Interpret the different roads BTC L2 and L2 of ETH from the Arbitrum downtime

The day before yesterday, the Arbitrum network stopped running for about 90 minutes from 10:29 to 11:57, why did ETH L2 go down?

Arbitrum’s official answer is:

Because of the surge in the number of users brought about by the inscription protocol, the sequence of Arbitrum stopped working, and eventually caused the network to go down.

Why can a surge in the number of users cause Arbitrum to go down? BTC there are hundreds of thousands of inscriptions on the chain and there is no downtime? Because, Arbitrum’s sequencer is centralized, and only one official node is running the network, so when this node (sequencer) has a problem, the network will definitely go down.

In fact, you can simply understand that the operation of Arbitrum’s POS network ledger depends on the official own node (sequencer), but why do users still dare to use it, because Arbitrum’s ledger will be Roullp (rolled up and compressed) and packaged to the ETH network, so that the ETH network nodes can verify the ledger, so as to ensure the security of the ledger, ETH L2 is basically this idea. Both OP-Roullp and ZK-Roullp package the ledger to the ETH mainnet and let the mainnet nodes verify the Layer 2 ledger. The core goal of this is to make the Layer 2 ledger credible.

To use an unsightly analogy: the son has no money, and the son’s credit is not worth much, so the son takes a check from Lao Tzu as money to spend and uses Lao Tzu’s credit to guarantee his son. The credit of the second-layer ledger of the ETH workshop is attached to the first floor of the ETH square, which is the more mainstream design of the L2 of the ETH workshop.

Of course, this design is currently optimal, but there are several problems:

1. There will be a single point of risk in the second layer, because the sequencer is centralized, for example, it is prone to downtime.

2. The assets of the second layer are not resistant to review and can be forcibly frozen.

This is a problem faced by almost all ETH shops on the second floor!

Does the ETH Layer 2 network have such a problem? Can the BTC Layer 2 solve these problems, and what are the similarities and differences between the design of the BTC Layer 2 and the second floor of the ETH Square?

Before we explore this question, we need to understand a few questions:

1. What is Layer 2 and what is the essence of Layer 2?

2. What are the design principles of Layer 2?BTC What are the similarities and differences between Layer 2 and Layer 2 in ETH?

3. BTC the right path for Layer 2

1. What is Layer2 and what is the essence of Layer2?

The concept of Layer 2 is well-known because of the ETH ecosystem, but the concept of Layer 2 is not original to the ETH ecosystem, but comes from BTC.

BTC 0.1 version of the code retains a copy of the original version of the code, which was left by Satoshi Nakamoto. This code allows users to update transactions before they are packaged and confirmed by miners. If one user’s balance increases, the other user’s balance decreases accordingly, and once the user completes the transaction, they can transmit only one transaction result to the mainchain network and then close their payment channel. Based on the “payment channel”, the Lightning Network was born, which is the earliest Layer 2 in BTC and the earliest and feasible Layer 2 in the crypto world

Therefore, when we talk about what Layer 2 is, we can’t just take the ETH Layer 2 as the first look, nor can we take the design scheme of ETH Layer 2 as the only criterion (after all, ETH Layer 2 has basically determined the feasibility of the design direction of roullp after two years of development), but we should see the essence through the phenomenon, and we need to understand what is the essence of Layer 2, so as to design a feasible Layer 2.

Whether it is BTC Layer 2 or ETH Layer 2, the background of its birth is that when the Layer 1 mainnet cannot achieve more complex and high-performance application scenarios, it is necessary to jump out of the Layer 1 assets to Layer 2 to implement it. ETH needs Layer 2 to expand its performance, BTC needs Layer 2 even more. For example, BTC can implement fast and efficient payment scenarios in the Lightning Network, and ETH can cross over to Arbitrum for faster, lower-gas, and more complex smart contract scenarios.

Therefore, whether it is BTC Layer 2 or ETH Layer 2, its essence is the same, which is to make the mainnet assets of Layer 1 cross to Layer 2 to achieve more complex and high-performance application scenarios. Therefore, the essence of Layer 2 is a decentralized cross-chain solution + a high-performance and trustless layer 2 network.

Then, whether it is BTC Layer 2 or ETH Layer 2, there are some basic principles that must be followed when designing:

1. It is necessary to realize that Layer 1 assets can cross to Layer 2 trustlessly, which is the most important first step.

2. The ledger of the Layer 2 network must be secure and trustless

Only when the above two conditions are met at the same time can it be a practical and fully decentralized Layer 2.

2. What are the similarities and differences between BTC Layer 2 and ETH Layer 2 in terms of design?

Now that we have figured out what the essence of Layer 2 is, and also understood the basic principles of Layer 2 design, let’s take a look at the similarities and differences between BTC Layer 2 and ETH Layer 2 in terms of actual design.

1. Layer 1 assets must be trusted to cross to Layer 2.

In terms of solving this problem, the way to ETH Fang is as follows: Layer 2 officially deploys a smart contract for custodial assets on the ETH mainnet, and when the user crosses the ETH from the ETH Fang mainnet to Layer 2, the user’s ETH is locked in the smart contract and generates a new ETH 1:1 on the Layer 2 network. When a user sends a command to cross back to the mainnet, the ETH of Layer 2 is destroyed, and the smart contract on Layer 1 is triggered to unlock the ETH to the user. This is the cross-chain implementation of Layer 1 and Layer 2 in ETH. It is achieved through the smart contract of ETH Fang and the communication between Layer 1 and Layer 2 networks, which can achieve trustlessness.

So, how can the BTC Layer2 achieve trustless BTC cross-chain?

Before the BTC Taproot upgrade in 2021, it was impossible to achieve fully decentralized BTC cross-chain, however, because the Taproot upgrade brought Schnorr signatures and MAST contracts, fully decentralized BTC cross-chain became a reality.

Schnorr signature is a signature algorithm that is more suitable for BTC than elliptic curve signatures (not what I said, when Satoshi Nakamoto created BTC, he actually wanted to use Schnorr signatures, but at that time Schnorr signatures were not open source, after Schnorr signatures were open source in 2009, after 12 years of investigation and verification, finally in 2021 BTC Core officially introduced Schnorr signatures into the BTC through Taproot upgrades, and ETH Fang has always wanted to support Schnorr signatures, but because upgrading the signature algorithm involves complex issues such as ETH Fang’s account systemAs a result, ETH workshop has not been upgraded to Schnorr signatures. ）

The biggest feature of Schnorr signature is polysignature, which can realize 1000 BTC addresses to sign and manage the same asset, which can not only realize the privacy of the signature, but also merge the data submitted by 1000 signatures into one, completely solving the data accumulation problem caused by multiple signatures, therefore, Schnorr signature can break through the original limit of 15 multi-signature BTC at most, and realize completely decentralized signature management.

The Mast contract, the full name of Merkle Abstract Syntax Tree, uses a Merkle tree to encrypt complex locking scripts, and its leaves are a series of scripts that do not overlap with each other, and when spending, only the relevant scripts and the path from this script to the root of the Merck tree are disclosed.

To put it simply, a Mast contract is a function equivalent to a VM (a smart contract-like function), which can be used to perform a given operation through instructions, for example, Mast contract+The combination of Schnorr signatures can be used to allow 1,000 nodes participating in decentralized asset management to sign by triggering the Mast contract, so as to intelligently execute the entry and exit and spending of BTC in accordance with the rules set by the contract, without any human intervention, completely relying on contract execution, so as to achieve decentralized management of BTC.

The organic combination of Schnorr signature + Mast contract can achieve a fully decentralized BTC Layer 2. In order to make it easier to understand, let’s take the BTC Layer 2 project BEVM as an example (BEVM is implemented using Schnorr signature + Mast contract) to see how fully decentralized BTCLayer2 is realized.

When the user crosses the BTC BTC the mainnet to the BEVM, the user’s BTC enters the contract address hosted by 1000 nodes, and then, at the same time, a new BTC is generated 1:1 in the BEVM, that is, the BTC Layer 2 network, when the user issues an instruction to cross the BTC from BEVM back to the mainnet, the BEVM network node will trigger the Mast contract, and the nodes of the 1000 custody assets will automatically sign according to the established rules and return the BTC to the user’s address. The whole process is completely decentralized and trustless.

As can be seen from the above, by using the combination of Mast contract + Schnorr signature brought by Taproot, BTC can also achieve a completely trustless cross-chain like ETH Layer 2, which is the most important first step to achieve fully decentralized BTC Layer 2.

2. The ledger of the Layer 2 network must be secure and trustless.

The ledger of the Layer 2 of the ETH workshop is managed by the sequencer, and when processing transactions, the ledger of the Layer 2 is packaged and uploaded to the main network of the ETH according to a certain ratio, generally a ratio of 10:1, and then verified by the ETH node, however, the sequencer of the ETH Layer 2 (that is, the running node of the Layer 2 network, generally only has one official node) is completely centralized, and it is run and mastered by the Layer 2 official.

How does such a centralized design gain user trust? Mainly by packaging the Layer2 ledger roullp to the ETH main network for miner nodes to verify, if users do not trust the ledger, they can verify the ledger by initiating an off-chain report, therefore, Op-Roullp is also known as optimistic proof, that is, its trust assumption is optimistic that the official does not do evil, if it does evil, it can be proved by reporting. These combinations can basically ensure that the Layer 2 ledger is trusted.

However, this also leads to the single-point risk of the sequencer in the ETH Layer 2, and also leads to the fact that the ETH and other assets on the Layer 2 are not censorship-resistant, and can be forcibly frozen by external forces, because the ETH Layer 2 sequencer is officially its own node and can be centrally controlled. This will also lead to an upper limit on the asset size of ETH Layer 2, because many large funds will not dare to enter because of the problem of not resisting censorship, just imagine, if you have 100,000 ETH, do you dare to cross these assets to a ETH that does not resist censorship? Yesterday’s Arbitrum network outage incident also exposed the problem of single-point risk of sequencers.

At the same time, there are two user-friendly issues that arise here:

a. Since Op-Roullp has a 7-day reporting mechanism, when a user crosses the ETH from Layer 2 back to the ETH mainnet, at least a 7-day reporting period needs to be completed.

b. Since the sequencer of ETH Layer 2 is completely controlled by the official node of the project, the cross-chain and transaction fees of the ETH Layer 2 are completely exclusive to the project official (it is reported that Base, ZKsync, etc ETH Layer 2 has a monthly sequencer revenue of more than $5 million, and more than $10 million at the peak), and Layer 2 users cannot share these network growth dividends.

So, how does BTC Layer 2 achieve ledger trustworthiness?

We still take BEVM as an example, as we mentioned earlier, BEVM is a combination of Mast contract + Schnorr signature to achieve BTC decentralized cross-chain, and in order to achieve real-time communication between Layer 2 and Layer 1, the network of BEVM is a fully operational BTC light node, so BEVM is a trusted network composed of 1000 BTC light nodes.

In order to ensure the absolute security of the Layer 2 ledger and ensure that the network nodes do not do evil, BEVM draws on the economic game mechanism of the BTC network, BEVM combines the nodes that host the BTC and the nodes that run the Layer 2 network into one, that is, the nodes that run the Layer 2 network by pledging assets are also the nodes that host BTC assets BTC. The total value of the mainnet token is always greater than the value of the assets under its custody, and the mechanism of economic game is used to ensure that the network nodes of Layer 2 have no incentive to do evil, so as to ensure that the ledger of Layer 2 is absolutely safe and trustworthy.

In addition, the design of BEVM brings two benefits, which are also not available in ETH Layer 2:

a. The network nodes of BEVM are completely decentralized and not controlled by a certain project party, therefore, BTC is censorship-resistant on BEVM, a Layer 2, which cannot be frozen by any force, and can cross into and out of the BTC mainnet at any time. Thus, the problem of trust in large funds can be solved.

b. Since the BEVM network is run by decentralized nodes, the cross-chain and network fees generated are shared with nodes and users, and are not exclusive to the project team.

3. BTC the right path for Layer 2

Through the above comparison, we can clearly see the similarities and differences between BTC Layer 2 and ETH Layer 2, due to the inherent difference of BTCETH Workshop, therefore, when designing BTC Layer 2, we can not copy the Layer 2 model of ETH, but should see through the essence of Layer 2 and combine the characteristics of BTC in order to get out of the right path of BTC Layer 2.

BTC the right design direction for Layer 2:

1. BTC Layer1 is naturally not Turing-complete, BTC the minimalist UTXO design and block space cannot verify complex data and programs, therefore, it is not feasible to try to make improvements through client verification or in the limited UTXO and block space in the BTC, this direction is not only extremely complex to achieve the scheme, but also has limited application scenarios, at most it can only support the issuance of assets, and it is not feasible to expand the direction of Layer2 with higher performance. The only correct direction is to jump out of the BTC to Layer 2 in a decentralized way, so as to achieve more complex and high-performance scene expansion.

2. We must solve the problem of BTC decentralized cross-chain to Layer 2, which is the foundation of everything. It is difficult to gain the trust of users through traditional BTC cross-chain methods such as hash timelocking, hooking, encapsulation, and multi-signature. BTC technical combination of Mast contract + Schnorr signature brought by the Taproot upgrade in 2021 can solve the BTC decentralized cross-chain problem, which is also a direction worth exploring for BTC Layer2.

3. In order to ensure the security and trustworthiness of the Layer 2 ledger, it is absolutely impossible to copy the model of the Layer 2 of the ETH and try to compress and package the BTC Layer 2 ledger to the BTC chain for verification through roullp, because BTC blockchain does not support the verification of OP or ZKP, miners will not participate in the verification of the Layer 2 ledger, and storing these ledgers on the BTC chain is just a proof, which has no meaning. In order to ensure the security of the Layer 2 ledger, you can learn the BTC economic game mechanism, and design the node dynamic staking mechanism through the level of economics and game theory, so as to realize that the nodes of the Layer 2 network have no incentive to do evil, so as to ensure the security of the Layer 2 ledger.

Of course, we also hope that in the future, BTC will upgrade the BIP level again, so that the BTC network can verify OP or ZKP, the BTC mining machine can perform ZKP calculation, and then ZK-roullp can enter the BTC network, and at that time, BTC Layer 2 can achieve a more ultimate solution. However, this may not be possible in the next 5-10 years or even longer.

Based on the above analysis, we can see that the most feasible BTC Layer2 solution is based on the Mast contract + Schnorr signature brought by the Taproot upgrade, combined with the BTC light node dynamic staking network to achieve real-time communication and network security of Layer 2 and Layer 1, so as to achieve a truly decentralized BTC Layer 2, which is the solution that BEVM has achieved (please refer to the BEVM white paper for specific details:)

So, does BTC Layer 2 have a chance to surpass the volume of ETH Layer 2?

The answer is almost yes:

I think there are at least a couple of reasons:

1. There are already fully decentralized BTC Layer 2 solutions that can be used.

Before there was a fully decentralized solution, the largest BTC packaged asset was WBTC issued through the centralized institution Bitgo, which is currently about $6.5 billion. After the emergence of fully decentralized solutions (such as BEVM), it is predicted that the market can grow by more than 5-10 times, and the volume can reach 32.5 billion to 65 billion US dollars, which is much larger than ETH Layer 2’s current total TVL of $20 billion (this data includes cross-chain ETH and other assets on ETH Layer 2, and the actual cross-chain ETH is far from reaching $20 billion)

2. BTC Since Turing is naturally incomplete, BTC needs Layer 2 more than ETH Fang to develop the ecosystem, so there will be a large number of BTC to Layer 2 to build various decentralized BTC applications in the future. This is determined by market demand.

3. BTC Layer 2 can be more censorship-resistant than ETH Layer 2, and it is easier to gain the trust and favor of users, especially large funds.

4. The market value of BTC is three times the market value of ETH Fang, and the total TVL of Layer 2 ETH Layer 2 is about 20 billion US dollars, accounting for about 10% of the market value of ETH Fang, according to the same ratio, if 10% of the BTC enters BTC Layer 2 in the future, the entire TVL will reach 85 billion US dollars, which is three times the volume of Layer 2 of ETH Fang.

Summary

The Layer2 solution originated from the BTC ecosystem and was carried forward in the ETH ecosystem.

ETH Layer 2’s current solution is not perfect, nor is it the ultimate solution for L2, nor can it be used as the sole reference standard for all L2s.

BTC Layer 1 is inherently Turing-incomplete, and BTC minimalist UTXOs and limited block space cannot handle complex data and calculations. Therefore, Layer 2 is necessary for BTC to develop the ecosystem, and it is a completely decentralized BTC Layer 2.

In 2021 BTC before the Taproot upgrade, BTC could not achieve a fully decentralized Layer2 solution, however, the Mast contract + Schnorr signature brought by the Taproot upgrade has realized a fully decentralized BTC cross-chain, therefore, but the fully decentralized BTC L2 has become a reality, BTC Layer2 project - BEVM has given its own answer.

BTC Layer2 cannot completely copy the scheme of Layer2 of ETH Workshop, and needs to be designed in combination with the characteristics of the BTC itself.

Finally, the volume of Layer 2 of BTC will surpass the volume of Layer 2 of ETH, which is an inevitable trend!