Basic Knowledge System of Bitcoin Layer 2 Network

The rise of Bitcoin inscriptions has brought new vitality to the Bitcoin ecosystem, attracting more attention to Bitcoin. In the technological development of the Bitcoin ecosystem, layer two construction is crucial. This article summarizes the basic knowledge of Bitcoin layer two, hoping to inspire more people to refine related 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 "second-layer construction" and "second-layer network construction" are generally interchangeable in this article, but the latter is relatively more specific. To adapt to commonly used expressions in the industry, the concept of "second-layer network construction" will also be used in the text.

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 first start with the basic characteristics of blockchain systems.

1.1 The Fundamental Characteristics and Requirements of Blockchain

We borrow Vitalik's concept: Blockchain is a "world computer". Understanding the various characteristics of blockchain from this perspective will be clearer. Later, we will analyze the potential development of this "world computer" based on the von Neumann architecture in computers.

First, summarize some basic features:

Open and Transparent: This is the characteristic of the data storage and execution instructions of the blockchain as a "world computer," and it is also an internal requirement that necessitates the participation of numerous distributed nodes worldwide in the computation. This characteristic precisely meets the user's right to know about the data, which is the combined result of the internal cooperation requirements of this "world computer" and the external demands of the users.

Decentralization: This characteristic is an architectural feature of this "world computer". The degree of decentralization and fault tolerance, in theory, is supported by the Byzantine Generals' Problem (, where collaborators may potentially be dishonest, that is, in a scenario where they do not adhere to the protocol ). Non-Byzantine general systems, in theory, are not blockchain systems. We will later see two cases of non-blockchain systems in Layer 2 construction. The degree of decentralization is an important indicator of blockchain security and is the basis for certain characteristics.

Security: Security is a joint composition of internal demands arising from the architectural characteristics of this "world computer" and external demands required by users. From a micro perspective, security is ensured by cryptography-related technologies, while from a macro perspective, it is guaranteed by the decentralized architecture, thereby preventing the security of this "world computer" from being affected by the forgery of micro data or the destruction of the macro architecture.

Computational Power: One of the main functions of the blockchain as a world computer is computational 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 meant to expand the computational power of the blockchain. From the perspective of layered design, simpler systems are more suitable for being the underlying layer.

Performance: With the same computing power, performance is another key capability of the blockchain world computer. It is generally measured by TPS, which stands for transactions 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 primarily 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 that the permissions of data producers and users are maintained during the processes of computation and storage (. We also include censorship resistance within the privacy section ). This is fundamentally driven by the external demands of the users.

There is also a comprehensive indicator called scalability, which generally refers to the scalability of the entire architecture. This feature affects most of the fundamental characteristics. At the architectural level, the scalability of the system is a very important metric. There are also some connection capabilities or other specific scenario capabilities, but I won't discuss them here. When encountering these special scenarios, we can analyze them in detail.

Among the basic characteristics of these blockchains, most are constrained by the impossible triangle in their mutual developmental 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 fully achieved simultaneously. Blockchain systems are distributed systems that have the Byzantine Generals Problem, so the CAP principle is also applicable.

( 1.2 The Role of Layer 2 Construction

What roles need to be completed in Layer 2 construction? What functions does it provide? Layer 2 construction must address the shortcomings of the Layer 1 system, and things that are not suitable to be completed on the Layer 1 system should be done in Layer 2 construction.

From the blockchain characteristics summarized above, we can have a preliminary conclusion that it is essential to 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. Typically, the comprehensive cost of executing transactions on a layer one network is relatively high, and it is necessary to use layer two networks to lower 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 features, they are currently not very obvious, or often hidden within the first two features, which can be somewhat puzzling. We can understand it this way: the characteristics of Layer 1 networks vary in the degree of necessity for many applications, and various aspects of their implementation can be readjusted on Layer 2 for certain applications.

In layer two construction, the foundational capabilities of the blockchain will have various trade-offs, which may reduce certain features or even discard some features in exchange for significant improvements in certain aspects. For example, some layer twos may reduce the degree of decentralization and security to improve performance; others, like the Lightning Network, may alter the system's structure and settlement methods to increase throughput. Additionally, some can enhance a specific feature without compromising foundational characteristics, such as the RGB processing method, which significantly increases privacy and censorship resistance but also raises the difficulty of technical implementation. In the subsequent cases, we will see layer two constructions that simultaneously reduce or change several characteristics.

Reducing costs should be a basic requirement for all layer two constructions.

) 1.3 Why do layered design?

Layered design is a means and methodology for humans to handle complex systems. By dividing the system into multiple hierarchical structures and defining the relationships and functions between each layer, it aims to achieve modularity, maintainability, and scalability of the system, thus improving the design efficiency and reliability of the system.

For a broad and extensive protocol system, using layering has obvious advantages. This approach makes it easier for people to understand, facilitates division of labor for implementation, and allows for modular improvements, among other benefits. Similar to the seven-layer model design of ISO/OSI in computer networks, 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 the others. One layer does not need to know how the next layer is implemented; it only needs to know the services provided by the inter-layer interfaces. This reduces the overall complexity of the problem. In other words, how the previous layer operates does not affect the operation of the next layer, so when designing the work for each layer, as long as the interfaces remain 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 particular layer experiences technological innovation or encounters issues during operation, it will not impact the operation of other layers. When troubleshooting, only the individual issues of that particular layer need to be considered.

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 "wooden barrel effect," preventing the overall work efficiency from being affected by the imperfection of a specific aspect of technology.

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 separately, avoiding situations where problems cannot be found or resolved incorrectly.

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 any one layer can be replaced at will, which is very convenient for use and research.

The layered modular design concept is a common approach in the technical field for dealing with large functional projects that require collaboration among multiple people and continuous improvement, and it is a method that has been tested in practice and proven to be effective.

2. Several Construction Ideas for Bitcoin Layer 2

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

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 products 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 blockchain is relatively easier, with more reference cases. The second distributed method is usually more difficult and develops more slowly, represented by the Lightning Network. The third method is quite controversial, as it does not seem like a layer two construction, but it appears to have completed the functions of a layer two construction.

Which layer two construction plan is better? We use a market test result as a measure, the layer two network with a higher Total Value Locked (TVL() 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 Layer 2 network, as long as it relies on the Bitcoin network and establishes a technical connection with the Bitcoin network, and has some features that are superior to Bitcoin's Layer 1 network, it counts as the construction of Bitcoin's Layer 2 network. In other words: as long as BTC is consumed as gas, and BTC is used as the underlying asset, any system that expands Bitcoin's performance counts as Layer 2 construction. Based on this judgment, we should recognize a third type of Layer 2 network construction, namely centralized structure Layer 2 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 1 and Layer 2. These technologies should not be overused to develop features, because no matter how much the Layer 1 network expands, there will not be a qualitative breakthrough; Layer 2 construction is necessary. However, in the absence of better Bitcoin Layer 2 products, these technological capabilities connecting Layer 1 and Layer 2 will be excessively utilized for a period of time.

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) 2.1 Layer Two Construction Based on Blockchain

Early Bitcoin imitation chains explored various possibilities, 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 considered a broad form of Layer 2.

Including Ethereum, it is also an explorative improvement based on Bitcoin. Vitalik, in the case of failing to persuade other project teams, focused on the imperfections of Bitcoin.