Bitcoin Layer-2 Networks Could See Growth, Mirroring Ethereum's Architecture

According to CoinDesk, Bitcoin may experience growth in auxiliary layer-2 networks to address its inherent limitations, as stated in a new report by the Singapore-based blockchain asset-management Spartan Group and Kyle Ellicott, a former partner at the Bitcoin Frontier Fund. The report suggests that existing solutions like the Lightning Network could see growth, and new projects are also being developed. This trend appears to take inspiration from Ethereum's architecture, which has seen the emergence of numerous layer-2 projects in the past year, including Base, Arbitrum, Optimism, and Polygon. The layer-2 networks on Bitcoin are in their early stages compared to those on other blockchains but are growing, according to the report's authors. They argue that Bitcoin is now well-positioned to unlock its potential with a layered architecture similar to Ethereum's. The emergence of the Ordinals protocol a year ago brought a renaissance of Bitcoin builder culture, enabling the network to host non-fungible tokens (NFTs) and paving the way for the BRC-20 token standard. The report identifies the 'Big Four' layer-2 projects as Lightning, Stacks, Liquid, and Rootstock, which together make up the majority of L2 transactions and focus on bringing smart contract and faster transaction speeds to Bitcoin. These projects will need refinement to avoid the inherent limitations of the Bitcoin network. One notable upgrade is Stacks' Nakamoto Release, designed to enable cheap BTC transfers on an L2, improving transaction speeds to around five seconds instead of 10 to 30 minutes or more. The report also highlights emerging innovations on Bitcoin, such as Ark, a L2 protocol for off-chain payments, and MintLayer, a sidechain optimized for DeFi-related activities. These developments could capitalize on Bitcoin's tailwinds from the recent listing of exchange-traded funds (ETFs) in the U.S. and the forthcoming halving, inspiring new use cases for Bitcoin and spurring further adoption.