Here’s why that matters – Cointelegraph Magazine

Soaring venture capital interest in Bitcoin layer-2 projects has brought into sharp focus whether the new scaling solutions truly deserve the classification. 

Research from Spartan Group in December attributed the majority of Bitcoin layer-2 transactions to Stacks, Lightning, RSK and Liquid.

Bitcoin scaling has grown far beyond those four projects now, with 73 Bitcoin scaling solutions being developed with a combined total value locked of $3.61 billion as of June 7, according to BTCL2 data.

But despite the plethora of Bitcoin layer 2s and influencers pronouncing “Bitcoin L2s” as the hot new narrative, the label is contentious.

That’s because the structure of most self-proclaimed Bitcoin layer 2s is more similar to a sidechain, which is a blockchain that runs parallel to the native chain and doesn’t inherit its security. True L2s arguably should run on top of the native chain and inherit its security.

Bai Yu, head of CKB Ecosystem Fund — an investor in Bitcoin scalability and interoperability projects — argues that the term “L2” for sidechains is simply a marketing tactic.

“A true L2 should operate on top of the base layer, inheriting its security, while a sidechain is a separate blockchain with its own security model,” Yu says.

Using the term L2 for sidechains can indeed be misleading and may be driven by marketing considerations rather than technical accuracy.

And according to Mikko Ohtamaa, co-founder of algorithmic investment protocol Trading Strategy, the true test of a genuine L2 is: “Can you get your money back without someone else’s permission?”

Bridges and native assets

Sidechains do not automatically support the parent chain’s native asset. Instead, Bitcoin (or whatever native asset it may be) is transferred through pegging mechanisms that lock assets in their origin and are represented by equivalent value tokens in the sidechain. 

Ethereum scaler…


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