Why is the new wave of Bitcoin Layer 2 the sidechain?

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Author: Bitcoinlayers researcher Janusz, Bitcoin Magazine; Translated by: Tao Zhu, Jinse Finance

“Bitcoin L2” is the hottest thing. People use a bunch of jargon to distract users from the trust assumptions.

Why the sudden interest? About a year ago, some teams figured out how to use Bitcoin as a data availability layer for Rollups. Others have been working on improving the trust assumptions associated with bridging (aka two-way pegs). Research has made huge progress, and many projects believe we’ll have Rollup-like blockchains by 2025.

2025? Some projects claim to be on mainnet now?

Teams have taken advantage of this trend and prematurely promoted the modular thesis of Bitcoin scaling. Some projects are launching bridge contracts on non-Bitcoin blockchains and advertising themselves as Bitcoin L2. Infrastructure providers amplify their messages and brag that Bitcoin is back.

But these solutions don’t scale Bitcoin. They are completely separate, centralized sidechains.

Layers they say? More like layers of trust assumptions.

definition

Many of these projects are attempting to scale Bitcoin using the theory of modularity. This basically means that each aspect of the transaction lifecycle can be its own dedicated system. Execution, transaction ordering, and data availability can all be operated by independent actors. Bitcoin will be the settlement layer underlying it all.

It’s not a bad paper when you dig deeper into it. But its current implementation on Bitcoin is a bit lacking.

Many new projects claim to be "Rollups". Rollups will use Bitcoin to provide data availability and publish its latest state root and enough transactions to recalculate the blockchain state from genesis to Bitcoin. If they want to scale Bitcoin's transaction throughput, they will also have a trust-minimized bridge contract where users can deposit funds to mint on the Rollup.

Digging deeper into some of the projects, you’ll find that none of these new projects (under development) are using Bitcoin for data availability. They want to use alternative DA solutions for performance reasons. This means they want to be “validiums” or “optimiums”.

These structures are similar to Rollups. They are blockchains that similarly have a bridge contract with the parent chain, but use a different DA system. This improves performance and reduces costs, but also comes with some security tradeoffs.

In the validium design, L1 contracts will be responsible for verifying validity proofs associated with specific state transitions for settlement. After a specific state transition has been completed, the validium bridge contract is able to process withdrawals for users who want to exit the chain, including unilateral exits that users can submit themselves if the state data is available. The optimizations are similar, but they rely on fraud proof mechanisms instead of validity proofs.

But no implementation supports verification of SNARKs or fraud proofs on Bitcoin...

Everything is verified on a completely different Layer 1 or their own permissioned sidechain network!

Most of these chains forked the Ethereum L2 SDK. They either chose Ethereum or a fully centralized geth fork that they cobbled together.

So there is nothing to do with Bitcoin. Maybe it will choose Ethereum, use the hottest DA layer, and have a strong execution layer.

But this is not Bitcoin.

What about sidechains?

All new Bitcoin L2s are just modular sidechains. When I say “modular sidechains”, I mean they run alternative blockchains on top of their parent blockchain for performance purposes. They also make security tradeoffs for performance by using alternative DA layers.

Their bridge to Bitcoin is run via multi-signature.

Therefore, the general trust assumptions taken by users are:

  • Hopefully, the multi-signature nature of the Bitcoin bridge won’t bother them;

  • Hope that a centralized sorter will include and execute their transactions;

  • Trusting an alternative DA layer to ensure data is always available;

  • You want a centralized prover to publish state transitions to the L1 contract, or you want a centralized challenger to challenge malicious state transitions.

  • Trust the sidechain’s parent chain to verify state transitions (finality);

  • Trust admin keys not to upgrade the chain and steal user funds.

Using a modular Bitcoin sidechain is fine if users know they are trusting a fully centralized chain and bridge program to use their BTC.

The problem is that most teams abstract away the security details and try to make their designs look very similar to modular structures found in Ethereum or other ecosystems.

Not all hope is lost

After reading this, you might think that this whole situation is a mess and not worth exploring. It might feel that way sometimes, but there is a lot of cool R&D going on around improved sidechain designs.

Teams like Citrea and Alpen Labs are looking to develop Rollups on top of Bitcoin. The BitVM community and ZeroSync team are driving a lot of great work, improving the two-way peg design and developing SNARK validators that are available today. This work has also inspired many bridge proposals from various Rollup and sidechain projects.

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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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