The following is the transcript of Yunwen Liu’s presentation at the Common Knowledge Conference (CKCON) 2024 in Chiang Mai, Thailand.
Yunwen Liu is a cryptographer at Cryptape. She completed her Ph.D at COSIC, KU Leuve, and has published over 20 research papers in venues including Eurocrypt and the Journal of Cryptology. She has also served on the program committees of Eurocrypt 2022 and ToSC 2022/2023.
Bitcoin Layer 2 has become a very popular topic these days, and if you look at this picture, you can see that the interest on Bitcoin Layer 2 surged earlier this year, around the time of the forth having. So when we talk about Bitcoin Layer 2, the Lighting Network might be the first thing that comes to mind. In fact, Lightning Network used to be the Bitcoin Layer 2, but now many other projects are hopping onto this Bitcoin Layer 2 express.
When we advocate Bitcoin Layer 2, what do we want to get from it?
Naturally, scalability is one goal—but we are beyond that. We also want to have smart contracts, stable-coins, DeFi, and everything. So essentially, we want to restore the long-lost glory of Bitcoin by a Bitcoin Renaissance.
Currently, there are over 100 projects are claiming themselves to be a Bitcoin Layer 2, and here is a list of them. If you zoom in, you will even find Ethereum among them. Is this a Bitcoin Layer 2? I'm not sure.
The fact is that there is no universal answer about what a Bitcoin Layer 2 is, and the interpretations can be very different. So for the Bitcoin Layer 2 projects, we can see a variety of approaches, like channels, side-chains, rollups, and client-side validation. Probably you have already known some of these projects, and I will talk about some of them later in this talk.
And the Layer 2 projects, they often have specific functionality to realize, for instance, off-chain transactions to tackle the scalability problem, like the Lighting Network, the Fiber Network, and smart contracts to execute programs that cannot be executed on-chain, like Stack, Rootstock, RGB, and assets that are based on Bitcoin, for instance, USDT, RSK, dollar, etc.
So with this “Bitcoin Layer 2” term so overused recently, I think it is necessary to first properly define it. I'm a cryptographer. Cryptographers love definitions. So here is the definition:
Bitcoin Layer 2 means a protocol which is built on top of Bitcoins blockchain that aims to enhance its scalability, reduce transaction cost, and extend functionality while relying on Bitcoin security.
This is the definition given by GhatGPT. So you know, it's kind of convincing, but somehow this will make everything a Bitcoin layer 2, except for the Bitcoin itself.
So I decided to have a look at the layer 2 projects, especially the token project, to find out what is a Bitcoin Layer 2.
Here is a brief timeline of the assets projects on Bitcoin. It started very early, 10 years ago, but there was not much going on from 2018 to 2023. In 2018, there was a project called RGB. It started, but it is still not fully online right now, as far as I know. And in 2023, there are Inscriptions, which we’ve already known. They bring back new trends on the Bitcoin Layer 2 projects.
Let's have a look at the RGB protocol**.** The RGB protocol adopted single-use-seal to commit a RGB token to a Bitcoin UTXO. The commitment is attached in the Output 1 of Bitcoin Transaction B, and to spend this RGB token, you have to prove that you can spend the Output 1 of the Bitcoin Transaction B. In RGB, all the transaction data are stored by the users locally, and they do not broadcast in the network. This means that users only have the knowledge of their own transactions. This design makes it difficult to receive RGB token, because especially when the token are transferred through multiple people, a receiver might not have enough data to validate the RGB transaction.
Meanwhile, let's see Ethereum. For Ethereum, since 2017, the rise of the NFT market and DeFi summer makes Ethereum a popular platform for blockchain applications, and these applications have taken the vast majority of the market cap.
With the current hype on Bitcoin Layer 2, a natural question to ask is: Will Bitcoin Renaissance be the season 2 of Ethereum? Are we replaying what Ethereum has been done since the past eight years?
I hope not, because it would be a little bit boring. Ethereum already has ecosystem for the decentralized applications, so why users shift to a completely different ecosystem?
That is why I think isomorphic binding is the game changer here.
So isomorphic binding is the technique used by by RGB++. With isomorphic binding, we combined two UTXO blockchains, for instance, the Bitcoin and CKB blockchain together by connecting their UTXOs. So here you can see that in the Output 1 UTXO of Bitcoin Transaction B, it says that the operator data says an RGB++ token is attached to this output, especially it is the hash of the CKB Transaction 2 attached here. And for CKB Transaction 2, the output Cell 1 is locked by a lock that depends on the spending state of the associated Bitcoin UTXO. So in this way, we can say that the CKB and Bitcoin are interactively bound with with each other, and we can issue tokens securely bound with Bitcoin UTXOs, and maintain the data publicly on the CKB blockchain.
The advantages of using isomorphic binding and RGB++ are multiple. I want to highlight here that isomorphic binding can be integrated with the Lighting Network via the Fiber Network. So it is feasible to make instant payments at a minimum fee, and you can choose whatever token you want to use. So, especially for stable-coins.
So let's come back to this question, what is Bitcoin Layer 2?
Although the memes and NFTs, they are exciting, very entertaining on Bitcoin, let's remind ourselves why we are here. Our goal is to build a peer to peer cash system on Bitcoin, money that can be spent with everyday transactions. There should be no restrictions by borders, powers, or physical constraints. So I think a project that can make Bitcoin a daily cash system, either through the Bitcoins or through stable-coins, is Bitcoin layer 2. So please stay tuned for the Fiber Network and RGB++, and have fun with CKB.
