Layer 2 is now so deeply integrated into the EVM environment that it's hard to remember a time when Layer 2 wasn't a foundation of daily life for millions of users. But not too long ago, Layer 2 was just an idea and a working entity. However, over the past three years, dozens of Layer 2 networks have sprung up to ease the burden on Layer 1 chains such as Ethereum. And now, the same change is happening with Bitcoin.
Why L2?
Layer 2 is essentially a blockchain network that derives its security model from the main chain, or parent chain, to which it is connected. Transactions are routed to a secondary network that is cheaper and faster to use, and this activity is periodically verified on the main chain by sending evidence proving the legitimacy of recent L2 activity. In this way, L2 can benefit from the scalability supported by dedicated architectures without significantly weakening security and decentralization compared to L1.
L2 This is essentially an attempt to leverage the best of both worlds: the strength of a time-tested main chain like Ethereum without the high fees and bottlenecks. In this respect, L2 has been a huge success. Currently, second-tier solutions such as Polygon, Optimism, Arbitrum, and Base dominate his EVM ecosystem and collectively account for significantly more economic activity than Ethereum, both in terms of value and number of transactions. Masu.
However, Ethereum is not redundant. Billions of dollars have been invested in securing the network through proof of stake, making it extremely robust, and these impacts extend to the supporting L2. On the other hand, assets, including alternative tokens and NFTs, can be easily moved between EVM chains due to the large number of bridges that have emerged, and when moving from L1 to L2, the transfer can be completed within 60 seconds in most cases.
Now it's Bitcoin's turn to benefit from the Cambrian period L2 explosionmore and more Layer 2 networks are now in operation, offering Bitcoiners many of the same benefits that Ethereum enjoys.
Scaling Bitcoin via L2
Bitcoin's architecture was designed to be very different from Ethereum's, which is why the kinds of use cases that have long been prevalent on Ethereum took so long to take shape. A framework for exchanging NFTs existed until Casey Rodamor devised his Ordinals, and through BRC20 and later his Runes, fungible tokens could also be exchanged. As these use cases gained adoption, Bitcoin quickly ran into the same problems that have plagued Ethereum: high fees and low throughput. Again, the solution lies in layer 2.
Currently, a large number of Bitcoin L2s reduce the burden on the main network, providing more fertile ground for sectors such as DeFi to flourish. Among them, the main ones are marlin chainThis allows native layer 1 assets like BTC to be traded on a dedicated L2 alongside dozens of other assets including ETH. Because that's another important thing to know about Merlin Chain. Because it is compatible with EVM and allows you to move assets directly from the Ethereum ecosystem to Bitcoin.
Merlin Chain appears to be the L2 best placed to unite the once siled worlds of Bitcoin and Ethereum, but it is by no means the only one Second layer solution Available in Bitcoin. The first one is Stacks, which supports DeFi use cases such as lending and on-chain Perp. Meanwhile, companies like Rootstock and SATOSHIVM are also chipping away at the same challenge.
Since launching its mainnet, Merlin Chain has proven that there is a clear appetite for Bitcoin-centric DeFi and NFTs among its users. TVL Thanks to popular protocols such as Solv and Avalon, which form the basis of DeFi, it has now reached a staggering price tag of $1.2 billion. Those who once dismissed Bitcoin DeFi as unviable or simply unnecessary given Ethereum are being forced to reconsider.
Have you reached peak L2?
For both Ethereum and Bitcoin, L2 has proven to be highly effective in solving the main problems they were designed to address: fees and throughput. In the process, we showed that blockchain can operate reliably and securely without introducing trade-offs that compromise the core decentralization and immutability of blockchain.
Having said that, the L2 environment clearly has some drawbacks, particularly in that it introduces liquidity fragmentation and balkanization. So far, there is no “winner-takes-all” scenario for either Bitcoin or Ethereum. While healthy in terms of promoting competition, the downside to this is that users have no idea which L2 to choose, and by purchasing one L2 they risk missing out on the opportunity of another. I don't know if it's true or not.
Also, given the increasing speed and ease of L2 deployment, it is unlikely that the industry will fragment into thousands of Layer 2s, most of which operate as ghost chains with nominal real users. It is also important to do so. The likely outcome is that as the L2 landscape hardens, a few clear winners will emerge and control the majority of all economic activity.
On Ethereum, we've seen games gravitate to Polygon, memecoins and SocialFi to Base, DeFi and Perps to Arbitrum and Optimism, and specific use cases to specific L2s. On the other hand, zk-based L2s such as StarkNet and zkSync are still too new to draw meaningful conclusions. When it comes to Bitcoin, Stack and Marlin Chain seem destined to dominate the majority of all L2 traffic, and perhaps other Layer 2s will develop their own use cases and users over time.
One thing is for sure: L2 is a godsend for millions of on-chain users. After experiencing the speed and convenience of transactions at Layer 2, it's hard to imagine going back to L1.
