The new wave of Bitcoin L2 is sidechains.

Many people have said that in Bitcoin Asia, no one can define L2. The problem is that we have a definition and most people want to ignore it. Marketing, yes.

“Bitcoin L2” is the hottest one on the street. People are using a lot of jargon to disrupt user trust assumptions and kickstart Bitcoin season 2.

Why do I suddenly have a surge of energy? About a year ago, some teams figured out how to use Bitcoin as a data availability layer for rollups. Others have worked to improve the trust assumptions associated with bridges (two-way pegs). Research is making great progress, and many projects believe that roll-up blockchains will be in production by 2025.

2025? Some projects claim to be on mainnet now?

The team is leveraging this energy to early promote its modular thesis on Bitcoin scaling. Projects are being launched with bridge contracts on non-Bitcoin blockchains and are marketing themselves as Bitcoin L2. Infrastructure providers are amplifying the message and boasting that Bitcoin is back.

However, these solutions do not scale Bitcoin. These are completely independent and centralized sidechains.

Layers they say? It’s similar to a hierarchy of trust assumptions.

Justice

Many of these projects are trying to adopt modular theory for Bitcoin scaling. This essentially means that each aspect of the transaction lifecycle can be its own expert system. Execution, transaction sequencing, and data availability can all be operated by independent actors. Bitcoin will become the payment layer that underlies everything.

It’s not a terrible paper when you dive into it. However, the current implementation for Bitcoin is a little worse for wear.

Many new projects claim to be “rolled up”. Rollup uses Bitcoin for data availability and publishes enough transactions to recompute the latest state root and blockchain state back to Bitcoin from scratch. If they are looking to expand Bitcoin’s transaction throughput, they will also trust is minimalA bridge contract that allows users to deposit funds into Mint upon rollup.

Looking at a few documentation sites, I can see that none of these new projects (in production) are using Bitcoin for data availability. They want to use an alternative DA solution for performance reasons. In other words, they want to be “validiums” or “optimiums.”

This configuration is similar to a rollup. These are blockchains that have bridge contracts similar to their parent chains, but use a different system for DA. This improves performance and reduces costs, but introduces some security trade-offs.

In the validium design, the L1 contract is responsible for verifying the proof of validity associated with a specific state transition for payment. After completing a particular state transition, the validium bridge contract can process withdrawals from users who wish to leave the chain, including unilateral terminations that users can submit themselves if state data is available. Optimium is similar, but relies on a fraud proof mechanism instead of validity proof.

However, none of the production implementations use SNARKs or the mechanisms that support fraud proof verification in Bitcoin.

Everything is being verified on a completely different Layer 1 or self-permissioned sidechain network!

Most of these chains are forking the Ethereum L2 SDK. They are settling on Ethereum or the fully centralized Geth fork that they have scraped together.

So it has nothing to do with Bitcoin. Maybe they will settle on Ethereum, use the most popular DA layer, and have a strong execution layer.

But not Bitcoin.

So what about sidechain?

All new Bitcoin L2s are just modular sidechains. And when I say “modular sidechain,” I mean running an alternative blockchain on top of the parent blockchain for performance purposes. We also trade off security by using an alternative DA layer to improve performance.

A bridge to Bitcoin? Runs with multiple signatures.

So the typical trust assumptions that users make are:

• Let’s hope the multi-signature running the Bitcoin bridge doesn’t interfere with this.
• We want a centralized sequencer to contain and execute transactions.
• Trust the alternative DA layer to make your data immediately available.
• We want a centralized prover to publish state transitions to the L1 contract. Alternatively, we hope that a centralized challenger will challenge the malicious state transition.
• Trust the parent chain of the sidechain to verify state transitions (finality).
• Trust the admin keys to upgrade the chain and avoid stealing user funds.

If you know that your users are trusting a fully centralized chain and bridge program to spend their BTC, you may want to consider using a modular Bitcoin sidechain. Several projects have been completely upfront about this approach, and I’ve publicly stated that I’m not completely opposed to it from a go-to-market perspective.

The problem is that the majority of teams try to abstract away security details and make their designs look remotely similar to the modular constructs of Ethereum or other ecosystems.

Not all hope is lost

You might be reading this post and thinking that the whole situation has gone to hell and isn’t worth exploring. Although it may feel that way at some point, there is a lot of cool R&D work going on around improved sidechain designs.

Teams like Citrea and Alpen Labs are trying to develop rollups on top of Bitcoin. There is a lot of great work being done in the BitVM community and the ZeroSync team to improve the two-way peg design and develop a currently working SNARK validator. This work is also inspiring numerous bridging proposals from various rollup and sidechain projects.

In this situation, you can’t throw away the good and the bad together. It’s not completely hopeless. But all the nonsense we see in other ecosystems regarding complex scaling proposals, token incentives and “progressive decentralization” roadmaps?

It’s approaching Bitcoin by a factor of 100.

Yes. This new chain is not L2.