Bitcoin Layer 2 Dilemma: The Lack of Shared Consensus Security for Bitcoin is the Key Issue

I have been tracking and researching the Bitcoin Layer 2 sector since August 2023. After more than a year of observation, I have to admit that this sector is currently underperforming. The overall situation is concerning: the projects that have launched are performing poorly, and the projects that have not yet launched are progressing slowly.

Is the Bitcoin Layer 2 track really heading towards decline?

In searching for the root cause of this situation, I found that it is neither a problem of insufficient strength of investment institutions (many BTC Layer2 projects have received investments from leading institutions such as MultiCoin and Polychain), nor a problem of insufficient capability of the project teams (many teams are very skilled in marketing and event organization).

Recently, I read the latest technical framework white paper “Super Bitcoin” released by the project BEVM, which is known for its technological innovations, and found possible answers.

The white paper repeatedly emphasizes a core concept: shared Bitcoin consensus security.

The viewpoint it presents is very sharp: “Bitcoin Layer 2 projects that cannot share Bitcoin consensus security will ultimately fail!”

This argument is direct but very convincing.

The white paper points out that the success of Ethereum Layer 2 is due to their ability to share Ethereum’s consensus security, and users’ trust in Ethereum Layer 2 is based on their trust in the Ethereum network.

However, almost all Bitcoin Layer 2 projects do not truly share the consensus security of Bitcoin; they are essentially a multi-signature wallet plus a chain with an independent consensus, with no substantial connection to the Bitcoin blockchain, let alone sharing the consensus security of Bitcoin.

For a new chain that claims to be Bitcoin Layer 2 but is completely unrelated to Bitcoin Consensus, it is natural for users and the market to lack a foundation of trust, and a lukewarm market response is to be expected.

Let’s delve into a few key concepts:

What is Consensus Security?

Consensus security refers to the ability of nodes in a blockchain network to ensure the security and validity of transactions through a consistent consensus algorithm. For most blockchain networks, consensus security means that the majority of nodes in the network must reach transaction consensus through a verification mechanism, thereby defending against external attacks or data tampering.

Consensus security is the core of blockchain, representing the highest level of security, as it is jointly maintained by all network nodes at the consensus level to ensure network safety.

Each independent public chain has its own consensus security mechanism: Bitcoin uses the POW mechanism, Ethereum adopts the POS mechanism, TRON uses the DPOS mechanism, Solana adopts the POH mechanism, etc.

But the security level of the consensus of the public chain is not much related to the specific mechanism, and mainly depends on the cost required to disrupt the network consensus.

For example, attacking the Bitcoin network requires controlling 51% of the network’s computing power. Currently, the total computing power of the Bitcoin network is about 725 EH/s, and the attacker needs to possess at least 370 EH/s of computing power to launch an effective attack. At current market prices, the cost of this computing power exceeds $150 billion, and with the corresponding electricity costs, the total cost far exceeds $200 billion.

For POS public chains like Ethereum, the “total value of staked tokens” can be used to estimate their Consensus security level. Currently, there are approximately 35 million ETH staked across the Ethereum network, worth about 9 billion USD, so attacking the network would require a cost of about 4.6 billion USD.

Data shows that the cost of attacking the Bitcoin network’s consensus is more than four times that of Ethereum, which means that the consensus security level of the Bitcoin network is far higher than that of Ethereum.

In contrast, the “total value of node staking tokens” for POS chains with a lower market cap (such as projects with an FDV under $10 billion and a staking rate below 20%) may be less than $2 billion, with an attack cost of only around $1.1 billion, resulting in a relatively low level of consensus security.

Through this “attack cost theory”, the consensus security level of various public chains can be intuitively judged.

Data shows that the Bitcoin network is undoubtedly the safest blockchain network.

What is Shared Consensus Security?

Shared consensus security refers to certain blockchains (mainly sub-chains or Layer 2) being able to borrow the consensus mechanism of the main chain to ensure their own security. Even when trading on second-layer networks, side chains, or parallel chains, users can still enjoy main chain-level security guarantees. For example:

1. Polkadot and Parachains:

In the Polkadot architecture, the Relay Chain is responsible for providing global security, while each parachain ensures its own security through the shared consensus mechanism of the Relay Chain. Parachains can focus on specific functionalities without sacrificing security. (It is worth noting that the current market value of DOT is approximately $6 billion, with a staking ratio of around 58%, total staked value of about $3.48 billion, and the cost of network attacks being around $1.77 billion, indicating a relatively low level of security. This also partially explains the slow development of the Polkadot ecosystem.)

2. Ethereum and Ethereum Layer 2:

Ethereum Layer 2 solutions (such as Optimistic Rollup and ZK-Rollup) ensure the security of Layer 2 transactions by recording simplified transaction states on the Ethereum mainnet, utilizing the security mechanisms of the main chain. Although Layer 2 independently handles a large number of transactions, its security still relies on Ethereum’s consensus mechanism.

The core of shared consensus security lies in allowing developers to create networks with independent scalability while maintaining the security level of the main chain.

Why must Bitcoin Layer 2 share Bitcoin consensus security?

The answer is already obvious:

All mainstream Layer 2 projects do not have their own independent consensus but rely on the mainnet consensus. Ethereum Layer 2 (such as Arbitrum, ZKSync, or BASE) does not have its own consensus; the entire network relies on the official sequencer (Sequencer, usually each Layer 2 has only one official sequencer) to submit transactions to the mainnet, ultimately depending on the mainnet to ensure the security and credibility of Layer 2.

Ethereum Layer 2 shares Ethereum’s consensus security. Users’ trust in Layer 2 is fundamentally based on their trust in Ethereum’s security, rather than Layer 2 itself.

If Bitcoin Layer2 cannot share the consensus security of Bitcoin, it is not a true Bitcoin Layer2 in the real sense. Without the Bitcoin network ensuring security, Bitcoin Layer2 will struggle to gain the trust of users and funds. After all, users need to deposit funds into Layer2 to participate, and it is difficult to achieve without a sufficient trust foundation.

This is exactly the core dilemma faced by all Bitcoin Layer 2s at present.

Two key pieces of data can support this view:

Group 1: Comparison of TVL between Bitcoin Layer 2 and Ethereum Layer 2

Currently, the TVL on Bitcoin Layer 2 chains is about $1.45 billion, while the TVL on Ethereum Layer 2 chains is about $36 billion. The difference between the two is more than 30 times, indicating that the level of trust in Bitcoin Layer 2 is far lower than that in Ethereum Layer 2.

Group Two: Comparison of Average Market Capitalization between Bitcoin Layer 2 and Ethereum Layer 2

The average market capitalization of Bitcoin Layer 2 is mostly below $1 billion (with most projects valued under $500 million), while the market capitalization of mainstream Ethereum Layer 2 generally ranges from $5 billion to $10 billion. The difference between the two is 5-10 times, indicating that the capital market’s confidence in Bitcoin Layer 2 is far lower than that in Ethereum Layer 2.

According to the “attack cost theory” mentioned earlier, the consensus security level of the Bitcoin network is more than 4 times that of Ethereum. Theoretically, the valuation of Bitcoin Layer 2 should be higher than that of Ethereum Layer 2, but the reality is completely the opposite.

What is the reason?

The root cause is: Almost all Bitcoin Layer2 cannot share the consensus security of Bitcoin. They are merely using a chain completely unrelated to Bitcoin combined with a multi-signature scheme, aptly named “Bitcoin Layer2”. These projects attempt to gain user trust through concepts and airdrop expectations, but real data reflects the true attitude of funds and users.

It is indeed difficult to gain user trust without a Layer 2 project that can share the security of Bitcoin’s consensus, which is the core reason for the poor performance of the entire Bitcoin Layer 2 sector.

Are there any Layer 2 solutions that can share Bitcoin consensus security?

The answer is yes: Lightning Network.

The Lightning Network can maintain the circulation of 5000 BTC in the network for a long time without any token incentives, a number that has surpassed most so-called Bitcoin Layer 2 projects that rely on token incentives to attract BTC.

The reason is simple: the Lightning Network fully shares the consensus security of Bitcoin.

Users choose to use the Lightning Network because they trust the security of Bitcoin, and the Lightning Network has the same level of security as Bitcoin, which is the key to the issue.

How does the Lightning Network achieve shared Bitcoin consensus security?

The working principle of the Lightning Network is as follows:

Lightning Network nodes can freely establish state channels (these state channels are fast payment channels built on the Bitcoin chain, a concept proposed by Satoshi Nakamoto). Opening a channel requires creating a signed output on the Bitcoin blockchain, while closing the channel requires broadcasting the final state to the main chain, which is the core mechanism of the Lightning Network sharing Bitcoin’s consensus security. (A careful comparison will reveal that Ethereum’s Layer 2 rollup solution draws from the concept of state channels in the Lightning Network.)

Every time the channel state is updated, a new commitment transaction is generated, which can be broadcast to the Bitcoin mainnet when needed. The design of the commitment transaction ensures that even if one party does not cooperate, the other party can close the channel and receive the funds they are entitled to by broadcasting the latest commitment transaction. This mechanism directly relies on the consensus rules and security of Bitcoin, effectively ensuring that the security of the Lightning Network is guaranteed by the Bitcoin network, achieving a fully shared consensus security of Bitcoin.

The Lightning Network, which can share the security of Bitcoin consensus, can attract more than 5000 BTC to circulate in the network even without token incentives, which is exactly the sense of security that sharing Bitcoin consensus brings to users.

Of course, the Lightning Network as a Bitcoin Layer 2 also has its limitations:

It only supports payment scenarios and does not support more complex smart contract functions.

Super Bitcoin addresses this issue by proposing a solution: using Bitcoin as the base ledger layer, with the Lightning Network as the sole second layer for Bitcoin. Then, by upgrading point-like Lightning Network nodes to chain-like nodes that support smart contracts, it breaks the limitation of the Lightning Network being able to only make payments and not execute smart contracts, achieving further expansion of Bitcoin—realizing infinite expansion of Bitcoin’s functionality while ensuring the security of shared Bitcoin consensus.

In addition, Super Bitcoin shares the security of Bitcoin consensus with various Lightning Chains built on the Super Bitcoin modular Stack functionality through modular abstraction, which is the solution of Super Bitcoin.

Conclusion

By studying the importance of “shared Bitcoin consensus security” for Bitcoin Layer 2, I found that the deep reason for the poor performance of the current Bitcoin Layer 2 track is—there is no shared Bitcoin consensus security!

If Bitcoin Layer 2 wants to achieve true development, it must return to Bitcoin itself and study how to share Bitcoin’s consensus security. The Lightning Network, as the only Bitcoin Layer 2 that can currently share Bitcoin’s consensus security, indeed has significant reference value.

For projects that truly want to develop Bitcoin scaling solutions, returning to Bitcoin and focusing on the direction of sharing Bitcoin Consensus security (such as based on the Lightning Network) may be the most feasible way forward.