Nearly 15 years after Bitcoin instigated the digital monetary revolution, its perception is now nestled as sound money. Following dozens of hard forks and developer attempts to tweak Bitcoin\u2019s core code, the pioneering cryptocurrency settled on decentralization and sound incentive structure for miners.<\/p>\n
Both were vital for Bitcoin to power through market crashes, media attacks, and government attempts to ban it. Yet, even with the effective increase of its block size to 4 MB in 2017 via the SegWit upgrade, Bitcoin\u2019s wider adoption as daily currency cannot rely on its mainnet:<\/p>\n
In other words, Bitcoin\u2019s status as decentralized sound money is innately opposed to its status as frictionless currency with negligible transaction fees and high tps throughput. However, this is only true if we focus on Bitcoin\u2019s mainnet – the first network layer.<\/p>\n
The Lightning Network (LN) emerged as the second layer to address Bitcoin\u2019s scalability problem in 2015. Enabling near-instant and low-cost payments on top of Bitcoin\u2019s mainnet, LN is paving the road to scaling Bitcoin from store-of-value into frictionless currency. With AI in the mix, more refined trading strategies<\/a> could come into play.<\/p>\n Nonetheless, just as Bitcoin\u2019s block size determines the level of network decentralization, so do have to distinguish between types of second layers possible. Whether they are open or closed, they offer different advantages and drawbacks.<\/p>\n The status of \u201csound money\u201d contains a degree of fragility. To be regarded as such, Bitcoin has to maintain a conservative approach to changes. In turn, this limitation has to be neutralized via second-layer solutions.<\/p>\n From sidechains and drivechains to Lightning Network<\/a>, they are complementary in their effort to extend Bitcoin\u2019s smart contract functionality and scalability. Case in point, Rootstock (RSK) is a sidechain that uses Ethereum Virtual Machine (EVM) to port Solidity-written Ethereum contracts into RSK.<\/p>\n Developers could then create decentralized applications (dApps) on Bitcoin, which has largely been delegated to proof-of-stake (PoS) blockchains like Ethereum, Avalanche, Solana, Cardano, etc. RSK brings the promise of DeFi but without forsaking Bitcoin\u2019s mainnet security.<\/p>\n Another sidechain called Liquid Network, created by Blockstream<\/a>, focuses on fast settlements of digital assets, from stablecoins to security tokens. This confidential form of settlement and issuance has its own technique to interact with Bitcoin mainnet:<\/p>\n Just like Polygon for Ethereum, these sidechains are independent with their own miners but still anchored to the Bitcoin blockchain. Therefore, they can scale independently of Bitcoin mainnet. In contrast to this second-layer scalability approach, drivechains are directly linked to Bitcoin blockchain.<\/p>\n As a subtype of sidechains, experimental drivechains use Blind Merged Mining (BMM) to facilitate network consensus. For example, a small business wants to use BTC for its operations but Bitcoin mainnet is too slow (10-min block confirmation time<\/a>) and too costly for frequent BTC transfers. Yet, the venture doesn\u2019t want to renounce mainnet\u2019s security benefits.<\/p>\n Here come drivechains. The entrepreneurs would create their own Bitcoin sidechain (drivechain) for their specific needs. They would do so by depositing some BTC into a smart contract that funds the drivechain\u2019s operations. This amount could be withdrawn at any point.<\/p>\n Once established, drivechain\u2019s smart contract issues a corresponding amount of drivechain tokens to be used among the business staff. With each transfer, parties can withdraw drivechain tokens back to Bitcoin.<\/p>\n This is all made possible with Blind Merged Mining (BMM) that anchors drivechains to the Bitcoin mainnet. Effectively, drivechain miners piggyback on actual Bitcoin miners, participating in Bitcoin consensus and ensuring that all transactions are equally secured.<\/p>\n As previously noted, Lightning Network is at the forefront when people think of scaling Bitcoin. It\u2019s a network of payment channels that enables off-chain transactions. These channels open by funding smart contracts with BTC. As long as they are funded, the channels remain open.<\/p>\n Consequently, many BTC transactions can be conducted between the parties, without each being broadcast to the Bitcoin mainnet for miner settlement. This off-chain approach leads to near-instant transfers, equal to mainstay Visa or MasterCard in-store payments.<\/p>\n RACE OF THE RAILS \ud83c\udfc3\u200d\u2642\ufe0f <\/p>\n Bitcoin #Lightning<\/a> payments vs #fiat<\/a> contactless payments at the #Gibraltar<\/a> Bakery. <\/p>\n \u00a32.20 loaded up on both PoS. <\/p>\n WHO WINS?? \u26a1\ufe0f \ud83d\udcb5 \u26a1\ufe0f <\/p>\n \u2066@CoinCorner<\/a>\u2069 \u2066@CoinCornerMolly<\/a>\u2069 pic.twitter.com\/b3ezy7FIeq<\/a><\/p>\n — Joe Nakamoto \u26a1\ufe0f (@JoeNakamoto) July 25, 2022<\/a><\/p><\/blockquote>\nUnderstanding Second Layers in Bitcoin<\/h2>\n
Bitcoin Sidechains<\/h3>\n
\n
Bitcoin Drivechains<\/h3>\n
Lightning Network<\/h3>\n
\n