Layer 2s are actually so deeply embedded within the EVM panorama that it’s onerous to recall a time once they weren’t a cornerstone of day by day life for thousands and thousands of customers. However not so way back, Layer 2 existed as little greater than an concept than a working actuality. Over the past three years, nonetheless, dozens of Layer 2 networks have sprung as much as take the pressure off Layer 1 chains comparable to Ethereum – and now the identical transformation is going down on Bitcoin.
Why We L2
A layer 2 is actually a blockchain community that attracts its safety mannequin from the principle chain, or mother or father chain, it’s related to. Transactions are routed to a secondary community that’s cheaper and sooner to make use of, with this exercise routinely verified on the principle chain by transmitting a proof that attests to the validity of the L2 exercise that has just lately taken place. On this method, the L2 can profit from the scalability that its purpose-built structure helps with out considerably weakening its safety and decentralization versus the L1 it attracts from.
L2s are primarily an try and have the very best of each worlds: the power of a battle-tested principal chain comparable to Ethereum with out the excessive charges and bottlenecks. On this respect, L2s have confirmed a powerful success. Second layer options comparable to Polygon, Optimism, Arbitrum, and Base now dominate the EVM ecosystem, collectively accounting for considerably extra financial exercise than Ethereum each when it comes to greenback worth and transaction depend.
Ethereum has not been rendered redundant, nonetheless: the billions of {dollars} invested in securing its community by means of Proof of Stake makes the community extraordinarily strong, and these results filter by means of to the L2s it helps. Property, together with fungible tokens and NFTs, in the meantime, may be effortlessly moved between EVM chains by the plethora of bridges which have sprung up, permitting transfers to be concluded in beneath 60 seconds usually when transferring from L1 to L2.
Now it’s Bitcoin’s flip to learn from the cambrian explosion of L2s, with an growing variety of Layer 2 networks now dwell and bringing most of the identical advantages loved by ethereans to bitcoiners.
Scaling Bitcoin By L2
Bitcoin’s structure is designed very in a different way from that of Ethereum, which is why it took so lengthy for the form of use instances lengthy popularized on Ethereum to take form there. It wasn’t till Casey Rodamor conceived Ordinals {that a} framework existed for swapping NFTs and, by means of BRC20s and subsequently Runes, fungible tokens too. As soon as these use instances started seeing adoption, Bitcoin shortly bumped into the identical issues which have beset Ethereum: excessive charges and low throughput. The answer, as soon as once more, lies on Layer 2.
There are actually quite a few Bitcoin L2s taking the pressure off the principle community and offering extra fertile soil for sectors comparable to DeFi to flourish. Chief amongst these is Merlin Chain, which permits native Layer 1 belongings comparable to BTC to be traded on its purpose-built L2 together with dozens of different belongings together with ETH. As a result of that’s the opposite essential factor to find out about Merlin Chain: it’s EVM appropriate, which permits belongings to maneuver from the Ethereum ecosystem on to Bitcoin.
Whereas Merlin Chain seems the very best positioned L2 to unite the as soon as siloed worlds of Bitcoin and Ethereum, it’s under no circumstances the one second layer solution obtainable on Bitcoin. One of many first was Stacks, which helps DeFi use instances comparable to lending and onchain perps, whereas the likes of Rootstock and SatoshiVM are additionally chipping away on the identical problem.
Since launching its mainnet, Merlin Chain has confirmed that there’s clear urge for food amongst customers for Bitcoin-centric DeFi and NFTs: its TVL now sits at a powerful $1.2B because of fashionable protocols comparable to Solv and Avalon, which kind DeFi cornerstones. Those that as soon as dismissed Bitcoin DeFi as unworkable or just pointless given Ethereum have been pressured to rethink.
Have We Reached Peak L2?
On each Ethereum and Bitcoin, L2s have confirmed to be extraordinarily efficient at fixing the first issues they have been designed to handle, particularly charges and throughput. Within the course of, they’ve proven that they’ll function reliability and securely, with out introducing trade-offs that impair blockchain’s core ethos of decentralization and immutability.
That stated, there are clearly some drawbacks to the L2 panorama, notably when it comes to the liquidity fragmentation and balkanization they’ve launched. Up to now, there was no “winner takes all” situation on both Bitcoin or Ethereum. Whereas wholesome when it comes to selling competitors, the draw back to that is that customers are left not sure of which L2 to select, and whether or not plumping for one dangers lacking out on alternatives on one other.
It’s additionally necessary that, given the growing pace and ease with which L2s can now be deployed, the trade doesn’t fracture into 1000’s of Layer 2s, most working as ghost chains with nominal actual customers. A likelier final result is that because the L2 panorama ossifies, a number of clear winners will emerge and can dominate the majority of all financial exercise.
On Ethereum, we’ve seen particular use instances gravitate to particular L2s: gaming to Polygon, memecoins and SocialFi to Base, DeFi and perps to Arbitrum and Optimism. The zk-based L2s, in the meantime, comparable to StarkNet and zkSync, are nonetheless too new for any significant conclusions to be drawn. As for Bitcoin, it looks as if Stacks and Merlin Chain are destined to command nearly all of all L2 site visitors, with maybe different Layer 2s growing their very own use instances and customers in time.
One factor’s for certain: L2s have been a godsend for thousands and thousands of onchain customers. After experiencing the pace and comfort of transacting on Layer 2, it’s onerous to envisage going again to L1.
