The Bitcoin 2024 conference showcased a plethora of protocols driving innovation on the Bitcoin blockchain. Cointelegraph’s team explored the promises and challenges emerging around the world. Designed to operate on top of the Bitcoin blockchain, layer 2s are emerging rapidly, fueled by years of innovation in the Ethereum ecosystem. Now, they promise to bring decentralized finance solutions to the original blockchain.
Early-Stage Development and Challenges
Despite locking millions in value onchain in just a few months, Bitcoin layer 2s are still in their infancy. As with any early-stage development, there are still challenges to overcome, including security issues and user experience concerns.
Protocols and Developers on the Bitcoin Network
At the Bitcoin 2024 conference in Nashville, Tennessee, the Cointelegraph team sat down with protocols that have recently onboarded hundreds of developers to the Bitcoin network. These protocols share a common vision: making the Bitcoin blockchain ecosystem more useful over time.
Franklin Templeton Eyes Bitcoin-Based Yield
Investment manager Franklin Templeton, known for issuing Bitcoin exchange-traded funds, is also backing emerging layer-2 protocols such as Bitlayer. According to Bitlayer co-founder Charlie Hu, the asset manager is exploring alternatives to unlock yield for its clients through digital assets on the Bitcoin network.
“They’re coming. Franklin Templeton is one example. They are actually not just investors. They actually want to use it. They’re sitting on $500 million Bitcoin exposure, and they want to earn more yield for their clients,” said Hu.
In July, Bitlayer closed an $11 million Series A round led by Templeton and ABCDE. The startup offers a more scalable way to transact on the Bitcoin network, allowing developers to build applications based on the BTC network instead of using Ethereum. In nearly three months since its mainnet went live, the protocol amassed $409 million in value locked on its chain.
Security Complexities in Layer 2s
Ethereum layer 2s and bridges have become targets for hackers and bad actors over the past few years. Bitcoin layer 2s may also take some time to evolve in terms of security.
“The big question at the core of this whole security model is how do I get it [tokens] out?” said Alexei Zamyatin, co-founder of Build On Bitcoin (BOB), referencing concerns of wrapping tokens on another layer while keeping the security of the Bitcoin blockchain.
BOB’s team is contributing to the research of BitVM, a virtual machine designed for executing smart contracts directly on the Bitcoin blockchain. According to Zamyatin, the BitVM system could allow realistic rollups that inherit Bitcoin security.
“We’re contributing to BitVM on the research side and really hope to see that come to production and allow us to really use Bitcoin on these layers in a way that is really secure […] With things like BitVM, we can guarantee that you can always get it out, as long as there’s one honest node on the Bitcoin network that is being attentive.”
Bridging the Utility Gap
Protocols working on the Bitcoin network aim to close the utility gap between Bitcoin and other layer-1 blockchains like Ethereum. They seek to build alternatives for crypto-based games, non-fungible tokens (NFTs), and protocols that currently exist elsewhere onchain.
“Bitcoin is the entry point for the non-crypto world, right? Everyone hears Bitcoin first before Ethereum. I think Bitcoin can be the entry point, so everyone will buy Bitcoin or USDT first, not Ethereum,” said Calvin, co-founder of B² network.
The protocol offers a data availability layer on the Bitcoin blockchain, critical for the security of decentralized applications. This layer ensures that the necessary data for validating transactions is available to all nodes in a network.
As Bitcoin layer 2s continue to develop, they promise to bring innovative DeFi solutions to the original blockchain. While security concerns and user experience challenges remain, the growing interest from institutional investors and the rapid adoption by developers indicate a bright future for these emerging protocols. As these technologies mature, they may significantly enhance the utility and scalability of the Bitcoin network, paving the way for broader adoption and integration into the global financial system.
