcoin Layer 2 Network

The rise of Bitcoin inscriptions has brought new vitality to the Bitcoin ecosystem, attracting more people to pay attention to Bitcoin again. Some believe this has opened Pandora's box for the Bitcoin ecosystem. Among the many technological developments in the Bitcoin ecosystem, Layer 2 construction is of utmost importance. This article draws on some well-known articles and discussions with friends, as well as the team's exploration in Web3 product design and development, to summarize the basic knowledge of Bitcoin Layer 2. It is hoped that this will inspire more people to refine relevant ideas and promote the development of this field.

The blockchain world starts with Bitcoin and ends with the Bitcoin ecosystem. Ethereum can also be seen as an exploration of a sidechain technology of Bitcoin.

The concepts of "Layer 2 construction" and "Layer 2 network construction" are interchangeable in this article. Layer 2 construction is a broader concept, but to adapt to commonly used terminology in the industry, "Layer 2 network construction" will also be used.

1. The Mission of Layer 2

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

1.1 The Fundamental Characteristics and Requirements of Blockchain

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

Summarize some basic features:

Open and transparent: This is a characteristic of the data storage and execution instruction of the blockchain as a "world computer", and it is also an internal demand feature that requires the participation of many distributed nodes globally for computation. This characteristic satisfies the users' right to know about the data and is a common result of the internal collaboration requirements of this "world computer" and the external demands of the users.

Decentralization: This feature is an architectural characteristic of this "world computer". The degree of decentralization and fault tolerance is theoretically supported by the Byzantine Generals' Theorem. Non-Byzantine general systems are theoretically not blockchain systems, and we will later see two cases of non-blockchain systems in layer two construction. The degree of decentralization is an important indicator of blockchain security and also serves as the foundation for certain features.

Security: Security is a joint composition of the internal demands produced by the architectural characteristics of this "world computer" and the external demands required by users. At the micro level, security is ensured by cryptographic-related technologies, while at the macro level, it is guaranteed by the decentralization of the architecture, thus preventing the security of this "world computer" from being affected by micro data forgery or macro architectural damage.

Computing power: One of the main functions of the blockchain as a global computer is computing power. To measure this metric, we generally examine whether it is Turing complete. Some chains are intentionally designed to be Turing incomplete in order to maintain their primary characteristics. For example, in the Bitcoin network, Satoshi Nakamoto not only made its code instructions Turing incomplete, but also deliberately 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. From the perspective of layered design, simple systems are more suitable for being the underlying layer.

Performance: Under the same computing power, performance is another major capability examined in the world of blockchain computing. It is generally measured by TPS, which stands for the number of transactions processed per second.

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

Privacy: Privacy is a sub-requirement in the "world computer," which demands the maintenance of the data producer and user permission scope during computing and storage (. We also include anti-censorship in the privacy section ). 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. This characteristic affects most of the fundamental features. At the architectural level, the scalability of the system is a very important indicator. There will also be some connectivity capabilities or other specific scenario capabilities, but this will not be discussed in detail here. When encountering these special scenarios, we will analyze them in more detail.

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

In distributed systems, a similar impossibility triangle is the CAP principle. CAP refers to the three properties in a distributed system: Consistency), Availability(, and Partition tolerance), which cannot be achieved simultaneously. Blockchain systems are distributed systems that include the Byzantine Generals Problem, so the CAP principle also applies.

( 1.2 The Role of Layer 2 Construction

What roles need to be fulfilled in layer 2 construction? What functions should it provide? Layer 2 construction must address the shortcomings of the layer 1 system and complete tasks that are not suitable for the layer 1 system.

From the blockchain characteristics summarized above, we can draw a preliminary conclusion that we must expand these basic capabilities: openness and transparency, decentralization, security, computing power, performance, ) throughput (, storage, privacy, etc. In addition to these basic capabilities from a technical perspective, there is also a very important economic issue that needs to be addressed, which is to reduce costs. Generally, the overall cost of executing transactions on a layer one network is relatively high, and it is necessary to use layer two networks to reduce these costs.

In summary, the solutions aimed at increasing capacity, reducing costs, and customizing features are all based on Layer 2 construction. As for customization, it is currently not very evident and is often hidden within the first two features, which can be somewhat confusing. We can understand it this way: the characteristics of Layer 1 networks vary in necessity for many applications, allowing for the adjustment of various feature implementations on Layer 2 tailored to specific applications.

In the construction of Layer 2, the foundational capabilities of blockchain will each have trade-offs, reducing some features and even discarding certain characteristics in exchange for significant improvements in others. For example, some Layer 2 solutions may reduce the degree of decentralization and compromise security to enhance performance; others, like the Lightning Network, may change the system's structure and settlement methods to increase throughput. There are also some that enhance a certain feature without reducing the fundamental characteristics, such as RGB's handling method, which significantly increases privacy and censorship resistance but raises the difficulty of technical implementation. In the following cases, we will see Layer 2 constructions that simultaneously reduce or alter several features.

Reducing costs should be a fundamental requirement for all Layer 2 constructions.

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) 1.3 Why do layered design?

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

For a wide and extensive protocol system, using layers has significant advantages. This approach makes it easier for people to understand, to divide work for implementation, and to improve modules. Similar to the seven-layer model design of ISO/OSI in computer networks, in specific implementations, some layers can be combined; for example, the specific network protocol TCP/IP is a four-layer protocol.

The specific advantages of protocol layering:

1. Each layer is independent of the others. A certain layer does not need to know how the next layer is implemented, but only needs to know the services provided by that layer through the inter-layer interface. This reduces the complexity of the overall problem. In other words, how the previous layer operates does not affect the operation of the next layer, so when we design the work for each layer, as long as we ensure that the interface remains unchanged, we can freely adjust the working methods within the layer.

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 affect the work of other layers; when troubleshooting, only the issues of that specific layer need to be considered.

3. Structurally, it can be divided. Each layer can adopt the most suitable technology for implementation. The development of technology is often asymmetrical, and the hierarchical division effectively avoids the wooden barrel effect, so the overall work efficiency will not be affected by the imperfection of technology in any one aspect.

4. Easy to implement and maintain. This structure makes it easy 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 individually, avoiding situations where problems are difficult to locate and resolve.

5. It can promote standardization work. Because each layer's functions and the services it provides have been precisely described. The benefit of standardization is that any layer can be replaced at will, making it 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.

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2. Several Construction Ideas for Bitcoin Layer 2

We take the second layer construction of Bitcoin as a case for related analysis. There are three prominent second layer construction routes for Bitcoin:

)1(One type is a chain-based 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 some 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 chains is relatively easier, with more reference cases available. The second distributed-based method is usually more difficult, and its development is slower, represented by the Lightning Network. The third method is quite controversial, as it does not seem to resemble a layer two construction, yet 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, which layer two network has the highest Total Value Locked TVL), that plan is the optimal plan. With the development of time and technology, this optimal plan will be a changing process.

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

The development of Bitcoin's technology itself, such as modifying 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 functions excessively, as no matter how much layer one networks expand, there will not be a qualitative breakthrough; layer two construction must be carried out. However, in the absence of better Bitcoin layer two products, these technical capabilities for connecting layer one and layer two will be overused for a period of time.

![A summary of the basic knowledge system of Bitcoin Layer 2 network](https://img-cdn.gateio.im/webp-social/moments-2c2d6311345cff334bcb6338cbfe47bd.webp