bitcoin's secondary layers are often overlooked despite their undoubted potential to enhance bitcoin's potential for even more advanced functionality. Much of the focus is on the Lightning Network and its ability to handle microtransactions at high speeds.
However the bitcoin-layer-2s-what-they-are-and-how-they-work”>secondary layers (or layer 2) can effectively handle smart contracts, leverage cryptographic techniques for advanced privacy, and establish decentralized identity and access solutions that are connected to the blockchain.
This article will explore these fascinating layers and their potential use cases, considering how they may define the future of bitcoin beyond currency transactions. bitcoin’s secondary layers are expected to provide the backbone of a complex ecosystem that accelerates the growth of decentralized applications.
What are the secondary layers of bitcoin?
The terms primary layer and secondary layer refer to the different networks within a single blockchain, the shared database that powers cryptocurrencies and other projects.
The primary layer (Layer 1), sometimes called the main chain or “main network”, is the blockchain itself and is fundamental to all operations. On the other hand, secondary layers (layer 2) are secondary networks that are developed on top of the blockchain (layer 1), which allows integrations with third parties.
Secondary layers help reduce the load on the blockchain bitcoin-layer-2/”>Leveraging your strengths and solve its limitations. These networks can process transactions externally which are then sent back to the blockchain for processing and confirmation. As a result, the overall capacity of the blockchain can be increased, resulting in additional usability and functionality.
The best known secondary layer is the lightning network which uses state channels (a solution we will discuss later) to enable microtransactions on top of the blockchain. This involves users sending bitcoin payments over an encrypted peer-to-peer (P2P) channel that works similarly to smart contracts, creating a simple, efficient, and more cost-effective channel between sender and receiver.
What are the key benefits of bitcoin secondary layers?
There are three keys Benefits of bitcoin secondary layers.to increase scalability and expand the functionality of the blockchain, while making it easier for businesses to comply with financial regulations.
Increased scalability
A single set of transactions can take about ten minutes to process on the bitcoin network, with an average of about seven seconds per transaction. This can result in network congestion at peak times and generate higher transaction fees, affecting the viability of microtransactions and point-of-sale transactions.
The bitcoin blockchain cannot be scaled because this compromises security and decentralization, the two main pillars of the network. Due to the large volume of transactions on the network, secondary layers are being leveraged more to process transactions “off-chain” to reduce pressure on the primary layer.
In terms of decentralized applications, by distributing data across a network of nodes, secondary layers reduce the risk of centralized points of failure and attacks, improving overall quality. security of application deployment processesas well as patches, updates and all other forms of changes.
Improved functionality and usability
The bitcoin network is designed to enable transparent P2P transactions and provide the resources for the digital currency to continue growing in value. By focusing solely on these two core functions, the bitcoin network remains robust and secure, preventing any possibility of manipulation.
However, this would limit future innovations if it were not for the secondary layers. Thanks to layer 2, third-party developers can crypto-innovations-drawing-institutional-eyes/”>increase bitcoin functionalityexpanding their use cases and leveraging new web3 technologies like nfts and, of course, smart contracts.
Compliance
With more secure payment channels, complying with regulations becomes much easier and cheaper. Compliance is a key consideration for any business accepting cryptocurrency payments.
Secondary layers and blockchain, both in its current and future iterationscould be the key to establishing many tracking and security features that site owners and businesses need to use to PCI-compliant hosting (if they accept payments) or spend six-figure sums on large quantities of testing.
How bitcoin Secondary Layers Work
Secondary layers can work in different ways and there are three main layer 2 solutions that you should know about to help understand the processes.
- State Channels – This solution allows users to avoid high transaction fees by providing end-to-end encrypted payment channels to send and receive bitcoin. state channels They are effectively micro-ledgers and only the opening and closing balance is reported to the blockchain once the payment channel is closed, allowing users to make unlimited transactions without incurring transaction fees.
- Sidechains: Sidechains are an independent blockchain that creates a two-way bridge to the blockchain. This makes it possible to easily and quickly transfer data assets between different transaction chains. As a standalone blockchain, sidechains can also integrate other secondary layer solutions.
- Rollup Chains – Rollup chains also allow users to perform a large number of transactions off-chain, merging individual transactions into a single block of data that is then reported to the blockchain. There is two types of rolling chains, optimist and ZK. Optimistic rollups automatically validate all consolidated transactions, while ZK rollups generate a single cryptographic proof as validation.
Developing safer and faster systems is essential for both small businesses and the enterprise level, where organizations rely on complex processes such as switching ERP software or Performing staff augmentation in WorkdayAs third-party sub-layers become even more advanced, these companies are likely to become increasingly reliant on the blockchain rather than cloud solutions, further accelerating the growth of the bitcoin ecosystem.
What are some of the most popular secondary layers?
We've already discussed the most popular secondary layer, the Lightning Network, so to provide a more detailed overview of Layer 2 capabilities, we'll focus on some of the other commonly used solutions.
Rootstock (RSK)
As a popular sidechain, Rootstock (RSK) is at the forefront of smart contract functionality on the bitcoin blockchain. Its “two-way pegging” system involves a user sending bitcoin directly to RSK, where it is stored and protected in a digital wallet such as Smart bitcoin (RBTC). Users can withdraw RBTC from the regular bitcoin blockchain.
RSK offers significantly faster transaction speeds than the bitcoin network and also supports ethereum.org/en/developers/docs/evm/”>ethereum Virtual Machine (EVM)allowing smart contracts to run on the ethereum-style blockchain.
liquid network
Liquid Network is a solution that improve transaction speed but it also leverages cryptographic techniques to improve the privacy of bitcoin payments. It is another sidechain solution and runs alongside the blockchain, but uses its own native asset Liquid (L-btc) instead of the standard bitcoin. Liquid Network also uses two-way pegging like RSK, converting btc to L-btc
RGB
RGB is a smart contract protocol and a secondary layer of bitcoin that is linked to the Lightning Network. It allows users of a Lightning Network to design contractual agreements with the option of creating an issuer token or not. This system offers great speeds and low fees while using the primary blockchain as a ownership and confidentiality control mechanism.
By interacting with the bitcoin Blockchain and Lightning Network, RGB makes it possible to develop more third-party solutions to investigate advanced automation at the blockchain level and further reduce transaction fees.
Battery protocol
This protocol allows for self-executing smart contracts without the need to use a hard fork, an adjustment to the bitcoin blockchain that creates an entirely new blockchain. Hard forks can often disrupt communities and cause instability, so they tend to be avoided.
Instead, Stacks Protocol uses microblocks that provide high speeds and work on a unique proof-of-transfer (PoX) mechanism to connect them to the bitcoin blockchain. This makes it extremely easy to run smart contracts and decentralized applications without leaving the bitcoin ecosystem.
Conclusion
The bitcoin blockchain (its main layer) has many limitations as it is designed exclusively to facilitate secure P2P transactions. This is why secondary layers are required that allow third-party integrations to work alongside the blockchain to provide innovations.
These layers can result in lower transaction speeds, faster processing times with minimal network congestion, and integrate advanced cryptographic privacy techniques.
In the future, secondary layers are expected to facilitate even greater growth, supporting the bitcoin ecosystem to integrate a range of advanced, decentralized applications that can revolutionize P2P transactions, point-of-sale payments, and much more.
This is a guest post by Kiara Taylor. The views expressed are entirely her own and do not necessarily reflect those of btc Inc or bitcoin Magazine.
