Why is the new wave of Bitcoin Layer 2 the sidechain?

Author: Bitcoinlayers researcher Janusz, Bitcoin Magazine; Translator: Tao Zhu, Golden Finance

"Bitcoin L2" is the hottest thing. People use a bunch of jargon to distract users from trust assumptions.

Why the sudden attention? About a year ago, some teams figured out how to use Bitcoin as a data availability layer for Rollup. Others have been working on improving the trust assumptions associated with bridging (aka two-way pegs). Research has made huge progress, and many projects believe that we will have Rollup-like blockchains by 2025.

2025? Some projects claim to be on mainnet now?

Teams have taken advantage of this trend and prematurely promoted the modular thesis of Bitcoin scaling. Some projects are launching bridge contracts on non-Bitcoin blockchains and promoting themselves as Bitcoin L2. Infrastructure providers amplify their message and brag that Bitcoin is back.

But these solutions don’t scale Bitcoin. They’re completely separate, centralized sidechains.

Layers they’re talking about? More like layers of trust assumptions.

Definition

Many of these projects are trying to take a modular approach to scaling Bitcoin. This basically means that each aspect of the transaction lifecycle can be its own dedicated system. Execution, transaction ordering, and data availability can all be operated by independent actors. Bitcoin will be the settlement layer underlying it all.

It’s not a bad paper when you get down to it. But its current implementation on Bitcoin is a bit lacking.

Many new projects claim to be "Rollups". A Rollup will use Bitcoin to provide data availability and publish its latest state root and enough transactions to recompute the blockchain state from genesis to Bitcoin. If they want to scale Bitcoin's transaction throughput, they will also have a trust-minimized bridge contract where users can deposit funds to mint on the Rollup.

Dig deeper into some of the projects and you'll find that none of these new projects (which are in development) use Bitcoin for data availability. They want to use alternative DA solutions for performance reasons. This means they want to be "validiums" or "optimiums".

These structures are similar to Rollups. They are blockchains that similarly have a bridge contract with the parent chain, but use a different DA system. This improves performance and reduces costs, but also comes with some security tradeoffs.

In the validium design, the L1 contract would be responsible for verifying the validity proofs associated with the specific state transitions that were settled. After a specific state transition is completed, the validium bridge contract is able to process withdrawals for users who want to exit the chain, including unilateral exits that users can submit themselves if the state data is available. The optimizations are similar, but they rely on fraud proof mechanisms instead of validity proofs.

But none of the implementations use mechanisms that support verifying SNARKs or fraud proofs on Bitcoin...

Everything is verified on a completely different Layer 1 or their own permissioned sidechain network!

Most of these chains forked the Ethereum L2 SDK. They either chose Ethereum or a completely centralized geth fork that they cobbled together.

So nothing to do with Bitcoin. Maybe it will choose Ethereum, use the hottest DA layer, and have a strong execution layer.

But that's not Bitcoin.

What about sidechains?

All new Bitcoin L2s are just modular sidechains. When I say “modular sidechains” I mean they run alternative blockchains on top of their parent blockchain for performance purposes. They also make security tradeoffs by using alternative DA layers for performance.

Their bridge to Bitcoin runs via multisig.

So the general trust assumptions users make are:

• Hope that the Bitcoin bridge's multi-signatures don't bother them;

• Hope that the centralized collator will include and execute their transactions;

• Trust an alternative DA layer to ensure data is always available;

• Hope that a centralized prover will publish state transitions to an L1 contract, or that a centralized challenger will challenge malicious state transitions;

• Trust the sidechain's parent chain to verify state transitions (finality);

• Trust that the admin key won't upgrade the chain and steal user funds.

If users know they are trusting a fully centralized chain and bridge to use their BTC, then using a modular Bitcoin sidechain is fine.  

The problem is that most teams abstract away the security details and try to make their designs look a lot like modular structures in Ethereum or other ecosystems.

Not All Hope Is Lost

After reading this post, you might think that this whole situation is a mess and not worth exploring. It might feel that way sometimes, but there is a lot of cool R&D going on around improved sidechain designs.

Teams like Citrea and Alpen Labs are looking to develop Rollups on top of Bitcoin. The BitVM community and ZeroSync team are driving a lot of great work improving two-way peg designs and developing SNARK validators that are usable today. This work has also inspired many bridge proposals from various Rollup and sidechain projects.