Source: Adobe / Shamil
Since the resolution of the Bitcoin block size limit (BTC) debate in 2017, there has been general consensus that Bitcoin is likely to scale across a multilayer protocol stack rather than cram every transaction onto the base blockchain.
These secondary network layers, like the Liquid Sidechain and the Lightning Network, are often referred to as Layer 2 networks due to the different tradeoffs made with these systems in the areas of security, efficiency and decentralization, in addition to the fact that you use the basic Bitcoin blockchain effectively as a settlement network.
There has been a lot of hype in recent years about the Lightning Network as a solution for Bitcoin-denominated lower-value payments that retains many of the permissionless and untrustworthy features of the Bitcoin blockchain, and the liquid sidechain has also achieved remarkable adoption, though it’s about the amount of Bitcoin that has been tied to the network.
However, it turns out that a third layer two bitcoin protocol known as RSK is now growing faster than both Liquid and the Lightning Network.
What is RSK?
RSK is a Bitcoin sidechain that is compatible with the Ethereum Virtual Machine (EVM). This means that any smart contract created for Ethereum (ETH) can be copied and run on RSK.
As a sidechain to Bitcoin, RSK’s native token known as RBTC is linked one-to-one to Bitcoin. This means that users are effectively using Bitcoin to pay for gas on the RSK network, rather than a new token like ETH, Tron (TRX) or Binance Coin (BNB).
RSK uses a combination of a federation of Bitcoin companies and SHA-256 miners who are already mining Bitcoin to secure the two-way connection with Bitcoin’s base blockchain and the RSK blockchain itself. This current setup, known as a Powpeg, is about as trustworthy as a Bitcoin sidechain without the introduction of any new soft-forking enhancements to the basic Bitcoin protocol.
Comparing the growth in Bitcoin’s Layer 2 networks
At the time of this writing, BTC 2,913 is tied to Liquid, BTC 1,638 is tied to RSK, and a total of BTC 1,291 is tied on Lightning Network public channels.
It should be noted that the actual amount of BTC held in Lightning channels is difficult to estimate as it can open private channels that are harder to track. Previous estimates have shown that up to 41% of the BTC held in Lightning channels could be in private channels, which would mean that the actual capacity of the Lightning network would be closer to BTC 2,190.
If you look at the past growth of each of these Bitcoin Layer 2 networks, most of the growth in the Lightning Network was in 2019, most of the growth in Liquid in 2020 (including exceeding the public Lightning Network capacity), and the vast majority Majority of RSK’s growth took place in 2021.
The growth of the RSK Bitcoin sidechain began in late March of this year, as did the RSK-based Decentralized Financial Platform (DeFi) that enabled Sovryn to provide incentives for providing liquidity to the platform.
As of March 23, less than 600 BTC was tied to RSK, and now more than 1,000 BTC has been added to that total in less than two months. During that time, the BTC tied to Liquid has only grown by around 20 BTC, and the capacity of the Lightning public network has increased by around 120 BTC.
It’s clear that RSK is growing faster than Liquid and the Lightning Network right now, but this could just be a short-term trend.
For example, Liquid saw a net gain of 1,000 BTC in March 2020, but the amount of new BTC that has since been tied into the federated Bitcoin sidechain is less than 1,000 BTC. Of course, the BTC / USD exchange rate has also risen significantly since then.
It will be interesting to see if each of these three Layer 2 networks for Bitcoin will continue to grow for the rest of the year, especially if transaction fees on the base Bitcoin blockchain continue to rise.
The difference in use cases between Liquid and the Lightning Network made it easy to predict that Liquid would overtake the Lightning Network in the short term, and a similar phenomenon could occur if RSK overtook Liquid by the end of 2021.
Of course, there are a number of other blockchains with their own native cryptocurrencies that also function as quasi-layer two options for Bitcoin. Examples of platforms that operate in this gray area between the Bitcoin sidechain and completely separate, alternative chains are Ethereum, Binance Smart Chain (BSC) and Stacks.
From this point of view, by far the most successful Bitcoin Layer 2 project is the Wrapped Bitcoin (WBTC) token on Ethereum, which is currently supported by BTC 173,221 tied to the system.
Of course, as with many Ethereum-based projects, some shortcuts have been taken here, and the level of decentralization achieved with this Layer 2 system is no different from simply holding Bitcoin on Coinbase or any other crypto exchange. Because of this, it is questionable to classify it as a true Layer 2 network on top of the basic Bitcoin blockchain.
In fact, this point of contention is also found when comparing the Lightning Network to federated sidechains like Liquid and RSK, as Lightning users can retain a greater degree of control over their own coins. However, WBTC’s fully centralized custody model is more difficult to defend than the federated custody model found with current Bitcoin sidechains.
However, there is no reason WBTC could not become increasingly federated and reach a level of decentralization roughly equivalent to that of Liquid and RSK.
– RSK opens bridge between Bitcoin and Ethereum
– WBTC: Where Bitcoin meets DeFi
– How Bitcoin and DeFi are completely different phenomena
– DeFi on Bitcoin to grow in the shadow of Ethereum
– “If DeFi collapses, Bitcoin would still be Bitcoin”
– The Bitcoin Lightning Network will grow even if you’ve forgotten about it
– Bitcoin and Ethereum scale more slowly than Cryptoverse grows