Bitcoin's Popular Layer 2 Projects (Part 1): Sidechains and UTXO+ Client-Side Verification
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Bitcoin's Popular Layer 2 Projects (Part 1): Sidechains and UTXO+ Client-Side Verification
Which Bitcoin Layer2 solution is the best?
Navigating Web3 tides with focused insightsAuthor: Day
Last year, due to the popularity of inscriptions, attention began shifting from Ethereum to Bitcoin—especially among institutions, which started investing heavily in Bitcoin ecosystem infrastructure. Recently, Bitcoin Layer2 projects such as BEVM and BOB raised funding ranging from millions to tens of millions of dollars. Additionally, the launch of Nervos' RGB++ and the minting of Seal have significantly increased interest in CKB (Common Knowledge Base), the Layer1 network of Nervos Network responsible for storing all transaction data and smart contracts.
Today, let's explore the world of Bitcoin Layer2. There are numerous Bitcoin Layer2 solutions currently available, which we can broadly categorize into four types: Bitcoin sidechains, UTXO+ client-side validation, Rollups, and Taproot Consensus. This article is divided into two parts; today, we'll cover the first two categories.
01 Goals of Bitcoin Layer2
As the leading cryptocurrency, simply holding Bitcoin allows one to outperform 95% of other assets over a market cycle. However, users remain unsatisfied and seek to expand Bitcoin’s capabilities. Compared to other public blockchains, Bitcoin suffers from slow transaction speeds, long confirmation times, high fees during congestion, and limited smart contract functionality, making it difficult to build complex applications directly on-chain.
Bitcoin Layer2 refers to additional layers built atop Bitcoin, aiming to improve transaction speed, reduce costs, and enhance scalability. These goals are achieved by processing transactions off-chain and maintaining intermediate states outside the main chain. This approach accelerates transaction confirmations, reduces fees, and increases overall system capacity and throughput. Layer2 aims to boost Bitcoin's performance, making it more suitable for a wider range of applications.
02 Bitcoin Sidechains
Bitcoin sidechains are independent blockchain systems connected to the Bitcoin mainchain, typically via a two-way cross-chain bridge—an independent blockchain linked to the mainchain. They allow users to lock Bitcoin on the mainchain and then conduct transactions and operations on the sidechain.
Through sidechains, users gain access to more flexible and diverse features, such as support for other crypto asset payments, stateful smart contracts, faster settlement, and enhanced privacy. However, because sidechains require their own set of validator nodes to verify transactions independently, they face challenges such as too few nodes, centralization risks, and inability to inherit Bitcoin’s security. Below are some representative sidechain projects:
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Stacks
Stacks positions itself as the smart contract layer for Bitcoin, aiming to bring smart contracts and DApps to the Bitcoin ecosystem through its unique Proof of Transfer (PoX) consensus mechanism that links it with the Bitcoin mainchain. Stacks enables developers to build smart contracts and DApps. Its technical architecture offers both a core layer and subnets. The core layer provides high decentralization but lower throughput, while subnets offer less decentralization but higher throughput.
Stacks uses the Clarity smart contract language to develop DApps, and has undergone the Nakamoto upgrade to enhance network performance. This upgrade allows Stacks not only to settle Bitcoin transactions but also achieve 100% resistance to Bitcoin reorganizations and faster block production. It also issues SBTC-based stablecoins to increase DeFi composability. Stacks aims to deliver high decentralization and scalability while bringing smart contract functionality and DApp capabilities to Bitcoin.
Stacks has been developing its ecosystem for five years, yet most projects have received lukewarm responses or remain stagnant. The long-awaited Nakamoto upgrade has taken considerable time and is expected to launch on the mainnet by month-end. Its token STX is currently the leading Bitcoin Layer2 asset by market cap, approaching $500 million.
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RSK
RSK (Rootstock) positions itself as a smart contract-enabled Bitcoin Layer2 focused on DeFi. RSK does not have a native token and uses RBTC for paying transaction fees, aiming to serve as a foundation for financial inclusion.
RSK leverages Bitcoin’s security by merging block production—Bitcoin miners simultaneously mine both Bitcoin and RSK blocks—to secure smart contracts and transactions. It is compatible with the Ethereum Virtual Machine (EVM), allowing developers to write smart contracts using Solidity and port Ethereum DApps to RSK. Additionally, RSK has established the RIF network, offering various infrastructure services including DeFi, storage, domain name services, and payment solutions to meet user needs.
Aside from RIF, no other notable ecosystem projects have emerged. Performance remains weak, and last month RSK launched its third round of grant programs totaling $2.5 million.
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Liquid Network
Liquid is a Bitcoin sidechain and settlement network launched by Blockstream. It aims to provide fast settlement, strong privacy, and digital asset issuance, primarily serving institutions and asset issuers by enabling asset issuance and circulation on a Bitcoin sidechain, facilitating faster Bitcoin transactions and tokenization of digital assets. Liquid emphasizes simple protocols, security, and privacy. Like RSK mentioned above, Liquid relies on federated multi-signature mechanisms to issue pegged tokens, differing mainly in degree of decentralization. Moreover, Liquid prioritizes security, whereas RSK focuses more on usability.
Since Liquid serves institutional clients, it is considered a consortium chain. Furthermore, it primarily supports asset issuance and trading and lacks friendliness toward smart contract functionality.
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Lightning Network
The Lightning Network is a scaling solution built on top of the Bitcoin network designed to accelerate Bitcoin transactions, though it does not support smart contracts. It achieves fast, low-cost micropayments through second-layer payment channels. In the Lightning Network, participants open special payment channels where multiple transactions can occur without recording each one on the Bitcoin blockchain. Only when the channel closes is the final transaction result submitted to the Bitcoin mainchain for settlement.
With the Lightning Network, users enjoy near-instant payments without waiting for Bitcoin mainchain confirmations, greatly improving transaction speed and reducing fees. Using smart contract technology and multi-signature mechanisms, the network ensures transaction security between participants.
Use cases include micropayments and gaming, providing users with convenient, fast, low-cost payment methods and offering developers a platform to build Lightning Network-based applications.
On April 3, Coinbase partnered with Lightning Network payment provider Lightspark to integrate Bitcoin Lightning Network support for all its customers. Currently, the dollar capacity within Lightning Network payment channels is close to $320 million.
Overall, the current landscape of Bitcoin sidechains consists largely of relatively 'older' projects. Despite years of development, actual progress has been underwhelming, with these projects lagging behind in terms of technology and real-world implementation.
03 UTXO+ Client-Side Validation
UTXO+ client-side validation is a scaling solution based on Bitcoin’s UTXO (Unspent Transaction Output) account model—essentially unspent receipts—which attempts to perform off-chain ledger computation based on Bitcoin’s UTXO model and ensure ledger authenticity through client-side verification. The goal is to preserve Bitcoin’s original characteristics while enabling shared Layer2 ledgers and security.
In practice, implementing this approach is extremely challenging. Bitcoin’s design does not support complex computations, so integrating additional tasks into the UTXO model becomes highly complex. This approach emphasizes Bitcoin-native purity but may overlook feasibility and practical operational difficulties.
Currently, most projects in this category remain at the whitepaper stage with little tangible progress. Below are some representative examples:
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RGB
RGB is a proposed Bitcoin Layer2 solution built upon Bitcoin’s UTXO model and the Lightning Network. Its goal is to compress and encapsulate data within each Bitcoin UTXO and use client-side validation to ensure asset security.
RGB’s design binds off-chain RGB transactions with Bitcoin UTXOs. By sealing proofs of RGB transactions and asset ownership within Bitcoin UTXOs, RGB integrates asset ownership and state with Bitcoin’s UTXO operations and controls. However, RGB’s development has progressed slowly due to the high technical complexity involved in several key components. Although RGB is considered an orthodox approach, its implementation challenges and functional limitations have hindered progress.
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RGB++
The RGB++ protocol was proposed earlier this year by a co-founder of Nervos, inspired by the RGB protocol. Its core idea is similar to RGB—performing computation, execution, and transaction validation off-chain before settling on the Bitcoin chain. The key difference lies in how transaction and asset validation is handled.
Nervos leverages the shared POW+UTXO structure with Bitcoin and combines it with an innovative "isomorphic mapping" technique, successfully migrating RGB’s client-side validation onto CKB. This approach maintains security equivalent to Bitcoin while extending RGB’s functionality and flexibility. The migration sacrifices minimal privacy while offering users greater ways to use and manage digital assets. RGB++ inherits Bitcoin’s security while gaining Turing-complete smart contract execution capability.
In this model, CKB becomes the execution and data availability (DA) layer for RGB++ assets, but it isn’t limited to just RGB++; it can support other Bitcoin Layer1 assets such as Runes and Atomicals—any asset based on the UTXO accounting model.
CKB has recently gained significant attention. Here's a brief introduction to UTXO Stack, a project developed by a company incubated by the Nervos Ecosystem Fund. UTXO Stack is a Bitcoin Layer2 issuance platform based on the UTXO model, designed to help developers quickly build Bitcoin Layer2 chains using UTXO architecture. It provides a modular toolkit that allows developers to easily construct their own Layer2 chains and integrate them into the Nervos ecosystem.
UTXO Stack natively supports the RGB++ protocol and uses CKB as a data availability layer, expanding application scenarios and growth opportunities for the Bitcoin ecosystem. This architecture enables synergy between the RGB++ protocol and UTXO Stack, providing strong technical support for the evolution of the Bitcoin ecosystem.
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BitVM
BitVM is a conceptual solution for a Bitcoin virtual machine proposed by Robin Linus, lead of the ZeroSync project. It aims to enhance Bitcoin’s programmability, enabling developers to run complex contracts on the Bitcoin network without altering Bitcoin’s fundamental rules or consensus mechanisms. It remains in the theoretical stage.
BitVM offers a method to implement complex contracts on Bitcoin while preserving its security and decentralization. By introducing new virtual machine concepts and roles, it expands programming capabilities and innovation space for developers. To improve flexibility, BitVM moves most computation off-chain, only submitting relevant proofs on-chain. Its core idea is abstracting complex smart contracts into fraud proofs executed within Bitcoin scripts. Users can challenge suspicious transactions and validate authenticity through fraud proofs.
Currently, BitVM’s practical feasibility and technical details remain controversial and require further observation and research.
04 Summary
That concludes today’s discussion. While many believe in the future potential of Bitcoin Layer2, existing projects remain lukewarm despite years of development. Meanwhile, newer projects, burdened by technical complexity, mostly remain at the whitepaper stage, far from real-world deployment.
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