Recently, the price of BTC has been fluctuating between 90,000 and 100,000 USD, and both retail and large investors are looking for the next hot spot or breakthrough point. For Bitcoin builders and researchers, the silence over the past six months has not been without gain. Whether it is the research progress in the field of BitVM open source or the landing of the trust-minimized Bitcoin bridge product, it is worth paying attention to.
On February 12, Bitlayer, the first Bitcoin second-layer solution built on the BitVM paradigm, invited ABCDE investment research partner Lao Bai, Web3Caff senior researcher Wu Yue, Chain Catcher BD head raychief.eth, developer WongSSH and Peking University Blockchain Association Vice Chairman CH999.eth, to have an in-depth conversation on Bitcoin expansion, BTCFI and future opportunities with the theme of "Bitlayer Finality Bridge: The Road to Trust-Minimized Bitcoin Bridge Based on BitVM".
Topics discussed in this Space include:
Bitcoin price fluctuations and predictions for the Bitcoin ecosystem in 2025, as well as key tracks and opportunities
Discussion on different solutions for Bitcoin L2, especially the trade-off analysis between security and scalability
BitVM Technical Paradigm: BTC Bridge Classification and BitVM Bridge Implementation Progress
Bitcoin L2 development trends and market opportunities.
Users interested in this Space can view the replay: https://x.com/BitlayerCN/status/1889644298108387839 . The following is the edited content of the conversation, slightly edited for readers’ reference.
raychief.eth: Hello everyone, I am Ray, the host of this Twitter Space event. Today is the Lantern Festival of the Chinese Lunar Calendar. First of all, I wish you all a happy Lantern Festival. Thank you for participating in our Twitter Space event on such a beautiful day. Our theme today is to explore the path of trust-minimized Bitcoin bridge based on BitVM. I am very honored to introduce today's guests. The guests participating in this sharing include Kevin He, co-founder of Bitlayer, Lao Bai, partner of ABCDE investment research, Wu Yue, researcher of Web3Caff, WongSSH, a developer classmate, and CH999, vice chairman of Peking University Chain Association. Please open the microphone and introduce yourself in turn, thank you.
Kevin: First of all, thank you to the host and I wish you all a happy Lantern Festival. I am Kevin, the co-founder of Bitlayer. We are committed to implementing BitVM on Bitcoin. We have good news to share with you. Thank you.
Lao Bai: Hello everyone, I am Lao Bai, the investment research partner of ABCDE. ABCDE is a fund that actively invests in the Bitcoin ecosystem. In addition to Bitlayer, we also have projects such as Solv, Unisat, Babylon and Lombard, which are all our layouts in the Bitcoin ecosystem. BMAN and Mr. Du are both Crypto OGs, and we are relatively optimistic and optimistic about the entire Bitcoin ecosystem. Thank you everyone.
May: Hello everyone, I am May, a researcher at Web3Caff. I mainly study L2 expansion and public chain ecology. Recently, I have been focusing on two areas: chain abstraction and AI Agent. I am very happy to communicate with you today and discuss the latest developments in the Bitcoin ecology.
WongSSH: Hello everyone, I am WongSSH. I am a Solidity engineer. I learned about Taproot and Lightning Network in the second half of 2024. I have also been paying attention to the BTC L2 ecosystem. Currently, I mainly focus on the DeFi field and the progress of the underlying Ethereum chain. Thank you everyone.
CH999: Hello everyone, I am CH, the vice chairman of Peking University Blockchain Association, and also a researcher at Talkchain. We will produce research reports and make videos of research report analysis and release them on YouTube. I personally do a lot of research on on-chain application products and have some experience in the DeFi field. Thank you everyone.
Bitcoin development prediction and layout in 2025
raychief.eth: Thank you very much for the wonderful opening. I am Ray from ChainCatcher and RootData. As the host of the event, I hope to raise some questions to guide the discussion. Recently, the price of Bitcoin has experienced large fluctuations, pullbacks and rebounds. What are your views or plans on the performance of Bitcoin in 2025 and the development of the entire BTC ecosystem? You can also talk about the tracks and opportunities you are paying attention to.
Kevin: From a technical perspective, after a year of development, the projects that have completed financing have already achieved some direction or promise. For example, BitVM, which we promoted, has finally made good progress after a year. I think many business models have emerged in the past year, including various asset management needs of Bitcoin, which have actually been implemented.
For Bitlayer, our strategy is to ensure that BTCFI happens in a decentralized world by implementing technologies like BitVM. The focus is to solve the asset management needs of BTC holders, including obtaining returns, risk management, obtaining liquidity and other investment needs. These already exist off-chain, and what we want to do is to make it happen on-chain through the latest generation of secure expansion technology. Thank you.
raychief.eth: Thank you Mr. Kevin. It is indeed the original intention of the entire Bitcoin ecosystem to make off-chain technology happen on the chain. Next, I would like to ask everyone what you think about Bitcoin in 2025, starting with Mr. Bai.
Lao Bai: To be honest, I’ve been focusing on AI recently, because in October, November, and December, the AI Agent track dominated. In January, this track was somewhat destroyed by the creation and the entire bear market. But AI is still the largest track at present. As for BTC, I just mentioned that we have invested in many projects in our portfolio, so our view on the BTC ecosystem in 2025 is more about observation and waiting.
I personally may focus on three lines. One is BTCFI represented by Solv, which may be related to the BTC ETF and TradeFi of US stocks, that is, the combination of tradition and chain as a general direction. The second direction is the on-chain technology of BitVM represented by Bitlayer, to see if it can stimulate transactions on the Bitcoin chain. Because in the long run, BTC cannot completely maintain such security costs, or security budgets, after continuous halving. Regarding how to activate transactions on the chain, we have made countless attempts, including previous large blocks, including last year's Ordinals, runes, inscriptions, etc. At present, the third attempt may be BitVM. From the long-term perspective of Bitcoin's century-long plan, this must be paid attention to.
The last line is Taproot Assets. I have been paying attention to Taproot and RGB before, but the latter is still progressing very slowly. On the contrary, RGB++ of UTXO Stack is progressing much faster. Recently, Tether decided to use Taproot Assets to issue USDT, which is also a big positive for Taproot Assets itself. In summary, I personally or ABCDE are currently paying attention to BitVM, Taproot Assets, and BTCFI, the three major directions of Bitcoin.
May: From a regulatory perspective, we can see that Bitcoin is becoming more and more influential, rising from a niche investment target to a national reserve asset. Regulatory policies in various countries are gradually improving, especially in terms of compliance. Bitcoin may face stricter regulation in 2025, which also means that it will become more mainstream. Regulatory clarity will help eliminate market uncertainty and attract more institutional participation. Bitcoin prices will also be more stable.
Next, let's talk about the market ecology. In 2025, Bitcoin will not only be a value storage asset, but with the acceleration of BTCFI, Bitcoin will gradually transform into a financial instrument. The rise of decentralized platforms has promoted liquidity and efficient financial instruments, making Bitcoin not only used for value storage, but also especially in areas such as lending. As the compliance process accelerates, income-based derivatives will greatly enrich Bitcoin's financial ecology. Bitcoin's market value accounts for half of the Web3 currency circle. If its liquidity can be liberated, I am optimistic about the development of the future track.
WongSSH: I started paying attention to the Bitcoin ecosystem in 2024. At that time, there were various technical solutions. I thought BitVM was a very good solution. But since I didn't pay attention to it for a while, I recently looked at BitVM again and found that BitVM has made great progress compared to before. I once thought that BitVM was unrealizable, but it has been truly realized since the BitVM2 version.
I think the Bitcoin ecosystem will have another round of development in 2025. Because in my opinion, many technical solutions in 2024 are not technically very advanced. I personally value Bitcoin's cross-chain bridge more. Of course, there is another direction, Bitcoin CDP, which can release Bitcoin's liquidity, such as building a real micro-strategy on the chain, which can use Bitcoin as collateral to access more stablecoins, print stablecoins, and then use stablecoins to continue to buy Bitcoin, realizing the strategy of leveraging Bitcoin with stablecoins. This is my point of view.
CH999: Hello everyone, I used to participate in the Bitcoin ecosystem a lot, but I don’t participate much recently, because it is not wise to lock liquidity for too long in a bull market. So my personal strategy is to use BTC for option operations. As for the entire Bitcoin ecosystem, I personally take a wait-and-see attitude, because the Bitcoin bull market is not equivalent to the Bitcoin ecosystem bull market, and the two have not yet formed a strong binding state.
Whether the Bitcoin ecosystem, including the second-layer network and other applications, can be finally implemented or is just a bubble depends on the on-chain data, whether there are real applications, real benefits and real users. We hope to see a more innovative or different application system than Ethereum and Solana. Whether the Bitcoin ecosystem can have representative applications and attract more users is what I personally pay more attention to. If there are no truly explosive applications, I may remain on the sidelines, because in this cycle, the market does not seem to pay for the concept of decentralization. Of course, security is important, but security no longer seems to be the main theme of this cycle. For example, we can see the rise of Solana, which is less centralized than Ethereum; take Hybrid Liquid as an example, it is ridiculed as a stand-alone chain, but it can attract more users and earn more fee income. So for me personally, I will look forward to the Bitcoin ecosystem playing other cards besides decentralization and greater security in the future, so that the entire ecosystem can be revitalized and I can change from a wait-and-see attitude to a more optimistic attitude. This is my current point of view, thank you.
Bitcoin Scaling: The Tradeoff Between Security and Scalability
raychief.eth: Indeed, the security of the Bitcoin ecosystem is the foundation of its expansion. Next, please share your views on Bitcoin expansion, especially the relationship between security and scalability. Currently available Bitcoin Layer 2 solutions include sidechains, RGB, Lightning Network, and BitVM, which we discussed today. Please share your views on the potential of these different solutions and your choices for future development directions. For example, from the perspective of investors, how do you evaluate the pros and cons of these solutions? Thank you.
Kevin: I would like to respond to the views of the previous guest. Let's take a look at some observed phenomena. The market's FUD on WBTC, including the removal of MakerDAO and Coinbase, shows that the market's concerns about security and BTC's underlying packaging methods still exist. The market still has a demand for safer and more reliable Bitcoin packaging solutions. The first implementation of BitVM is to solve this problem.
Another phenomenon is that in this round of market and Bitcoin-related protocols, the number of BTC staked on the chain has increased significantly, including many Bitcoins that have not been staked on the chain before. Whether it is native Bitcoin or Bitcoin in the Yield protocol, the total may be close to 100,000. The appearance of these Bitcoins on the chain is a trend. In the past, users put BTC in cold wallets on the one hand because there was no use scenario, and on the other hand because people did not want to store Bitcoin on exchanges through KYC. But now, some protocols allow users to stake Bitcoin on the chain to obtain part of the income. From the communication with large users, it is acceptable for them to change their previous holdings in cold wallets from 10% to 5%.
Combining these two points, we believe that we can solve the basic security problem and give users a part of the benefits. We hope to activate this part of Bitcoin and put it on the chain. At the same time, we have also seen new buyers entering the market in this round of the market. These Wall Street positions essentially regard BTC as a mass commodity, and they have a very strong urge to obtain benefits. MicroStrategy is one of our customers, including our investor Franklin. Whether on the chain or off the chain, they have a strong demand for seeking benefits. Based on such user needs, we believe that the Bitcoin ecosystem will perform well in the next year.
The relationship between the security and scalability of Bitcoin expansion is a commonplace topic. There is a certain contradiction between Bitcoin's security and application scenarios. For example, you can choose a side chain with rich application scenarios, or you can only perform simple transfer applications, such as the Lightning Network or Taproot Assets. There is a trade off here: either you feel it is very safe but the functions are limited, or you have enough application scenarios but the security is questionable. The problem we want to solve is how to combine these two features, or how BitVM combines these two features, so that it can be trustless or trust-minimized, and support programmable. This is very critical. We can also see that there are many expansion plans in the Bitcoin community. I just came back from the Satoshi roundtable, and this issue is also a hundred schools of thought.
From a developer or user's perspective, I think the benefits of any chain or solution must be perceptible to users or developers. If not, then it may be a waste of effort, or an asymmetric investment of resources. For example, as the user scale expands, people's insistence on decentralization may no longer be so strong, which leads to the popularity of high-performance chains such as Solana. Therefore, I have come to the conclusion that whether it is expansion or anything else, it must be perceptible to users and developers, which is very critical.
Let's take a look at what users and developers really need among the many expansion plans. Developers hope that their existing work, whether on SVM or EVM, can be seamlessly migrated and infinitely migrated to new basic libraries and security practices. If developers need to learn a new model, they need to be informed of the benefits in advance so that they are willing to invest time to learn this new model.
In this era of hundreds of chains competing with each other, it is completely different from 2010 when people would use products as long as they were developed. In this cycle, it is obvious that everyone is pursuing the wealth effect, and it is difficult for people to perceive technology or technology. Based on these observations and conclusions, we chose the BitVM route from the beginning because it is the most developer-friendly. It is only a verification component, and the difficult things are left to us, the team that implements BitVM.
This friendly approach means that the application can be compatible with any virtual machine, and in theory can support any VM, including EVM and SVM, which is very friendly to developers. For users, this means that they have safer means and profit opportunities, so they are naturally more willing to invest funds in the chain.
Finally, to sum up, there is indeed a trade-off between security and application scenarios. BitVM is designed to solve this trade-off. We believed from the beginning that BitVM can solve these problems well under the premise of making it perceptible to both users and developers. This is also the reason why we chose this route.
Lao Bai: Let me share from the perspective of investment opportunities. Our initial investment in Merlin was a bet on a short-term expansion solution, because Merlin is similar to Polygon. To put it bluntly, it is simply a side chain, but it is EVM, so it is very easy to migrate and expand. This was a short-term solution at the time. We believe that Taproot Assets, as well as RGB and RGB++, are more Bitcoin native solutions, which may take longer than BitVM to verify or explore the market PMF, so we invested in UTXO Stack, which is also based on RGB++. It is a layout made on this ultra-long-term Bitcoin solution. The core of the mid-term layout is to explore or bet on Solv and Bitlayer. Solv is mainly in the BTCFI field, and we are not 100% sure about Bitlayer.
In response to Kevin's statement, we need a better WBTC, or use BitVM technology to build a bridge to safely bridge BTC to other places, whether it is Web2 or Web3 chains. This can be based on BitVM technology, or should we imitate Ethereum and Solana and make a pure expansion plan based on BitVM to get a chain or L2 running, support various DApps such as lending, Dex, stablecoins, and then simply use the security of Bitcoin Layer 1. To be honest, I still haven't made a 100% accurate judgment, I can only say that I will take it one step at a time. But no matter which path you take, BitVM technology is the most worthy of in-depth exploration, because no matter which path you take, you need such a BitVM method to ensure security, or give users confidence to run the application ecosystem on it, or simply package BTC into XXBTC and bridge it to other places. This is my view on this issue from the perspective of an investment institution.
May: I want to emphasize the security issue that Kevin always mentioned just now. In the BTC field, many EVM sidechain solutions initially appeared. They are essentially EVM chains unlocking Bitcoin liquidity through cross-chain bridges. My personal opinion is that this model has obvious problems in terms of security and is more fragile than the BitVM we discussed earlier. I think BTCFI is more important than BTC L2. BTC L2 needs to solve the security problem first. Only by solving the security problem can it attract more funds and enable BTC's assets, which occupy half of the Web3 field, to increase in value on the chain. This is crucial. Although some EVM sidechain projects have developed rapidly, their life cycle may be short. In the long run, we need to find a balance between security and ecology, which is the issue I want to emphasize.
WongSSH: As a developer, when I first saw some EVM strategy expansion plans for Bitcoin, I found that these plans did not have very good solutions in terms of security when reading their documents, so I did not participate in any Bitcoin EVM sidechain projects. RGB++ and Lightning Network are what I have studied before. At that time, I was studying Taproot, so I also learned about these technologies. From a developer's perspective, these theories are very complicated and contain a lot of terms that I am not familiar with. Since I was mainly doing EVM smart contract development at the time, I was not particularly familiar with the UTXO system, so I took a lot of classes at the time to better understand RGB++ and Lightning Network.
I feel that their development is more solidified than that of the Ethereum Foundation, without very radical innovations. Many of them don’t even have a credit star. You can only see its theory. If you want to run something yourself, there is no very good development framework for me to do these things. For BitVM, I first came into contact with BitVM0, and found it very complicated. I spent a long time studying various types of designs of BitVM0, but I still didn’t fully understand it. Later, when I looked at it again, it was BitVM2. Compared with BitVM0, I can at least understand a lot, and it may be because I know more about UTXO. So for BitVM2, I feel that it has the possibility of practical application. Later, I learned that the Bitlayer team announced in a blog that they have solved most of the technical problems in BitVM2. In my opinion, BitVM2 has become a more interesting direction. The above are my observations and experiences as a developer.
CH999: When we first looked at the so-called L2 of the Bitcoin ecosystem, we thought it was an easy product to make. We used a multi-signature wallet to make a public chain, and quickly attracted developers to build exchanges and loan agreements on it, but its life cycle was destined to be short. After all, to serve Bitcoin users, everyone must still attach great importance to security, but if it is just a public chain made with a multi-signature wallet, the security is not enough. If these necessary and sufficient conditions are not enough, it will be difficult to go further. I agree very much with what a guest just said about RGB and BitVM. These two are RGB. Its R&D cycle may be longer. If you invest in RGB, it is a bet on the long-term Bitcoin ecosystem. Recently, we have indeed seen more breakthroughs in BitVM technology. I think these two are more mature and secure solutions for the Bitcoin ecosystem. The current development progress of BitVM is quite exciting. This is my personal understanding of these different technical solutions. Thank you.
BitVM technical paradigm implementation and prospects
raychief.eth: Just now, the guests discussed a lot of details and prospects about BitVM. Our next question will continue to focus on the topic of BitVM. All guests, including our audience, should be very concerned about the BitVM technical paradigm. You can open the microphone to talk about how you view the prospects of BitVM and its application, and what changes it can bring to the entire industry. Let's start with Kevin.
Kevin: Before we decided to join the Bitlayer project, we had been looking at projects for ABCDE. At that time, we thought that if we built a second-layer network on Bitcoin, according to our experience in L2 in recent years, the core is that the calculations or state transfers performed off-chain need to be verified on the chain. In theory, no matter which layer or main chain is verified and drives corresponding actions, such as the escape hatch mode of Slash or redemption in emergency mode, it means that the chain theoretically inherits the security of the parent chain. This model has been widely understood and tested over time.
Based on this idea, we looked for the possibility of implementing verification on Bitcoin. There was indeed no plan at the beginning. Fortunately, around October 2023, we noticed Robin Linus's paper. Their white paper proposed a way to implement fraud proof or OP on Bitcoin, which is essentially a means of verification.
We believe that its greatest value lies in several aspects: First, it does not require forking, which is the most important feature. If forking is required, then achieving this goal will be a long way off, and a large number of protocols based on these opcodes will be difficult to implement. At first, I might be more optimistic. According to historical experience, the time for Bitcoin fork upgrades is approaching, but a year has passed, and I have done my own research and published it in the community, and found that things are not optimistic. So our initial judgment - the importance of the no-fork feature - is correct. The OP model or the model for implementing fraud proofs on Bitcoin is very clear and easy to understand. Since everyone has been educated for many years, there is no need to re-understand concepts such as rollup, OP, Validity Proof, etc., which is relatively easy for developer and user education. This is an important reason why we chose this direction.
Next, let's consider what changes it can bring. Since it is a means of implementing verification on Bitcoin without forking, in theory any calculation performed off-chain can be verified. The first is the bridge we discussed, whether it is now or when withdrawing funds, especially when withdrawing funds, it is necessary to verify whether you are qualified or able to regain funds on the first layer. The user's funds have been stored in a certain address when they enter, so why does this address have the authority to give the funds to the user when the user withdraws funds, and how much funds are left? Legitimacy also needs to be verified. The BitVM mentioned just now is to be implemented in this scenario.
Going one level deeper, since it can be verified, the second-layer network or on-chain calculation can also be verified in theory. In other words, the state transfer performed in the second-layer network can be verified by the challenging Fraud Proof on Bitcoin through the BitVM framework. In this way, the second-layer network can obtain security similar to OP relative to Ethereum in this way. This is the second application scenario.
The third category is some more native or clear application protocols, such as staking, lending, stablecoin CDP, etc., which will benefit from this verification capability. For example, in staking, the slashing behavior that occurs off-chain can be verified on-chain and trigger the corresponding slashing. Similarly, behaviors such as lending and liquidation can also be verified on-chain and trigger corresponding actions. The implementation of BitVM will bring new opportunities for these native protocols. Based on the security improvement of the second-layer network and bridge of these native protocols, I believe that more capacity of BTC will be transferred from centralized exchanges or off-chain to on-chain, which is very worth looking forward to. Thank you.
Lao Bai: I am not a pure technical person, so I don’t know as much about BitVM as Kevin does. From an investor’s perspective, BitVM is a bit like Ethereum’s initial proposal of ZK rollup. It wants to achieve a completely trustless environment, which is essentially similar to Ethereum’s ZK rollup, because OP is a temporary solution, and after ZK, everyone can verify it, and it becomes fully trustless. When you have a fully trustless environment, what do you want to do on it? Or there are some things today that we cannot do or cannot do on a large scale due to trust reasons. You can understand this matter from this general direction.
I just said that BitVM is the third attempt on the Bitcoin chain, and it is likely to be the last attempt. Following the failure of the big block and the failure of the on-chain asset issuance, the third attempt is likely to be the last attempt to stimulate transactions on the chain. I am wondering, if BitVM also fails, what other means do we have? Whether it is technical or other ideas and directions, I personally can't think of it for the time being.
We can think of inscriptions and runes as Ethereum's one-click coin issuance. Basically, the two most common things for a public chain are asset issuance and capacity expansion. BitVM is a way of capacity expansion and trustless, and inscriptions and runes are asset issuance. After a year of hype about asset issuance, everyone has become desensitized to it. But in the end, some listeners may think that Bitcoin does not need anything, just simply do Bitcoin, and make it digital gold. But if we look at it from the perspective of 20 or 50 years later, if there is no block reward, what will happen to our Bitcoin? It is impossible to expect miners to generate electricity with love, and to build such a large computing power across the entire network to ensure the security of Bitcoin when there is no block reward or each block has only a few bitcoins. At that time, if it is not BitVM, or applications based on BitVM or other things to guarantee the miner fees on the chain, the miner fees triggered by these transactions, then what should be used to guarantee these fees of Bitcoin? To put it bluntly, who will pay the bill, who will pay the miners to maintain the security of Bitcoin. In addition to converting Bitcoin to POS, I can only see the idea and direction of BitVM. The application may not necessarily be what we imagine now, but its inevitability is a more worthy issue to consider.
raychief.eth: Mr. Bai’s viewpoint is quite high-level. You can even look forward to the future when Bitcoin continues to halve. When the block reward may drop to only a few satoshis, what will happen to the entire Bitcoin ecosystem at that time? What will happen to the miners on the chain? BitVM may also be a battle that can be understood as the end game. If we talk about it from a deeper technical and technological perspective, what are the views of the developers?
May: One of the scenarios for BitVM is a trustless cross-chain bridge. We can imagine that ETH is still the dominant force in DeFi. If there is a BitVM bridge, can we make Bitcoin's liquidity the core of a new DeFi development path, so that Bitcoin can become the dominant force in DeFi and reduce people's dependence on centralized derivatives such as WBTC? This is what I think is a more practical scenario for BitVM, which can activate BTCFI in the future.
WongSSH: As a developer, I read some papers and analysis articles about BitVM0 very early on. At that time, I thought it was a bit too complicated and it was hard to believe that it could become a reality. After that, I didn't pay much attention to BitVM. Recently, I saw BitVM2, which is simpler than BitVM0. I can roughly understand its overall operating principle. Compared with BitVM0, it is more about specific implementation rather than telling developers an expectation and then letting everyone realize it. At present, it feels that BitVM2 may soon become a reality, and I think it may bring great changes to this industry in the future.
Differentiation of Bitlayer BitVM Bridge Solution
raychief.eth: We should look forward to this change and embrace it. Everyone mentioned the bridge. Our next question is to invite Kevin to give you a brief introduction to the Finality Bridge based on BitVM, and its advantages or highlights compared with some BTC bridges on the market.
Kevin: Simply put, we are the first to implement BitVM in the bridge scenario. We also had some thoughts before doing it. First, Bitcoin packaging does have market pain points. Second, its model. A guest just mentioned that the bridge is a good landing scenario and it is very suitable to be the first milestone, because we are also working with the community to promote this direction. Now our product test network has been online for more than a month, and it is expected that the main network will be online in the next one or two months.
We believe that Bitcoin packaging or bridging technology has developed to the third generation so far. The first two generations of technology are mainly based on the trust model of users in the majority of nodes or the majority of controllers. The third generation of technology, which is the BitVM-based model we currently use, is based on the core of only requiring the trust of a few people. Specifically, only one of the operators needs to remain honest, which is an important difference from the first two generations of technology.
Specifically, the first generation of technology includes common MPC and centralized custody methods, among which WBTC is the representative. The second generation of technology appeared around 2021, represented by tBDC, which uses the POS network to determine the multi-signature behavior of Bitcoin layer 1, and ultimately still relies on network consensus. Whether it is through threshold signatures or aggregate signatures, the essence is based on majority security and majority honesty, that is, it is necessary to trust the basic assumption that most nodes or most staking tokens in the POS network are honest.
The third generation technology is the BitVM implementation we are currently working on. It uses a fraud proof or challenge model. As long as there is an honest operator, the entire bridge system can guarantee security and activity. Therefore, from the perspective of security and model, the third generation technology has achieved a qualitative leap. This is the main difference between the BitVM bridge and previous solutions.
We also noticed that there are several teams working on BitVM, and we have done a lot of work on differentiation. As a core contributor to BitVM, we have provided a large number of components. In addition, we have also invested a lot of work in engineering implementation, product user experience, and capital efficiency. There is a big gap in the process of a product from white paper to final product implementation, which involves liquidity efficiency issues, multi-chain expansion friendliness, and friendliness to retail investors. These are all problems we need to solve, and they are also our differentiation and highlights. Thank you.
Bitcoin L2 development trends and potential opportunities
raychief.eth: Thank you Mr. Kevin. Now you can talk about how you view the development trend of L2 and Bitcoin in the future, and what opportunities we can pay attention to.
CH999: I am deeply involved in Ethereum L2, but I feel a little confused at the moment. I think this is a common problem faced by Ethereum L2 and Bitcoin L2. The current market problem is that there is too much infrastructure and insufficient application. There are many public chains, but the public chains are empty cities and lack users. As for the expectations for the Bitcoin ecosystem, I think at least we should be able to fully utilize the mature models in the Ethereum ecosystem or Solana ecosystem, and then give play to the latecomer advantage. For example, can the Bitcoin ecosystem have a similar successful imitation of Ethena, and can there be an interest rate swap agreement similar to Pendle? Because in the Bitcoin ecosystem, yield is a point of great concern to everyone, and DeFi products such as interest rate swap agreements have demand for users and large whales.
In addition, I am looking forward to more innovations in Bitcoin L2, rather than simply copying the "three-piece set" of DeFi, which does not make much sense. In addition to the two projects mentioned above, I am looking forward to whether there will be more DeFi innovations in the Bitcoin ecosystem. If there are any, I will pay special attention.
May: I think there are differences in ecological culture between Ethereum L2 and Bitcoin 2. Ethereum L2 ecology is relatively prosperous, with dozens of projects, including Arbitrum and Optimism, active developer communities, strong capital backgrounds, and fast project iterations. Bitcoin L2 is relatively conservative, because the Bitcoin community culture focuses on security, and the main network protocol is cautious in changing. For example, OP_CAT has not been passed so far, resulting in relatively slow development of Bitcoin L2. This is the difference between the two in culture and ecology. As Bitcoin L2 draws on the experience of Ethereum L2, the speed is also increasing. In terms of the focus in the future, as Bitcoin gradually becomes a mainstream investment target and Bitcoin financialization advances, institutional-level products such as compliant stablecoins and income-generating derivatives will become the key to activating BTCFI.
Kevin: Let me add that as the founder of the public chain team, we are thinking deeply about the development direction of BTC L2 every day. We can start from the observed phenomena and explore the mission of BTC L2 and its implementation path. During this cycle, we observed that the scale of Crypto users has further expanded, whether retail or institutional clients. Under such circumstances, users' fundamentalist requirements for Bitcoin are actually relatively weakened, because decentralization is not an absolute description, it is a very vague or universal description, different people have different demands for decentralization, and different applications have different requirements for decentralized features. This also explains why high-performance public chains represented by Solana in this cycle have been sought after after sacrificing decentralization in exchange for performance, because users have no perception of decentralization and pay more attention to the wealth effect. What big users or institutions need is income or asset management needs. The further weakening of decentralization brought about by the expansion of user scale and stratification.
In this situation, with Solana being so strong and having a siphon effect, how should Bitcoin L2 be positioned? What is its mission? We can go back to the original point of view, that is, to make BTCFI happen in a decentralized world, which includes several things we need to do. First of all, we need to go through the business model and really need to have a business, rather than just relying on the traditional three-piece set. In the environment of pursuing the wealth effect, the three-piece set cannot satisfy users. We need to solve the real problem or meet the needs of these users who are chasing the wealth effect.
Whose needs do we want to meet and whose problems do we want to solve? The answer is BTC holders, whether they are institutions or retail investors. Their needs are nothing more than asset management needs, moving off-chain assets to the chain. The first step is to run through business models, such as Trading, Lending, Staking and other applications. Because these needs already exist, what we need to do is to move them to the chain through technology. The chain has real advantages, such as self-custody, KYC-free, and centralized risks.
The second step is to solve the security problem. An important mission of Bitcoin L2 is to solve how to allow BTC to participate in DeFi in a programmable environment in a safe way, or in a trustless way. This problem has not been solved yet. The problem that BTC L2 must shoulder and solve is also the reason why BitVM is used for implementation.
The third solution we have is definitely related to Trading. We believe that it requires a high-frequency environment for users to trade, and most sustainable BTC Yield applications must be CeDeFi. The reason is that only by obtaining risk-free arbitrage opportunities through Trading, coupled with some on-chain strategies, can a stable source of Yield be achieved. This is why we believe that it must have high-performance features. All public chains must be equipped with high-performance features as standard. If not, they will basically be swept into the garbage dump.
These missions correspond to the three stages that we set at Bitlayer at the beginning: the first stage is to run the business model and find PMF. At present, there are already some interest-bearing categories, options, Perp and Dex; the second is V2 that we are working on, focusing on solving security issues, including bridges and side chains becoming Rollups; the third is high-performance expansion, which is our work focus in the second half of the year.
In summary, under the current user stratification, the leading public chains such as Solana, Base, BNBChain, etc. will inevitably have very strong network effects. BTC L2 has its own unique mission, which is to implement the business model on the chain, solve security problems and provide a high-performance environment. Each public chain must find its own positioning and business to do, rather than being big and comprehensive. The era when users will come to use a chain is over. It is necessary to find its own positioning and specific fields, and then form network effects in these fields and solve specific problems to have a chance. Thank you.
raychief.eth: Kevin's summary is very good. When listening to our hardcore sharing today, listeners, don't forget to follow Bitlayer Chinese, ChainCatcher and the X accounts of all the guests. Thank you for taking the time to listen to this Twitter Space during the Lantern Festival. I hope that Bitcoin ecological projects based on BitVM can go further and further and find their own place in the ecosystem. Our Space today ends here. I wish you all a happy Lantern Festival and goodbye.
