Throughout the last months CT has focussed on the ETF approval as a massive milestone for Bitcoin and Crypto as a whole. The SEC approved the first round of ETFs on January 14, 2024 and we are starting to see demand from multiple ETFs dominate new inflows into BTC. If you are keen to see the statistics on this development we suggest you head over to this Dune dashboard and see for yourself.

There are other factors that we think are potentially game changing for the entire industry. Within the last week multiple tier 1 VCs have published statements on the new bitcoin opportunity on the horizon. Paradigm called this a $500 billion opportunity. The latest technology developments, namely inscriptions might just change the game for crypto.

Previously, Bitcoin had a scaling issue. While there was the Lightning Network and approaches such as side chains, it just falls short of what’s needed for large scale adoption. Programmable L1s like Ethereum enabled scalability and functionality Bitcoin just could not.

However, the advances in Rollup and ZK technology paired with taproot and inscriptions has opened a new avenue for bitcoin applications. Ordinals were the first wave of programmable assets on bitcoin. Now we see the next wave, more complex DeFi platforms and L2s are being launched. We are looking at a potentially massive new ecosystem forming on the first ever blockchain.

Why does this matter now?

Are we going to see other chains lose market share again as Bitcoin makes its comeback? We’ll certainly monitor how funds flow in the upcoming months. While many bitcoin maxis have traditionally frowned upon the NFT and DeFi ecosystems developing elsewhere, no one can neglect the global interest and money flowing towards them. How this dynamic plays out now that the father of blockchains is about to develop its very own ecosystem is to be seen.

Does this solve Bitcoins issues?

Not at all, many still have the argument that bitcoin L1 will not be sustainable in the long run. The critical arguments  are the limited transaction throughput due to the block size of Bitcoin and the security issues resulting from miner incentivisation and inflation rate of the network. There’s a significant amount of people calling out Bitcoin because of these characteristics. If you want to go in depth, there’s a great article by Justin Bons on BTC’s issues.

Nevertheless, Bitcoin currently has unparalleled economic security and a reputation as the oldest and most robust blockchain is one of its kind. All the Ethereum L2 research that has been done these past years will now be applied to build L2s on Bitcoin and these new approaches could even solve our current problems. There are a lot of really smart people building on these solutions. Let’s take a look together.

Bitcoin Sidechain

The Lightning Network is a protocol on Bitcoin that facilitates instant, low-cost transactions through a system of payment channels. It utilizes smart contracts and watchtower nodes to ensure transaction integrity and optimize network security.

However, key issues include liquidity problems, where users often struggle to find well-funded nodes for transactions beyond their channel balance, making the process cumbersome and sometimes expensive due to the costs associated with opening and closing channels.

Although Lightning Network never really takes off. The advent of Lightning as one of the first bitcoin scaling solutions really kicks off for other sidechain solutions.

Now, Sidechain is a separate blockchain that is attached to a parent blockchain using a two-way peg, allowing assets to be interchangeable and move between the two chains at a predetermined rate. Essentially, sidechains can be seen as extensions or branches of the mainchain, designed to test new features or scale the network efficiently while maintaining the integrity and security of the main blockchain.

Stacks is an exemplary implementation of a sidechain. Having raised $93M through ICO and Series A, they are introducing a unique mechanism called Proof of Transfer (PoX) that bridge the network to Bitcoin.

PoX leverages Bitcoin's security by enabling Stacks participants to lock up Bitcoin as a means to participate in the Stacks network, earn rewards, and secure the network. Stacks stands out by enabling developers to build dApps by using the Clarity smart contract language,

Let’s dive deeper. Stacks effectively addresses Bitcoin's limitations regarding smart contract functionality and dApp development, enabling DeFi platforms, NFT marketplaces and much more. However it relies heavily on Bitcoin in terms of blocktime and finality hence hindering the growth of the protocol.

Stacks secured $150M TVL, almost double since the start of 2024. Although currently it relies heavily on Bitcoin blocktime, Stacks V2 aims to solve it by implementing the latest upgrade of their Nakamoto Consensus.

Another sidechain that operates similarly to Stacks is Botanix Labs Spiderchain, having raised $2.1M from Web3.com and Primitive Ventures, They are ingeniously incorporating the Ethereum Virtual Machine (EVM) fortified with a Proof of Stake (PoS) consensus mechanism.

The stake itself is the Bitcoin locked in multi-signature wallets. Since the trust assumption is in the multisig, Spiderchain is acknowledging that every Bitcoin block is associated with a new multisig created between a set of random participants from the Spiderchain. This mechanism aims to discourage an attacker obtaining 2/3 majority of the network. Botanix aims to go live in the Q2 2024.

At last, the sidechain model can always be improved as the current solution is literally locking up bitcoin on a trusted bridge and the chain is disconnected from parent chain(Bitcoin in this case)

BitVM

BitVM proposes a novel computing paradigm enabling Turing-complete contracts on Bitcoin without altering the network's consensus rules. It introduces a system where computations are not executed but verified on Bitcoin, akin to optimistic rollups.

This mechanism allows any computable function to be verified through a process where a prover claims a specific output for given function inputs, and if the claim is false, a verifier can present a succinct fraud proof to penalize the prover.

However, a notable limitation of BitVM is its approach to handling fraud proofs.

Unlike true Layer 2 solutions where all aspects, including fraud proofs, can be executed and verified on-chain to maintain a decentralized and trustless environment, BitVM relies on off-chain computation with on-chain verification primarily in dispute scenarios. This reliance on off-chain computation introduces challenges as it potentially centralizes certain aspects of the verification process.

One such project that utilizes BitVM is Citrea which is developed by Chainway Labs. They are leveraging BitVM and Zero Knowledge Proof to scale bitcoin. Citrea proofs are inscribed in Bitcoin and optimistically verified via BitVM.

Having raised $2.7M in seed round led by Galaxy Ventures. Citrea aims to launch by Q2 2024.

Bitcoin zkRollup

Moving forward, there are more initiatives currently ongoing for implementing pure ZK-rollup on top of Bitcoin. Among the various initiatives pushing the initiatives are BOB (Build on Bitcoin) and Bison Labs' Bison Network.

Let’s dive in:

BOB sets itself apart as a versatile L2 network that prioritizes programmability and composability to expand Bitcoin's application domain. Its architecture includes:

• EVM Core: Integrating with the Ethereum Virtual Machine, BOB enables the development of smart contracts and dApps, tapping into the rich Ethereum ecosystem for tools, wallets, and infrastructure.

• Bitcoin Bridges: Facilitating trustless interactions with Bitcoin, these bridges allow for innovative applications, enhancing BOB’s utility within the Bitcoin ecosystem.

• Rust zkVM Integration: Recognizing Rust's significance in Bitcoin development, BOB supports Rust libraries through the RISC Zero zkVM, enabling efficient off-chain program execution with on-chain verification.

It is unclear how much BoB raised but public mainnet is Q2 2024

Bison Labs introduces the Bison Network, a ZK-Rollup with these components in mind:

• Bison OS: The heart of the Bison Network, handling transaction sequencing and token contract management to ensure secure and legal operations.

• Data Availability and Verification: Utilizing Ordinals for data inscription and enabling user-side verification.

Although unclear how much Bison has raised. They are backed by Portal Ventures. While in terms of traction, Bison Labs is broadening its reach by extending support to EVM and Rust0 VM, adding to its existing integration with CairoVM, and has successfully attracted over 15 development teams to its platform.

The main difference is BOB is leveraging Ethereum as its security layer while Bison OS relies heavily on Bitcoin inscription. The former is closer to a sidechain while the latter is closer to L2 version of bitcoin

The implementation of zkRollup technology through platforms like BOB and the Bison Network moves towards a scalable, functional, and user-friendly Bitcoin ecosystem. But the builders didn’t stop there.

Modular Bitcoin

The concept of modular blockchains, originally gaining momentum within the Ethereum and Cosmos ecosystems, is now poised to make a significant impact on Bitcoin. This approach to crypto network architecture deconstructs the traditional monolithic framework into distinct layers or modules, each specializing in a specific function such as consensus, execution, and data availability.

Nubit introduces a Bitcoin-native data availability layer. This layer addresses the critical challenges of scaling and ensuring prompt and efficient transaction validation and finality, especially vital with the increasing demand for Bitcoin inscriptions and Layer-2 solutions.

Nubit features a consensus algorithm that supports a Proof of Stake, while leveraging Bitcoin's robust security and decentralization. It employs a signature scheme based on Zero-Knowledge Proofs (ZKP) to minimize communication overhead, enabling the network to scale effectively without compromising security.

Additionally, Nubit also uses random sampling to verify data availability similar to Celestia. This resulted in network participants having the full availability of block data without requiring any participant to download it completely, as with full node route.

Lorenzo

At the heart of the Lorenzo Protocol is its composability.  Although composable, it still inherits the robust security framework of Bitcoin, thereby ensuring resilience against external manipulations.

By advocating for a standardized BTC shared security model across different infrastructures, Lorenzo fosters a modular architecture that improves interoperability among various Bitcoin L2 built with Lorenzo on top. As with other modular designs, Lorenzo Protocol includes a customized execution environment provided by the respective virtual machine.

Similar to Rollup-as-a-service(RaaS), Lorenzo Protocol also has Bitcoin L2-as-a-Service. This service enables the creation of customizable modular Bitcoin L2 solutions that integrate seamlessly into the Lorenzo interoperability network, connecting them with other Bitcoin L2 and L1 blockchains.

Move Based Bitcoin

MoveVM is a virtual machine designed for executing smart contracts and custom blockchain transactions. Originally developed as part of the Libra project by Facebook, MoveVM stands out due to its emphasis on safety and expressiveness which is now adopted by nextgen crypto network like Sui and Aptos.

It utilizes the Move programming language, which is designed to prevent common smart contract vulnerabilities, such as reentrancy attacks and state inconsistencies.

One project that leverages MoveVM is RoochBTC. By integrating MoveVM, RoochBTC aims to bring the security and expressiveness of the Move programming language to Bitcoin, enabling developers to create more complex and secure applications directly linked to the Bitcoin blockchain.

Rooch introduces an on-chain indexer as a unique Bitcoin L2 solution, facilitating fully on-chain applications that utilize real-time synced Bitcoin UTXO states. This method does not alter Bitcoin states but provides a platform for applications to recognize Bitcoin asset ownership, enabling complex game mechanics and Autonomous World (AW) applications without custody issues.

Comparative Table between each Scaling Solutions

To reiterate our original thesis, Bitcoin is $1 Trillion worth of assets. The TradFi now has access to bitcoin via an ETF product. As a matter of fact, Bitcoin held by Blackrock just surpassed Bitcoin held by Microstrategy. The projects we’ve covered above raise around $120M collectively.

Peeking into the heart of this booming sector, we've pieced together the latest on fundraising moves, painting a vibrant picture of activity and interest. It's a solid hint that heavyweight players are stepping into the ring, making it clear: this is the place to put your money if you're looking to tap into something truly dynamic. To see the complete table, please click here to access it directly.

Concluding Thought

As we explore the myriad of innovations shaping Bitcoin's future, from sidechains like Stacks and Spiderchain to advanced technologies like BitVM and zkRollups, it's clear that Bitcoin is on the brink of a transformative era. These developments not only address its historical limitations but also pave the way for a richer, more versatile ecosystem capable of supporting DeFi platforms, NFT marketplaces, and beyond. The emergence of modular Bitcoin solutions like Nubit and the Lorenzo Protocol further underscores a shift towards a more scalable, secure, and interoperable blockchain infrastructure.

With each leap forward, Bitcoin reinforces its position as the foundational layer of the crypto universe, inviting developers, investors, and enthusiasts to partake in its evolving landscape. As we witness the unfolding of Bitcoin's next chapter, it's an opportune moment for the community to engage, innovate, and contribute to this groundbreaking journey.

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