Bitcoin is the most secure and decentralized blockchain, serving as the foundational asset in the digital asset space.
However, the demand for faster and more efficient transactions grows as adoption grows. Since Bitcoin prioritizes security and decentralization, its base layer processes a limited number of transactions per second, which can lead to congestion and higher fees during peak times.
To address this, Bitcoin Layer 2 solutions have emerged.
What Are Bitcoin Layer 2 Protocols?
A Layer 2 is a secondary framework built on top of the Bitcoin network to enhance scalability, reduce transaction costs, and introduce new functionalities without altering Bitcoin’s core security or requiring controversial protocol changes.
These solutions process transactions off-chain or through sidechains, alleviating congestion on the main blockchain.
In this guide, we’ll explore some of the most promising Bitcoin Layer 2 protocols that are enhancing speed, reducing costs, and unlocking powerful new features.
5 Bitcoin Layer 2 Protocols You Should Know About
Bitlayer
Bitlayer is a Layer 2 scaling solution designed to unlock Bitcoin’s full potential without requiring hard forks or compromising its core security principles.
By integrating advanced scaling mechanisms, Bitlayer enables decentralized applications (dApps) and financial services to operate on Bitcoin while maintaining low fees and fast transaction speeds.
You can use Xverse to connect to dApps like Bedrock and Ordzaar in Bitlayer’s BitcoinFi (BTCFi) ecosystem.
Key Features
- Bitcoin finality: Ensures transaction security by anchoring finality to the Bitcoin base layer.
- Optimistic Virtual Machine (OPVM): It uses OPVM to assume transactions are valid until they are challenged, reducing processing delays and enhancing efficiency.
- EVM compatibility: Supports Ethereum Virtual Machine (EVM), allowing Ethereum-based applications to deploy seamlessly on Bitlayer.
Stacks
Stacks is a Layer 2 protocol designed to introduce smart contracts and decentralized applications (dApps) to Bitcoin.
It allows developers to build on Bitcoin without modifying its base layer, addressing the network’s lack of programmability.
By leveraging its native token STX, Stacks uses a proof-of-transfer (PoX) consensus mechanism that allows participants to earn Bitcoin as rewards.
Key Features
- Smart contracts on Bitcoin: Enables developers to create dApps that leverage Bitcoin’s security.
- Proof-of-Transfer (PoX): Participants lock STX tokens to support network security and earn BTC rewards.
- sBTC: A pegged asset that allows seamless interaction between Bitcoin and Stacks.
Lightning Network
The Lightning Network (LN) is the most widely adopted Bitcoin Layer 2 scaling solution.
It operates as a network of off-chain payment channels, allowing users to conduct near-instant Bitcoin transactions at minimal cost.
By addressing limitations such as slow transaction speeds and high fees, LN enables users to transact without waiting for block confirmations. The network functions like a highway system where payments occur off-chain, with final settlement recorded on Bitcoin’s mainchain only when a channel is closed.
Key Features
- Payment channels: Users lock BTC in a multi-signature address to create a private channel, facilitating multiple transactions without mainchain involvement.
- Low-cost transactions: Reduces congestion on the Bitcoin network, significantly lowering fees compared to on-chain transactions.
- Micropayments: LN supports small-value transactions, making it ideal for use cases such as tipping and recurring payments.
Merlin Chain
Merlin Chain is a Bitcoin Layer 2 solution designed to improve transaction efficiency and scalability using ZK-Rollup technology.
This protocol bundles transaction data into compressed packages, reducing costs and improving processing speeds compared to Bitcoin’s base layer.
Additionally, Merlin Chain is EVM-compatible, meaning Ethereum-based applications can seamlessly migrate to the platform, bringing Bitcoin into the broader smart contract ecosystem.
Key Features
- ZK-Rollups: Groups multiple transactions together and processes them off-chain before settling on Bitcoin’s mainchain.
- EVM compatibility: Supports Ethereum-based applications, making it easy for developers to transition from Ethereum to Bitcoin.
