While Bitcoin is by far the largest, most well-known blockchain, most users do not associate Bitcoin with decentralized applications, smart contracts, non-fungible tokens (NFTs), and other crypto infrastructure.
Bitcoin is commonly referred to as “digital gold” or a global payment network. But after more than a decade, Bitcoin’s narrative is starting to change.
Right now, Bitcoin is experiencing a rapid expansion of its ecosystem. Developers are turning to layer 1 blockchains, like Bitcoin, which can serve as the foundation for a larger network of decentralized applications and other Web3 technology.
In this article, we will explain Bitcon’s layer 1, its additional layers, and the network’s evolution as a growing ecosystem.
Why is the Bitcoin Ecosystem So New?
Over the last few years, innovative research and developments have started to draw more attention to the potential programmability of Bitcoin.
It is important to note that building on top of Bitcoin is unlike many other leading ecosystems.
For instance, most layer 1 blockchains like Ethereum and Solana were purposefully designed to develop smart contracts and applications. On the other hand, Bitcoin was never meant to host applications on its mainchain, as it was originally created to be a censorship-resistant, peer-to-peer payment platform.
However, recent innovations within Bitcoin technology have cultivated a substantial developer community dedicated to building on top of the network. Additionally, Bitcoin’s dominance in market capitalization, mining infrastructure, blockchain security, and mainstream adoption position it to seamlessly integrate with many other use cases in Web3.
The original intent does not mean that the base cannot serve as a sturdy foundation for layered solutions. Building on top of Bitcoin is proving to be the safest, most secure way to launch smart contracts and decentralized applications.
Definition and Utility of Bitcoin’s Layer 1
The Bitcoin layer 1 (also referred to as the mainchain or base layer) is the core of the network. It includes the distributed ledger, network nodes, and its Proof-of-Work (PoW) consensus mechanism.
The layer 1 validates and finalizes all on-chain transactions, then adds these transactions to new blocks created approximately every 10 minutes.
From a technical perspective, Bitcoin’s core protocol is remarkably simple - given its limited scripting language, finite programmability, and minimal throughput. Avoiding complexity is actually Bitcoin’s greatest strength, and its simplicity is the reason that Bitcoin is a stable, secure and decentralized layer 1 blockchain.
Since its inception, Bitcoin has experienced minimal modifications to its protocol, with near-zero network interruptions. It has continually demonstrated its integrity and durability, which is part of why it remains the leader of the entire cryptocurrency landscape.
Moreover, Bitcoin is the most sound blockchain given its robust security budget. Most notably, Bitcoin is resistant to attacks such as a 51% attack.
Having a single entity gain control of more than 50% of Bitcoin’s hashing power is nearly impossible due to the sheer size and decentralization of the network. There are many miners and mining pools located all around the world, with no single entity controlling a majority of the network's mining power.
By dedicating a significant amount of resources to securing the network, miners and other network participants can help make it more difficult for bad actors to compromise the Bitcoin blockchain. So while a 51% attack on the Bitcoin network is theoretically possible, it would require a significant amount of resources and coordination, making it highly unlikely to succeed.
This is one of the key factors that has contributed to the success and widespread adoption of Bitcoin as a decentralized digital currency and growing ecosystem.
Therefore, Bitcoin does not need any alterations. Its shortcomings can be addressed by adding layers on top rather than changing the foundation.
What Are Bitcoin Layers?
Bitcoin layers are solutions built on top of Bitcoin to increase the network’s programmability and scalability.
Similar to other blockchains, not every solution can be implemented into Bitcoin’s layer 1. Therefore, additional layers can be added on top of the layer 1 to increase the practicality of Bitcoin transactions and the network’s functionality.
Not all Bitcoin layers are constructed the same. There are a number of different ways to connect a layer to Bitcoin, such as a sidechain, merge-mined chain, proof-of-stake chain, layer 2, or even another layer 1. However, all layers have a common goal: conduct off-chain transactions to scale the Bitcoin network.
Some of the additional features that a Bitcoin layer can introduce to the network include:
- Smart contract programmability
- Increased throughput speeds
- Lower costs
- Asset issuance
- Additional privacy measures
Bitcoin layers are the foundation for building on Bitcoin and the development of Bitcoin decentralized applications (dApps).
Currently, there are hundreds of decentralized applications being built on the Bitcoin network. Its Web3 ecosystem is quickly expanding, and covers many different niches including:
- Identity Management
- Data Analytics
By building on top of Bitcoin, each layer and subsequent application directly benefits from Bitcoin’s security, capital, and network.
Examples of Bitcoin Blockchain Layers
While attempts to add greater functionality to Bitcoin began in 2012, the most significant strides have been made since 2018.
Each layer has its unique way of interacting with Bitcoin and securing its protocol.
Here are some of the main layers on top of Bitcoin and their distinct use cases:
Lightning Network is a layer 2 solution that enables efficient micro-payments on Bitcoin. The protocol enables peer-to-peer channels for both retail and institutional users. Bitcoin payments can be sent instantly, domestically or internationally, at almost no cost.
Lightning uses smart contracts to create the off-chain channels and a remote ledger to track payments back and forth. Once the channel is closed, the transactions are consolidated and sent to the underlying blockchain, Bitcoin. Completing small payments with Lightning Network greatly increases transaction speeds, reduces transaction fees, and makes Bitcoin exponentially scalable.
- Lightning Network Native Asset: Lightning Bitcoin (BTC)
- Lightning Network Use Cases: micro-payments, gaming
The Liquid Network layer brings asset issuance to Bitcoin, enabling users to create and transact with stablecoins, security tokens, and NFTs. Liquid also rapidly increases Bitcoin transaction throughput, with one minute block times and two block finality. Transactions and asset types on Liquid are more confidential than on Bitcoin’s base layer, making their contents unviewable to any third-party viewers.
- Liquid Network Native Asset: Liquid Bitcoin (L-BTC)
- Liquid Network Use Cases: asset issuance, private transactions
RSK, also known as Rootstock, is a layer that brings EVM-compatible smart contracts to Bitcoin. Through the RSK Virtual Machine (RVM), developers can port Ethereum contracts on top of Bitcoin. Transaction speeds are greatly increased on RSK, with an average block time of around 30 seconds. RSK then secures blocks by utilizing Bitcoin hashing power through a process called “merged mining.”
Important note: Liquid and RSK are often referred to as Bitcoin sidechains- meaning that they operate in parallel to the Bitcoin base layer protocol. Their native assets (L-BTC and RBTC) are pegged 1:1 to BTC. Therefore, the amount of L-BTC and RBTC always verifiably matches the amount of BTC locked on Bitcoin’s main chain.
Stacks is a programming layer that brings fully-expressive smart contracts to Bitcoin. The Stacks blockchain operates with Bitcoin slightly differently than other layers. First, Stacks has its own consensus mechanism, Proof-of-Transfer, to mine blocks. This mining algorithm ensures that the history of all Stacks blocks ever produced is settled on Bitcoin. The protocol also uses a smart contract language called Clarity to create decentralized applications. Clarity allows Stacks to read Bitcoin state and include Bitcoin-based logic in its smart contracts, which is unachievable by any other layer.
- Stacks Native Asset: Stacks Token (STX)
- Stacks Use Cases: DeFi, NFTs, Blockchain Naming Systems
The Foundation of Building on Bitcoin
The most critical aspect of any decentralized application is having a solid infrastructure to build upon.
Without a sound foundation, a decentralized application has to constantly worry about network downtime, security breaches, and other issues that could be detrimental to the application’s long-term success.
The Bitcoin blockchain is optimized for decentralization, stability, and security, which makes it a robust base for building layers and decentralized applications.
If Bitcoin is to become a global currency and unlock its true potential as an ecosystem, it must increase its productivity through its layered solutions.
Whether it is Lightning, Liquid, RSK, Stacks, or another emerging platform, each layer brings valuable scaling solutions and programmability to the larger Bitcoin ecosystem.
Bitcoin will continue to grow and gain adoption as a digital currency. Similarly, Bitcoin will keep expanding as a platform for the future of finance, social, and more. With the emergence of Bitcoin layers, more users will be able to enjoy the future of Web3 and its potential.