This text appears to be an article discussing the importance and future developments of Bitcoin layer 2 solutions (L2s), such as Arbitrum, Optimism, Base, and zkSync, and how they expand the use cases and functionalities of Bitcoin. The article also covers a comparison of existing Bitcoin L2s and what to expect in that sector this year. Additionally, it includes a section about the top themes that emerged at Consensus 2024, including education, risk profiles, tokenization, and compliance. Finally, it provides some news updates related to ETF approvals, President Biden’s veto of a resolution regarding crypto regulation, and Bitcoin and ether Exchange Traded Notes becoming available for trading on the London Stock Exchange.
Today, Marcin Kaźmierczak of Redstong Oracles discusses how Bitcoin layer-2 solutions aim to improve the protocol’s functionality and maintain its security by implementing upgrades on a distinct blockchain.
At Consensus 2024 in Austin, Texas, I had the privilege of joining numerous financial advisors last week. In this edition of Ask an Expert, I’ll delve into the significant themes that arose during the event. I’m already excited for next year’s conference, taking place in Toronto, Canada.
–S.M.
As a crypto investor, I follow “Crypto Insights for Financial Professionals,” the weekly newsletter from CoinDesk that breaks down the world of digital assets in an approachable way. Subscribe here to receive it every Thursday directly in your inbox.
Bitcoin Layer 2s
As a Bitcoin analyst, I’m excited to share my insights on how this pioneering cryptocurrency continues to reshape the financial industry. While Bitcoin paved the way for decentralized currencies with its secure and transparent nature, Ethereum took the lead in fostering the entire Decentralized Finance (DeFi) ecosystem.
Q: What are Bitcoin layer 2s, and how are they classified?
A:
These structures are constructed upon the Bitcoin blockchain. They alleviate the strain on the Bitcoin blockchain by handling transactions, thereby resolving its performance challenges and limitations. Additionally, they introduce programming capabilities. Bitcoin has three kinds of layer 2 solutions:
1. State Channels
- Function: Create external channels for transactions, which are recorded off-chain and updated as a single transaction on the main network at the end. You can compare it to a dedicated mailing route between houses that optimizes the cost of sending letters between them.
- Example: Bitcoin Lightning Network.
2. Sidechains
- Function: Semi-autonomous networks that maintain communication with the main network and can define their architecture. Imagine an optimized mailing system for a city that regularly syncs with the central office.Examples: Stacks network, Rootstock Infrastructure Framework (RIF).
3. Rollups
- Function: Serve as an execution layer that batches transactions and submits them to the main network’s consensus layer for final settlement. Imagine a whole state mailing system that updates its delivery status with the central body every 10 minutes. In the Ethereum ecosystem, examples include Arbitrum, Optimism, zkSync and Starknet.
- Types: Optimistic Rollups and ZK Rollups.
- Example: Merlin Network, Build On Bitcoiin, B^2, Bitlayer.
Q: What problems do Bitcoin L2s fix, and why do they matter?
A:
As a researcher studying the advancements in the Bitcoin network, I can’t help but be excited about the role layer 2 solutions play in enhancing its efficiency and functionality. Firstly, they tackle the issue of scalability by reducing network congestion, resulting in lower transaction fees and faster execution times. This transformation makes Bitcoin a more viable option for everyday transactions, broadening its appeal and applicability.
Q: A comparison of existing Bitcoin L2s and what to expect in that sector this year.
A:
To compare different Bitcoin layer 2 solutions, it is essential to understand their technical categorization. You need to determine if they function as state channels, rollups, or sidechains. Moreover, evaluating transaction fees, security assurances, and the availability of decentralized applications (dApps) on these networks plays a significant role in the comparison process. The table below summarizes the major Bitcoin layer 2 solutions as of June 2024:
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Moving forward, it’s clear that we will witness continued growth and the emergence of new Bitcoin layer 2 solutions. Given its limited supply – only 21 million bitcoins will ever be created – it’s logical to enhance the capabilities and functionalities of this digital asset akin to gold. Future advancements encompass reducing transaction fees on these L2s, introducing additional compatibility layers, and integrating well-established primitives like automation dApps or mainstream wallet support atop Ethereum.
Bitcoin’s value and total market capitalization, currently at approximately $1.4 trillion, don’t have a fixed lower or upper limit. The Bitcoin blockchain functions as a base layer for innovation to thrive, and this is evident with the emergence of successful layer 2 solutions such as Arbitrum, Optimism, Base, and zkSync. These ecosystems are expected to flourish, making it essential to keep abreast of Bitcoin’s development and consider using Bitcoin as part of one of the most dynamic trends in 2024.
– Marcin Kaźmierczak, co-founder & COO, RedStone Oracles
Ask an Expert
At the Consensus 2024 conference held in Austin, Texas, over 15,000 individuals from various sectors including service providers, custodians, crypto exchanges, ETF issuers, RIAs, and advisors gathered. The atmosphere was filled with excitement as attendees sought to forge new connections and deepen their understanding of the industry. Curiosity and active participation were prevalent throughout the event.
Q. What were the top themes that emerged?
- EDUCATION was a top theme for the advisors we spoke with; the top theme was that it’s time to start learning about cryptocurrencies as an asset class.Advisors also indicate the need to understand the RISK PROFILES of the different assets and how the price volatility could impact portfolios.Advisors are curious about TOKENIZATION. They want to learn more about the problems it solves and understand its benefits to their clients over traditional investment vehicles.Finally, understanding how COMPLIANCE will navigate digital assets and ETFs is crucial, especially as the regulatory environments continue to change and evolve.
Via our newsletter, we’ll persistently delve deeper into these subjects and serve as a reliable informational resource for financial advisors by offering comprehensive insights.
Keep Reading
- Morningstar explains the process of ETH ETF approvals in the U.S.President Joe Biden has vetoed the congressional resolution to overturn the SEC’s current approach to banks and crypto.Bitcoin and ether Exchange Traded Notes became available for trading on the London Stock Exchange on May 28th.
As a seasoned crypto investor, I’d like to share an alternative perspective on the market trends we’ve been observing recently. While it’s essential to maintain transparency about my biases, let me clarify that any opinions expressed here are my own and not necessarily endorsed by CoinDesk or its associated entities.
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2024-06-06 19:22