3) Framework for analyzing Bitcoin scaling solutionsđŸ”»

While we have featured some of the larger Bitcoin scaling projects in this report, readers should note that the actual number of such projects has been high this year and is increasing every week. The following points need to be considered when trying to distinguish and evaluate different Bitcoin scaling strategies:

1<Trustless two-way bridge: One of the key points in the Bitcoin L2 debate is the bridge between Bitcoin L1 and L2. Due to the limited smart contract capabilities of Bitcoin, a trustless two-way bridge is not currently possible.

This means that some form of centralization is usually required to transfer assets from Bitcoin to L2 and back. This may come in the form of a federation (i.e., multi-centralization)

How Bitcoin L2 handles this fundamental issue is an important aspect to monitor when evaluating different projects. Robin Linus introduced BitVM in a December 2023 paper, proposing a solution for Bitcoin smart contracts that enables it to perform more complex operational calculations.

BitVM may be able to provide a more trust-minimized way to solve the two-way trustless bridge problem (discussed in detail below)

2<Relationship and consistency with Bitcoin base layer: Bitcoin L2 should maintain close economic consistency with Bitcoin and adopt a number of feasible strategies, including using native BTC as collateral or BTC as GAS.

This move may cast the widest net over the existing user base, including some members of the Bitcoin community who are more concerned with currency transaction functions.

Bitcoin L2 may choose to maintain consistency by using Bitcoin blocks for transaction settlement, data availability, and even execution in some cases.

3<Fork requirements: Some Bitcoin scaling proposals, both before and after the emergence of Ordinals, have proposed solutions that require Bitcoin to change in the form of hard forks or soft forks.

As we have previously emphasized, Bitcoin is generally quite slow to change and has only experienced two soft forks in the past seven years (SegWit in 2017 and Taproot in 2021)