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Author: Admin | 2025-04-28
The Bitcoin community has developed various layer-2 blockchains that enhance the network's efficiency and functionality without altering its core software.Updated Jun 7, 2024, 1:26 p.m. UTCPublished Jun 6, 2024, 4:00 p.m. UTCToday, Marcin Kaźmierczak from RedStone explains how Bitcoin layer-2s aim to enhance the protocol's performance while preserving its integrity by deploying enhancements on a separate blockchain.Many advisors attended Consensus 2024 in Austin, Texas, last week. I highlight the key themes that emerged from the event in Ask an Expert. I’m looking forward to next year's conference, which will be held in Toronto, Canada.–S.M.You’re reading Crypto for Advisors, CoinDesk’s weekly newsletter that unpacks digital assets for financial advisors. Subscribe here to get it every Thursday.Bitcoin Layer 2sBitcoin (BTC) has revolutionized the financial world with its decentralized, secure and transparent nature. Although it was the first cryptocurrency, Ethereum (ETH) pioneered the development of the entire decentralized finance, or DeFi, ecosystem. Now, Bitcoin is following suit, ushering in an era of development within its own ecosystem. As Bitcoin's popularity surged, so did the challenges related to its scalability and transaction speed. To address these issues, the Bitcoin community has developed various layer-2 blockchains, or L2s, which enhance the network's efficiency and functionality without altering Bitcoin's software itself. This article delves into the concept of Bitcoin layer 2s, exploring their classifications, benefits and expected advancements in this sector. By understanding these innovative protocols, users can comprehend how Bitcoin continues to evolve and maintain its relevance in an increasingly competitive digital landscape. In the end, the bitcoin cryptocurrency is the digital gold and the whole economy is being created around it, analogous to gold in the physical world.Q: What are Bitcoin layer 2s, and how are they classified?A: They are built on top of the Bitcoin blockchain. Transactions can be offloaded to them, addressing the Bitcoin blockchain's performance issues and limitations and adding programmability functionalities. There are three types of Bitcoin layer 2s:1. State ChannelsFunction: 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. SidechainsFunction: 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. RollupsFunction: 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:Bitcoin layer 2s address key issues to enhance the network's efficiency and functionality. First, they improve scalability by reducing congestion. As a result, the transaction fees
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