January 31, 2025 Welcome back to our blog, where we aim to equip traders and investors with the knowledge needed to understand the crypto world and how to master the markets with our wide range of advanced crypto bots.
Today’s post again focuses on the most famous crypto, Bitcoin. This time, we’ll delve into one of the most exciting developments in the Bitcoin ecosystem. This topic doesn’t quite seem to get the attention it deserves when taking its groundbreaking potential into account. These are, of course, Bitcoin scaling solutions.
We’ll start our journey into the crypto scaling world with the basics, including the challenges the Bitcoin network faces and how scaling solutions can be relevant in solving them. Later, we’ll discuss the different types of scaling solutions and how they can benefit the entire Bitcoin ecosystem. We’ll wrap things up by reviewing some of the biggest and most popular Bitcoin scaling solutions today and our thoughts about the future.
Before we move forward with our busy itinerary, this is the time to remind you that all of the information presented in this blog post is intended solely for educational purposes and should not be considered a call to action or any other kind of financial advice. Traders must consider their financial status and risk tolerance before employing any crypto trading strategy. Crypto trading involves inherited risks; consulting with a qualified financial advisor before making any investment decision is highly recommended.
As you might know, Bitcoin is the first token ever launched and the first one to introduce the concept of cryptocurrencies to the world.
Launched during the aftermath of the 2007-2008 financial crisis, the idea behind Bitcoin was to create a transparent, secure, and decentralized digital alternative to fiat currencies traditionally controlled and manipulated by governments, central banks, and other questionable entities. Although much has changed, this need for an alternative remains relevant.
With that said, as technology advances in almost every aspect of our day-to-day lives, our expectations of what we want from cryptos have also evolved. As we’ll see later, this is part of what drove BTC from a viable alternative to fiat currencies to its current position as a store of value or digital gold.
Let’s explore what is holding Bitcoin back from fulfilling its true calling.
To start with the most obvious, the number of transactions per second (TPS) is not sufficient to sustain a full-on economy. Bitcoin’s TPS, which usually averages seven transactions per second, is far below other payment methods. This is true for traditional payment systems like credit cards and other cryptos. In perspective, Visa can support up to 1,700 TPS, while the Solana blockchain can theoretically withstand up to 65,000 TPS.
This brings us to the second issue that the Bitcoin mainnet struggles with.
Since the first introduction of blockchain technology by Bitcoin, the potential of this technology expanded way beyond wire transfers. From smart contracts, Web3, decentralized finance applications, and other real-life use cases, the world of cryptos is no longer limited to simple peer-to-peer transactions.
By making light of the reality of the situation, we are not taking away from the fact that Bitcoin has a promising future. It has the potential to achieve more. BTC is still reigning supreme as the most dominant crypto and isn’t expected to change anytime soon.
Furthermore, in the crypto world, evaluating the resilience and attractiveness of the main chain of blockchain projects (the mainnet) is shared according to three primary criteria – security, decentralization, and scalability. As the first-ever crypto, Bitcoin is considered the most decentralized crypto by far, and as such, it is also viewed as one of the most secure.
From a purely technical standpoint, Bitcoin’s mainnet lags behind most altcoins in supporting more advanced applications and activities. To fully unleash the potential of Bitcoin as a genuinely disruptive force to our current fiat economy, it must improve in the two main aspects we’ve discussed – scalability (the ability to support more data efficiently, users, and TPS) and programmability (unlocking new utilities and protocols like dApps and NFTs).
The world of blockchain updates is vast, complex, and very technical. Today, we will simplify things by categorizing all types of mainnet system upgrades into two main groups, both very common in the crypto ecosystem.
The first method would be to change the actual base layer, a.k.a layer-one (L1) of the blockchain network. This is quite common in the crypto world. The most famous example of such an upgrade is “the merge” when the Ethereum ecosystem switched its consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS).
The second method for upgrading a crypto’s blockchain is scaling solutions, a general term for any third-party network that aims to improve the ecosystem without affecting its original architecture. Since it’s working on the layer-one blockchain, these solutions are called layer-twos or L2s.
This means that L1 system upgrades require the ability to modify the architecture of the network itself, which requires access to the actual coding of the base layer and some sort of agreement about what improvements are needed and the best ways to execute them.
On the other hand, scaling solutions are much easier to bring to life since everybody can launch their L2 without affecting the mainnet or its developers and users.
Both L1 and L2 solutions have their advantages and disadvantages. As it turns out, L1 upgrades are impossible regarding Bitcoin because its mainnet is irrevocable and decentralized. Therefore, whenever you hear about new developments and upgrades to the Bitcoin main net, you can be sure it always refers to L2s.
Now that we’ve covered scaling solutions and how they can benefit the Bitcoin mainnet, let’s look at a few of the most promising layer-two solutions already up and running in the Bitcoin ecosystem.
Before continuing our L2 rundown, it’s important to emphasize that while some of these projects have native tokens you can invest in, the fact that we chose to include them in our article should not be considered a recommendation to trade them. Remember that this blog post is focused solely on the technological aspects of these L2 projects. If you’ve been following our blog long enough, you should know by now that this is not enough to make informed trading decisions. Do your research, and remember to look at all relevant factors, like tokenomics, on-chain data, and other fundamentals, before making any financial decisions.
Now that we’ve cleared that up, without further ado, and in no particular order, let’s look at some of the most popular Bitcoin scaling solutions available today.
The Lightning Network is an L2 payment protocol built on the Bitcoin mainnet. Its goal is to facilitate fast, private, low-cost Bitcoin micropayments and other transactions. Justifying its name, the Lightning Network can support up to one million transactions per second.
The Lightning Network achieves this by allowing any two (or more) BTC users to create a private payment channel between them. In these payment channels, parties can execute unlimited transactions between themselves. This means there is no need to confirm every transaction through the Bitcoin consensus mechanism and record them on the main blockchain.
Instead, only these payment channels’ opening and closing balances are registered on the Bitcoin mainnet. Through this sophisticated use of payment channels, the Lightning Network can process and record most data off-chain, reducing congestion on the Bitcoin mainnet and enabling faster transactions with lower gas fees.
Rootstock is a scaling solution focused on increasing the functionality and programmability of Bitcoin’s main chain. It’s designed to leverage the robust security of Bitcoin while offering the same flexibility and features of more advanced cryptos like the Ethereum ecosystem.
The Rootstock’s blockchain (RSK) is technically a sidechain that works alongside the Bitcoin mainnet rather than on top of it. Through merged mining, miners can mine Bitcoin and Rootstock simultaneously using the same hashing algorithms, mining equipment, and energy consumption. As a result, the RSK blockchain is protected by 60% of Bitcoin’s hashing power, making it one of the safest scaling solutions.
Rootstock’s workflow is straightforward. Every BTC transmitted to the RSK blockchain is immediately converted into an RBTC token. The RBTC token is essentially a Bitcoin capable of supporting smart contracts and other decentralized applications. RBTC can be converted back to Bitcoin at any time.
Through this unique architecture, users and developers can enjoy both worlds – all the utility that altcoins offer while being protected by Bitcoin’s unparalleled decentralization.
Stacks is a popular L2 solution designed to enhance the scalability and functionality of Bitcoin without sacrificing any of its benefits.
Stack’s innovative architecture is what distinguishes it from other Bitcoin scaling solutions.
It uses microblocks for fast and independent validations, and its proprietary consensus mechanism, Proof of Transfer (PoX), enables every transaction on the Stack network to be directly recorded on the Bitcoin mainnet.
Through its version of 1:1 pegged Bitcoin called sBTC and its native token STX, the Stacks Protocol aims to deliver the safest and most efficient way to leverage Bitcoin’s security for supporting advanced features like dApps, NFTs, and more.
The Liquid Network is another notable BTC scaling solution that focuses on enabling faster, cheaper, and more confidential Bitcoin transactions.
Like some of the other L2s we’ve presented, the Liquid Network is a sidechain to the Bitcoin mainnet that works independently of it, operating with its version of Bitcoin called L-BTC, which is pegged in a 1:1 ratio to actual BTC. The Liquid Network also has a unique consensus mechanism called Strong Federation.
The federation is a group of crypto-native companies, exchanges, and other stakeholders in charge of validating transactions, signing blocks, and governing the network.
The Liquid Network can process transactions quickly and efficiently through this unique, more centralized structure. On top of that, this design offers other advantages for users who value secrecy, such as atomic swaps and other confidential transactions where the data about the amounts and types of assets being exchanged remains private.
The Merlin Chain is the newest L2 solution on this list, launched less than a year ago. Like the others, Merlin also aims to enhance the scalability and efficiency of Bitcoin’s main chain.
As a new project, Merlin distinguished itself from its competitors by utilizing advanced architecture that includes ZK-rollups, a decentralized network of oracles, and advanced on-chain fraud-proof modules. This complex setup enables the Merlin Chain to compress transaction data into batches for fast and efficient settlement on Bitcoin’s mainnet without sacrificing security.
The Merlin Chain is entirely compatible with the Ethereum mainnet and its leading protocols like the Ethereum Virtual Machine (EVM). It is a significant advantage for developers since it allows them to quickly deploy their existing dApps without needing significant adaptations beforehand.
With Bitcoin successfully continuing to consolidate around the very significant $100K price mark and once again establishing itself as the new reserve currency of our age, Bitcoin L2s could be one of the most exciting innovations to follow in the world of cryptos in the years ahead.
Offering different unique approaches for scaling up the Bitcoin mainnet while exploiting its advantages, these L2 solutions have the potential to fulfill the original vision of Satoshi Nakamoto, that is, a truly decentralized, fair, secure, and transparent ecosystem that is based solely on Bitcoin.
As these technologies mature, Bitcoin continues on an exciting path towards carrying out its expansive vision of redefining our global economy as a practical alternative to fiats.
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