Bitcoin's Ecosystem Layer: Unveiling the Curtain of Trustless Finance (I)
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Bitcoin's Ecosystem Layer: Unveiling the Curtain of Trustless Finance (I)
A major transformation in the Bitcoin ecosystem could unlock its immense potential.
Navigating Web3 tides with focused insightsAuthors/Contributors: Kyle Ellicott, Yan Ma, Darius Tan, Melody He
Chinese translation: 0xNirvana
"The Bitcoin Layers: Unveiling the Era of Trustless Finance" is a research report on various developments within the Bitcoin ecosystem.
This report was co-authored by the Spartan Group team, Kyle Ellicott, and多位 experts who generously provided feedback, insights, and time to review the final version.
Drafted in December 2023, all data is accurate as of the writing period. This is the first article in a four-part series.
Over $850 Billion in Bitcoin Capital Remains Idle
The stability and security of the Bitcoin network have not only endowed BTC with lasting value but also enabled it to accumulate substantial capital: at the time of writing, Bitcoin's market cap exceeds $850 billion. However, the network faces significant challenges such as limited programmability, technical scalability constraints, and a developer community culture that resists change. Since Bitcoin’s inception, these issues have hindered development efforts on the network, leaving vast amounts of capital underutilized and dormant.
Major Transformations in the Bitcoin Ecosystem Could Unlock Its Immense Potential
To activate this idle capital, fully unlocking the potential and capabilities of the Bitcoin network is essential. Currently, developers and builders are actively exploring efforts based on or adjacent to Bitcoin technology, introducing smart contracts and scalable, fast transactions to enable new use cases.
As a result, Bitcoin is gradually moving beyond its commonly assumed role as merely a "store of value (SoV)" and steadily evolving into the foundational technological platform for building trustless financial systems as originally envisioned. However, each of these approaches comes with notable limitations—particularly in flexibility, performance, or security models.
Ordinals Have Sparked a Renaissance Among Bitcoin Builders
Meanwhile, the introduction of Ordinals marks a significant cultural shift toward using Bitcoin Layer-1 for applications beyond store-of-value (SoV), including "NFTs on Bitcoin" and further innovations built atop the Ordinals protocol, such as recursive inscriptions and BRC-20 tokens. Notably, these additional Layer-1 use cases place further strain on network performance and scalability, resulting in significantly higher transaction fees on Bitcoin.
Bitcoin Layers Address Scalability Challenges
The concept of "Bitcoin Layers," modeled after Ethereum's layered architecture, represents a strategic response to Bitcoin's limitations. These distinct layers introduce various functionalities such as programmability, faster transaction speeds, improved data availability, and enhanced application capabilities. This approach leverages Bitcoin’s security and stability while unlocking the immense potential of its capital base. Previously, Lightning Network served as a Layer-2 solution for fast payments; however, newer layers can offer more complex features beyond speed and scalability—such as smart contract functionality.
Strategic Necessity of Bitcoin Layer-2 Solutions
To preserve Bitcoin’s security and decentralization, its Layer-1 will always retain certain inherent limitations by design—namely, lack of native smart contract programmability and slow transaction throughput.
However, major upgrades like SegWit and Taproot have addressed some issues. Yet rising gas fees—Bitcoin gas fees surged over 280% year-on-year at one point this year, compared to Ethereum’s peak increase of over 160%—alongside intense demand for block space, underscore the growing need for more sophisticated Layer-2 solutions. For example, Stacks is set to announce its pivotal “Nakamoto Release” upgrade in Q2 2024.
The Nakamoto Release promises to transform Stacks into the true Bitcoin Layer-2 the market demands: a smart contract-enabled Layer-2 that allows applications to use BTC as their native asset, inheriting 100% of Bitcoin’s reorg security and finality, while enabling fast transactions. Strategically, increasing the number of available Layer-2 options fosters competition and stimulates developer interest, driving innovation and scalability forward.
The Bitcoin Ecosystem Is Ready for Institutional Adoption
Ahead of the 2024 Bitcoin halving event, ongoing advancements in Bitcoin Layer-2 technologies are shaping a more scalable and secure ecosystem. Bolstered by growing institutional interest—including the approval of multiple spot Bitcoin ETFs—Bitcoin now stands at the forefront of a new, trustless financial paradigm that seamlessly integrates traditional and decentralized systems.
Contact Us
Whether you're a builder or enthusiast in the space, the authors welcome your feedback and would love to hear from you. If your project has not been included in this report or our ecosystem map and you'd like to be considered for future updates, please feel free to reach out via Twitter/X DM or email. Thank you!
About Spartan Group
Since its founding in 2017, Spartan Group has been at the forefront of the Web3 industry, consistently playing a leadership role.
Spartan Advisory is one of the most active and innovative professional trading firms in the Web3 sector. It provides strategic solutions to the industry’s top founders, with core services including M&A, restructuring, token launches, and fundraising.
Spartan Capital is one of the most active venture investors in the Web3 space, supporting leading crypto companies and networks.
Spartan Labs is a Web3 startup studio that partners with the world’s best builders to turn visionary ideas into bold, innovative enterprises.
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