Bitcoin layer 2 network

What are layer 2 networks?

Layer 2 networks are solutions that enable faster, cheaper and more scalable transactions on Bitcoin and other cryptocurrencies. The basic idea is to move part of the transactions from the main chain (layer 1) to the secondary layer (layer 2), which is connected to the main chain, but has different rules and protocols. In this way, the load on the main chain is reduced and the bandwidth of the network is increased. Layer 2 networks can be divided into two main categories: payment channels and sidechains. Payment channels are two-way channels that allow two or more parties to exchange transactions without having to confirm them on the main chain each time. Sidechains are separate chains that have their own currency and rules, but are connected to the main chain through special mechanisms that allow value to be transferred between them.

Source: cointelegraph

Lightning Network – the largest Bitcoin layer 2 network

Lightning Network is one of the most famous and largest layer 2 networks on Bitcoin. It was created in 2015. as a result of the work of Joseph Poon and Thaddeus Dryja, who published a white paper (Eng. white paper) about the Lightning Network. Their goal was to enable faster, cheaper and more scalable transactions on Bitcoin, using the concept of a payment channel. Payment channels are two-way channels that allow two or more parties to exchange transactions without having to confirm them on the main chain each time. In this way, the load on the main chain is reduced and the bandwidth of the network is increased. The Lightning Network is mostly used for micropayments, that is, for sending and receiving small amounts of Bitcoin quickly and cheaply. It is also used for cross-chain payments, that is, for sending and receiving Bitcoins between different cryptocurrencies that support the Lightning Network. The Lightning Network has seen significant growth and development in recent times. According to data from 1ml.com, the Lightning Network has more than 30,000 nodes, more than 60,000 channels, and more than 5,000 Bitcoins in total channel value. In addition, the Lightning Network has attracted the attention of many users and platforms, such as Twitter, Coinbase, El Salvador and Paxful, who have integrated or plan to integrate it into their services. In this way, the Lightning Network has proven to be one of the most promising and innovative solutions for improving the Bitcoin network.

Source: cointelegraph

Emergence of new layer 2 networks

Recently, Bitcoin has seen the emergence of new layer 2 networks, which seek to expand the capabilities and functionality of Bitcoin. These networks build on Bitcoin, using its security and decentralization, but adding new features and solutions. Some examples of new layer 2 networks on Bitcoin are:

  1. Stacks: layer 2 network enabling smart contracts, DeFi and NFT on Bitcoin. This layer 2 network uses a consensus mechanism called Proof of Transfer, which connects Stacks and Bitcoin, allowing users to earn Bitcoin by participating in the security of the network. It also has its own programming language for smart contracts, called Clarity, which is secure and predictable.
  2. Ordinal: A protocol that allows NFTs to be created directly on the Bitcoin blockchain. This layer 2 network uses a special type of transaction, called OP_RETURN, which allows storing small amounts of data on Bitcoin. Ordinal also has its own standard for NFTs, called the Ordinal Token Standard (OTS), which defines the rules for NFTs on Bitcoin. This network was launched in January 2023. and since then the number of Ordinal entries on the Bitcoin network has exceeded 1 million. Likewise, this layer 2 network has given confidence in the growth of transaction fee prices, which should be the only source of income for miners in the future. This is of course negative for the average user who will have to pay higher transaction fees, but in the long run this will sustain the Bitcoin network.
  3. Layer 2 Labs: A Bitcoin development company that focuses on a technology called drivechains. Drivechains are layer 2 networks that allow users to move Bitcoin back and forth between the main Bitcoin blockchain and multiple drivechains. The goal of drivechain is to give Bitcoin users access to innovative features and products that are currently limited to altcoin networks. Layer 2 Labs was founded in 2022. and recently raised $3 million for the development of drivechain, which gives us indications that there are investments in the development of this network, and it is likely to live in the long term.

Source: cointelegraph

The future of Bitcoin and layer 2 networks

In the future, transaction costs on the layer 1 Bitcoin network will probably be too expensive for average users, who will want to send and receive Bitcoins quickly and cheaply. Therefore, most transactions for average users will take place over layer 2 networks, such as the Lightning Network, which is the largest and most famous layer 2 network on Bitcoin.

Source: cointelegraph

Conclusion

Layer 2 networks will be an essential part of Bitcoin’s future, and as a result their progress is unstoppable. Even during the last bear market, when innovation and development slowed down, the layer 2 networks of Bitcoin continued to develop, attract investments, and some new ones were created. In today’s blog, we introduced you to these layer 2 networks in general, and specifically brought you closer to the role of some of the networks. We hope you enjoyed and learned something new, and if you have questions or suggestions, you can contact us via our social networks ( Twitter , Instagram ).