Although Bitcoin is the world’s leading cryptocurrency, it doesn’t come without its flaws. One of Bitcoin’s biggest challenges is scalability—the network can’t handle high transaction volumes without slowing down or skyrocketing fees. This is where Bitcoin Layer 2 (L2) solutions come into play. These layers built on Bitcoin help do more without changing the network’s core software, making transactions faster, cheaper, and more versatile.
In 2024, new Layer 2 protocols have emerged that are set to take Bitcoin to the next level. Here are five new Bitcoin Layer 2 protocols you should know about.
Why does Bitcoin need Layer 2?
Bitcoin is great for security, but it’s not exactly speedy. With only about seven transactions per second, the network slows down quickly with high demand. This leads to delays and higher fees—nobody enjoys waiting hours for a transaction to be confirmed or paying more fees.
Layer 2 protocols solve these issues by moving transactions off-chain. This keeps the Bitcoin base layer (Layer 1) secure while speeding up transactions and reducing costs. Bitcoin Layer 2 solutions also make it possible to build decentralized applications (dApps), which provide decentralized finance (DeFi) services and do much more with Bitcoin than just sending and receiving payments.
Top Bitcoin Layer 2 projects
Let’s take a closer look at five new Bitcoin L2 protocols that emerged in 2024.
- Mezo: Mezo is an economic layer for Bitcoin, designed to do more than just scale transactions. It bridges Bitcoin holders to decentralized applications (dApps) and even lets users earn yield through a mechanism called Proof of HODL.
With Mezo, you can use your Bitcoin to pay gas fees, participate in DeFi, and more—all while keeping everything anchored in Bitcoin’s rock-solid security.
How it works
Mezo uses tBTC, a Bitcoin-pegged token, to bridge Bitcoin into its ecosystem. Users lock up their Bitcoin and earn rewards based on how long they “HODL” it within the system. Mezo’s validators secure the network by staking their Bitcoin, and the protocol uses a consensus model called Proof of Hodl to ensure network security and stability.
Pros
- Increases Bitcoin’s utility: Transforms Bitcoin from a passive store of value into a productive, yield-generating asset.
- User-centric: Emphasizes user ownership and accessibility.
- Provides scalability solutions: Mezo addresses Bitcoin’s scalability issues effectively and improves the network’s speed.
Cons
- Complexity: Users may need to understand new financial products and services in the DeFi space.
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- Botanix: Botanix is a Turing-complete layer 2 EVM, bridging Ethereum and Bitcoin while settling on the Bitcoin blockchain. Botanix makes use of the Spiderchain—a network of decentralized multisigs to enhance security across the network.
Botanix operates with a Proof of Stake (PoS) consensus mechanism, diverging from Bitcoin’s traditional Proof of Work (PoW). This allows Botanix to combine the strengths of Bitcoin’s security with Ethereum’s versatility in smart contract execution.
How it works
Botanix uses Spiderchain, a decentralized multi-signature system, to stake Bitcoin. It allows developers to build dApps on Bitcoin using Ethereum’s Virtual Machine (EVM), providing a bridge between Bitcoin and Ethereum ecosystems. Users can interact with decentralized finance applications, mint NFTs, or launch DAOs—all while benefiting from Bitcoin’s security.
Pros
- EVM compatibility: Botanix enables cross-chain functionality by integrating with Ethereum’s Virtual Machine (EVM). This allows for the deployment of Ethereum-based smart contracts and decentralized applications (dApps) on Bitcoin’s infrastructure.
- Versatility: By supporting DeFi, DAOs, and NFTs, Botanix allows users to engage with various blockchain applications.
- Decentralization and security: Botanix retains the core principles of Bitcoin’s decentralization and security. Users benefit from Bitcoin’s security while accessing the functionalities of other blockchain ecosystems.
Cons
- Adoption is in the early stages: While Botanix offers significant potential, its user base and developer activity are still growing and the technology has yet to see widespread adoption.
- A hybrid PoS/PoW system adds complexity: Botanix uses a hybrid PoS/PoW consensus, offering better security and decentralization but introduces complexity for both developers and users.
- Merlin Chain: Merlin Chain aims to bring scalability and lower fees to Bitcoin without compromising its security. It does this through Zero-Knowledge Rollups (ZK-Rollups), a technology that bundles transactions off-chain and submits a cryptographic proof to the Bitcoin blockchain. Merlin also integrates decentralized oracle networks, allowing Bitcoin smart contracts to interact with real-world data.
How it works
ZK-Rollups bundle several transactions into one, reducing the data load on Bitcoin’s main chain. Merlin then uses decentralized oracles to provide smart contracts with access to real-world data, unlocking new use cases for Bitcoin beyond simple transactions.
Pros
- Scalability and efficiency: Merlin Chain enhances Bitcoin’s scalability and efficiency through the use of zero-knowledge (ZK) rollups, which compress transaction data to reduce costs and speed up transaction times.
- Decentralized Oracle network: Uses a decentralized Oracle network to confirm transaction data, ensuring that only valid transactions are settled on the Bitcoin base layer, maintaining the network’s decentralization and security.
- Bridging and interoperability: Enables BTC bridging and interaction with Ethereum-compatible dApps, expanding the use cases and utility for Bitcoin-native assets.
Cons
- Complexity: The integration of advanced technologies like ZK rollups and a decentralized Oracle network may increase complexity, presenting a learning curve for developers and users new to these concepts.
- Citrea: Citrea is a Layer 2 protocol that aims to scale the Bitcoin network by utilizing zkEVM and ZK-rollups to enhance Bitcoin’s blockchain capabilities without altering the base layer’s consensus rules. Citrea employs a zkEVM—an Ethereum Virtual Machine-equivalent virtual machine—which allows developers to deploy complex smart contracts for decentralized applications (dApps) by leveraging zero-knowledge technology.
How it works
Citrea uses ZK-Rollups to bundle transactions and generate zero-knowledge proofs, helping reduce congestion on the Bitcoin blockchain. It also uses zkEVM, a programmable layer that handles Layer 2 transactions and enables interaction with various decentralized apps (dApps).
Pros
- Scalability: Citrea improves Bitcoin scalability by handling more transactions off-chain with ZK-rollups, reducing congestion.
- Increased programmability: By using zkEVM, developers can create complex, smart contract-based applications, expanding the Bitcoin ecosystem’s utility.
- Security and decentralization: Citrea relies on Bitcoin for data availability and security, maintaining the core principles of decentralization and transparency.
Cons
- Complexity: The integration of zkEVM and zero-knowledge proofs adds complexity to the system, which may pose challenges for developers and users unfamiliar with these technologies.
- Technical challenges: Ensuring interoperability and compatibility with other virtual machines and blockchain infrastructures can be technically challenging and require extensive research.
- BitcoinOS: BitcoinOS is all about scalability and privacy, using Zero-Knowledge Proofs (ZKPs) to boost transaction throughput while ensuring that sensitive transaction details stay private. It also enables cross-chain transactions between Bitcoin and other blockchains without needing centralized trust mechanisms, thanks to its Grail Bridge.
How it Works
Using ZKPs, BitcoinOS verifies transactions without revealing details, allowing for secure, private transactions on Bitcoin. The Grail Bridge lets users move assets seamlessly between Bitcoin and other blockchain ecosystems, enabling cross-chain functionality.
Pros
- Security: Retains Bitcoin’s strong security guarantees through direct anchoring to Bitcoin’s PoW consensus mechanism.
- Scalability: Dramatically increases Bitcoin’s transaction capacity and scalability without needing changes to the core protocol.
- Decentralization and interoperability: Ensures that applications are fully trustless and interoperable, promoting a seamless ecosystem.
Cons
- Complexity: The inherent technical complexity may pose challenges for new developers entering the space.
What’s next for Bitcoin Layer 2s
2024 is proving to be a pivotal year for Bitcoin Layer 2 solutions. With the arrival of protocols like Mezo, Botanix, Merlin Chain, Citrea, and BitcoinOS, the Bitcoin ecosystem is expanding beyond basic peer-to-peer transactions. These L2s bring scalability, DeFi functionality, privacy, and cross-chain compatibility, all while keeping Bitcoin’s core security intact. As Bitcoin Layer 2s grow and develop, they could reshape the Bitcoin ecosystem.
See also: The maturation of cryptocurrency: A growing established order in financial markets
