What is a Bitcoin L2 (or Layer)?

A Bitcoin Layer is a protocol that adds functionality to BTC the asset, pays Bitcoin for security, and/or is integrated with the Bitcoin protocol in some capacity. Examples of this include metaprotocols, L2s, and more.

Bitcoin L2s

Bitcoin L2s are separate protocols that extend utility to Bitcoin assets, while also ensuring that users are able to withdraw their assets from the L2 at any time of their choosing.

We use this definition for a "true L2" because it we believe that users should not have to tradeoff the custody of their assets for improved performance and/or utility. This doesn't discount that there are scaling protocols that don't enable unilateral exit. And, social consensus may see the broader community classify these things as L2s.

Currently, the only two protocols that enable this for users are the Lightning network and (possibly) statechains. Other protocols, like sidechains and rollups, currently have bridging limitations that do not see them fit within this criteria. However, proposed bridging protocols are an improvement over the status quo, and are creating a path towards more flexible L2 designs. In the event that these new protocols (e.g. rollups) enable unilateral exit, they will meet the definition of a "true L2".

However, you can see on our website that we do not take on the role of defining an L2, just analyzing protocols against our framework.

Bitcoin Layers

Bitcoin Layers are separate consensus protocols (and even onchain protocols) that extend utility for BTC the asset or pay fees to Bitcoin miners. These protocols include sovereign rollups, sidechains, and more.

These protocols are becoming increasingly more popular in the Bitcoin community due to limitations around current scaling models. They're also modeling their designs after scaling solutions in other ecosystems (e.g. Ethereum).

The reason these new types of scaling protocols are so popular is because of an innovation called "BitVM". BitVM will potentially enable better "two-way pegs" than current sidechains, and can additionally act as optimistic validating bridges for rollups.

There are also other protocols that enable new feature sets to Bitcoin users, like Fedimints, that would not classify as a "L2" because they do not enable unilateral exit from the protocol.

In short, if a user has to trust a third party, whether that third party be a custodian, committee or alternative consensus protocol, with the custody of their Bitcoin assets, then the scaling solution is not by definiton an L2.

The difference

We use the broader term "Bitcoin Layer" to define this new wave of scaling protocols because the community should be working towards trustless scaling solutions.

Teams may still call themselves "L2s" in their own documentation, marketing materials and so on. This is fine, and not everyone will agree with the definitions we use to define an "L2". But, scaling shouldn't come at the cost of self-custody for users.

Bitcoin Layers are extremely useful and valuable to Bitcoin and BTC the asset. They can lower fees for users, will provide new use cases for BTC the asset, and can also pay more fees to Bitcoin miners. Not being able to classify as a "true L2" due to limitations in Bitcoin script does not lessen their utility to the ecosystem.