Basic Knowledge System of Bitcoin Layer 2 Network

The rise of Bitcoin inscriptions has injected new vitality into the Bitcoin ecosystem, sparking renewed interest in Bitcoin. Some believe this has opened Pandora's box for the Bitcoin ecosystem. In the technological development of the Bitcoin ecosystem, layer two construction is of utmost importance. This article draws on some well-known articles and discussions with several friends, combining the team's exploration experiences in Web3 product design and development, to summarize the basic knowledge of Bitcoin layer two. I hope to inspire further thoughts and attract more people to improve relevant ideas, promoting the development of this field.

The blockchain world began with Bitcoin and will ultimately culminate in the Bitcoin ecosystem. Ethereum is essentially an exploration of a sidechain technology of Bitcoin.

In this article, the concepts of "layer two construction" and "layer two network construction" are interchangeable, with the latter being narrower and the former broader. To adapt to commonly used expressions in the industry, this article will also use the concept of "layer two network construction."

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 start with the basic characteristics of blockchain systems.

1.1 Basic Characteristics and Requirements of Blockchain

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

Let's summarize some basic features:

Public Transparency: This is a characteristic of blockchain as the "world computer" for data storage and executing instructions, as well as an internal demand feature that requires the participation of numerous distributed nodes worldwide in computation. This characteristic satisfies users' right to know about data, and is a common result of the internal collaboration requirements of this "world computer" and the external demands of users.

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

Security: Security is composed of both internal demands generated by the architectural characteristics of this "world computer" and external demands required by users. It is guaranteed at the micro level by cryptographic technologies and at the macro level by the decentralization of the architecture, thereby preventing the security of this "world computer" from being affected by micro data forgery or macro architectural destruction.

Computing Power: The main function of this world computer called blockchain is computing power. It is usually measured by whether it is Turing complete. Some chains are intentionally designed to be Turing incomplete in order to maintain their main characteristics. For example, in the Bitcoin network, Satoshi Nakamoto not only made its code instructions Turing incomplete but also removed some instruction sets 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 philosophy, simpler systems are more suitable for the underlying layer.

Performance: Given the same computing power, performance is another main capability to assess the blockchain as a computer in this world. It is usually measured by the number of transactions processed per second (TPS) (.

Storage: The blockchain, as a "world computer", must have storage capabilities, which means the ability to record data. Currently, data is primarily stored within blocks, while more specialized storage on external chains is still under development.

Privacy: Privacy is a segmented 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 primarily 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 fundamental features and is an important indicator at the architectural level. Other specific capabilities, such as connection capabilities in certain scenarios, will not be discussed further here.

Among these fundamental characteristics of blockchain, most are constrained by the interdependent relationship of the impossible triangle. For example, the DSS conjecture, which refers to Decentralization ), Security (, and Scalability ).

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

( 1.2 The Role of Second Layer Construction

What roles need to be completed in layer two construction? What functions should it provide? Layer two construction must address the shortcomings of the layer one system and complete tasks that are not suitable to be accomplished on the layer one system.

From the blockchain characteristics summarized above, we can draw a preliminary conclusion that these basic capabilities must be expanded: public transparency, decentralization, security, computational power, performance ) throughput (, storage, privacy, etc. In addition to these technological basic capabilities, there is also a very important economic issue that needs to be addressed, which is reducing costs. Generally, the comprehensive cost of executing transactions on a layer one network is relatively high, requiring the use of layer two networks to lower these costs.

In summary, the solution for increasing capacity, reducing costs, and customizing features is all about Layer 2 construction. As for customization, it is currently not very obvious or is often hidden within the first two features. We can understand it this way: the characteristics of Layer 1 networks vary in their necessity for many applications, allowing for adjustments to the implementation of various features for certain applications at Layer 2.

In layer two construction, the foundational capabilities of the blockchain will have various trade-offs, which may reduce some features or even forgo certain features in exchange for significant improvements in others. 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 structure and settlement methods to increase throughput. There are also some that enhance certain features without compromising the fundamental characteristics, such as the RGB processing method, which significantly increases privacy and censorship resistance but also raises the difficulty of technical implementation. In the following cases, we will see layer two constructions that simultaneously reduce or alter several characteristics.

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

![A comprehensive overview of the basic knowledge system of the Bitcoin Layer 2 network])https://img-cdn.gateio.im/webp-social/moments-ad899d00cda3df50aead693947e770bc.webp###

( 1.3 Why do layered design?

Layered design is a means and methodology for handling 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 broad and extensive protocol system, using layers has significant advantages. This makes it easier for people to understand, facilitates division of labor in implementation, and allows for modular improvements, among other benefits. Similar to the seven-layer model design of ISO/OSI in computer networks, but in practical implementation, 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 one another. A particular layer does not need to know how the next layer is implemented, but only needs to know the services provided by that layer through inter-layer interfaces. This way, the overall complexity of the problem decreases. In other words, how the previous layer operates does not affect the operation of the next layer, allowing us to freely adjust the working methods within a layer as long as we ensure that the interfaces remain unchanged.

2.Good flexibility. When any layer changes, as long as the inter-layer interface relationship remains unchanged, the layers above or below this layer will not be affected. When a certain layer experiences technological innovation or encounters issues in its operation, it will not affect the work of other layers. When troubleshooting, it is only necessary to consider the issues of this particular layer.

3.Structurally separable. Each layer can adopt the most suitable technology for implementation. The development of technology is often asymmetric, and the hierarchical division effectively avoids the bottleneck effect, preventing the overall work efficiency from being affected by the imperfection of technology in any one aspect.

4.Easy to implement and maintain. This structure makes it easier to implement and debug 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 the situation of being unable to find or solve the wrong problem.

5. Can promote standardization work. Because the functions of each layer and the services it provides have been precisely described. The benefit of standardization is that one can easily replace a certain layer, which is very convenient for use and research.

The layered modular design concept is a common approach in the technical field for handling large functionalities that require collaboration among multiple people and continuous improvement of engineering projects. It is a method that has been proven effective through practical application.

![A comprehensive overview of the basic knowledge system of Bitcoin Layer 2 network])https://img-cdn.gateio.im/webp-social/moments-086a074fde8e4b3baab62f0dd9a0726c.webp(

2. Several Construction Ideas for Bitcoin Layer 2

There are three significant development paths for the second layer of Bitcoin:

)1###The chain-based expansion route, similar to the second layer of EVM, is a blockchain structure;

(2)Based on a distributed route, represented by the Lightning Network, it is a distributed structure.

(3)The route based on centralized systems, represented by centralized indexes, 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 expansion based on the chain is relatively easier, with more reference cases. The second distributed-based method is usually more challenging, 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 it appears to fulfill the functions of layer two construction.

Which layer two construction plan is better? We use Total Value Locked (TVL) ( as a measurement standard. The layer two network with the higher TVL is the optimal solution. With the development of time and technology, this optimal solution will be a changing process.

The definition of the second-layer network for Bitcoin is that as long as it relies on the Bitcoin network and establishes a technical connection with the Bitcoin network, and some features are superior to the first-layer network of Bitcoin, it is considered part of the second-layer network construction of Bitcoin. In other words: as long as BTC is consumed as gas, and BTC serves 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 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 excessively used to develop features, as no matter how much the layer one network expands, there will not be a qualitative breakthrough; layer two construction must be undertaken. However, in the absence of better Bitcoin layer two products, these technological capabilities connecting layer one and layer two will be overly utilized for a period of time.

![A Comprehensive Overview of the Basic Knowledge System of Bitcoin Layer 2 Networks])https://img-cdn.gateio.im/webp-social/moments-aacf9b18cc5ef94cda4d153a96836ffe.webp(

) 2.1 Layer 2 Construction Based on Blockchain

Early Bitcoin imitation chains explored various avenues, such as "Colorcoin" ( colored coins ), "CovertCoins" and "MasterCoin"; various scaling Bitcoin imitation chains, such as 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 said to be a broadly defined second layer.

Ethereum is also an exploratory improvement based on Bitcoin. In the face of unsuccessful persuasion of other project teams, Vitalik formed his own team to address Bitcoin's imperfections: the UTXO non-account system, the non-Turing complete execution language, and poor scalability, and released a white paper to develop a new generation of blockchain system. Although this exploration of Ethereum is not a direct layer two construction on Bitcoin, it is, in a broad sense, an exploratory construction based on the chain.

Ethereum improves upon the imperfections of Bitcoin.