Bitcoin Layer 3 and its latest rise

While you were out clubbing, I was learning about Bitcoin developments

Published in

Coinmonks

10 min readJun 25, 2022

Source — Modified Image by Author from Link

Table of Content 
· A brief note on the Bitcoin base layer
· Why does Bitcoin require Layer 2 and Layer 3 services?
· Lightning-enabled Layer 3's
    1. P2P Fully Encrypted Lightning Enabled Application — SPHINX
    2. The real use of Interactive web accessibility — Metamask tale
    3. Bitcoin in games-ZEBEDEE
    4. Creating a New P2P Internet Standard — Impervious AI
· Miscellaneous

A brief note on the Bitcoin base layer

The bitcoin community has been cautious in pressing modifications to its base layer. It takes years to introduce changes to its core protocol. They are thoroughly examined to ensure that Bitcoin’s essential ideals of decentralisation, stability and security are not sacrificed in exchange for increased functionality, which might lead to flaws in its core technology.

For eg

SegWit (Segregated Witness) was a widely contested protocol upgrade that modified the layout of Bitcoin transaction data. It was proposed in 2015 and implemented in late 2017.
Schnoor Signatures, proposed in 2016 and deployed in late 2021, improved Bitcoin’s multi-signature capabilities to minimise their data footprint on the Bitcoin Blockchain.
Taproot, one of the biggest Bitcoin improvements to date, was planned in January 2018 but not deployed until November 2021 — over four years later. As a result, it is the most stable base layer in the ecosystem.

I recently read this post from the subreddit r/CryptoCurrency titled — I think I finally understand bitcoin “Exerpt below”, which I believe summarises why Bitcoin’s core layer has been battle-tested and running every 10 minutes for almost a decade.

“It’s a silent project that operates in the background. There’s no face to it. The founders created it and walked away. It’s like an elegant clock set into motion that continues to tick. There’s no promise of some complex protocol to come 3, 5, or 10 years down the road. It does what it’s supposed to now without self-promotion from the founders. Since it doesn’t need self-promotion to thrive, it doesn’t fall victim to the vices of marketing from greedy, charismatic leaders, with overly complex projects. Sure, there’s Saylor and Novogratz that sometimes fall into that role. But bitcoin doesn’t need them to survive and won’t need them when they die. The project works now. It does what it’s supposed to and it’ll continue to do what it’s supposed to.
There’s no charismatic Do Kwon doing a Forbes, Steve Jobs photo shoot with a black t-shirt and a white background.
BTC takes out the corruption of humans because the humans that created it stepped away. Sure, people will build corrupt systems around it, but BTC itself is a simple, pure, and elegant vehicle silently ticking away in the background until the ticking becomes so loud that no one can ignore it.”

As of June 25th, 2022, the number of days since Bitcoin has been down is 3,393 days. It’s been almost 10 years since it’s been continuously producing block after block at an average of every 10 minutes

Bitcoin’s trustworthiness is not limited to how tough it is to alter its core layer. This is in direct contrast to numerous Ethereum sidechains and alternative layer-1 networks, such as Solana, which have been subjected to assaults and have consistently experienced prolonged network unavailability. Furthermore, compared to other proof-of-work networks, the cost of attacking the Bitcoin blockchain via block Reorganization is quite high.

The image below depicts the hash rate and cost required to attack various POW blockchain protocol

If you’ve been following the crypto world for a while, you’ve undoubtedly heard of the blockchain trilemma (also called the scalability trilemma). Simply said, present blockchains can only achieve two of the three qualities: decentralisation, security, and scalability, owing to the nature of distributed ledger technology (DLT). As a result, DLT initiatives must compromise one aspect in order to flourish in the other two.

The Blockchain Trilemma — each side of the triangle can only achieve two properties. Source.

The scalability trilemma only arises when Blockchain wants to have all three properties on the primary layer. While Bitcoin cannot achieve high scalability without sacrificing some of its security or decentralisation on L1, it can increase its throughput by implementing a layer 2 solution like the Lightning Network, which offers users near-instant and cheap BTC transactions by moving them off the main chain.

In general, layers constructed on top of a blockchain rely on the main chain to finalise transactions. As a result, while layer 2 and layer 3 services provide additional benefits for ecosystem solutions, they nevertheless guarantee the same (or very equivalent) security and decentralisation as L1 transactions.

As a result, blockchains’ layered structure offers an effective solution to the scalability trilemma, allowing the blockchain ecosystem to become scalable, decentralised, and safe without losing any of the three important features 🤯.

Why does Bitcoin require Layer 2 and Layer 3 services?

“You’re going to want to build your buildings on a solid footing of granite, so bitcoin is made to last forever — high integrity, very durable.” — Michael Saylor, CEO of MicroStrategy

As previously noted, in order to address the scalability trilemma, First, blockchain requires a strong foundation layer, which can then be scaled using a multi-layered technique on top of that core layer.

Many people still wonder, “Why not just build straight on the base layer?”

To begin, Bitcoin’s scripting language does not enable loops or complicated flows, making it impossible to create smart contract logic and, by extension, general-purpose applications directly on its base layer.

Source — Bitcoin Block Time historical chart

When compared to Ethereum and other layer-1 blockchains, Bitcoin’s 10-minute block latency is relatively long. While block time is only one of several factors that must be considered when evaluating a blockchain’s settlement time and quality of settlement assurances, Bitcoin’s relatively long block time discourages its use in applications that require fast processing confirmations.

Source- Bitcoin, Ethereum Avg. Transaction Fee historical chart

As seen in the figure, Ethereum is currently the most crowded network among all blockchains, while Bitcoin transaction fees ranged between $1 and $4 most of the time in 2022, compared to the average charge for a bitcoin transaction of $10 in 2021. However, several other competing networks have transaction costs as low as a fraction of a penny. As a result, the bitcoin base layer is not suitable for small-ticket transactions such as purchasing a cup of tea.

Therefore,

The Bitcoin network exists at layer one — money, deep storage, and global root trust.
At layer two, there is the Lightning Network, RSK, and Stacks — cash, fluid payments, peer-to-peer trust, asset issuance, and general-purpose networks.
At layer three, there are numerous Lightning wallets, Impervious Network, SPHINX, and ZEBEDEE, among others — apps, streaming micropayments, Bitcoin in games, peer-to-peer messaging platform, and node federation.
One may argue that in Layer 4, there is a centralised exchange peer-to-peer network where you can withdraw your bitcoins, but the transaction costs are zero and instantaneous.
At layer 5, there are centralised exchanges or trusts that keep your bitcoin, such as Grayscale, where you cannot move your actual bitcoin but may play with the centralised entity’s locked-in value of bitcoin.

Understanding the full ecosystems of Layer 2, 4, and 5 is a completely separate topic of discussion, and much progress has already been made in recent years; a graphical depiction of the ecosystem can be seen in the miscellaneous section of this blog.

Lightning-enabled Layer 3's

Bitcoin as a protocol has enormous potential: it’s similar to the TCP layer, but no one has yet invented the HTTP layer. We’re just getting started!

Please keep in mind that the projects built on top of Bitcoin include protocols for scaling payments and asset issuance, as well as general-purpose networks. However, we are just looking towards lightning-enabled layer 3.

P2P Fully Encrypted Lightning Enabled Application — SPHINX

We’ve seen different stories behind Web 3 social networking apps that were built on shaky base layer protocols but became popular due to marketing and other factors. The reason for this is that we sometimes lose sight of the decentralised and censorship-resistant narratives that brought us to the blockchain realm in the first place.

I noticed SPHINX, a web3 application that uses the lightning network to deliver the true benefits of decentralisation and censorship resistance.

How does it play a role?
1. All messages are encrypted and transmitted through the lightning network.
2. There are no central servers to gather your personal information.
3. Nobody has the authority to remove you from the network.
4. You can quickly transmit bitcoin to anybody in the globe with lightning.

The real use of Interactive web accessibility — Metamask tale

Remember the narrative we hear from various Layer 1s with powerful tools such as wallets that are promoted as a single point of entry to all web 3 applications? We can see it in the Bitcoin ecosystem as well, which, while not well publicised, provides a truly decentralised experience. Here are a few instances.

Bitcoin in games-ZEBEDEE

Since 2018, there have been widespread accounts of play-to-earn (P2E) games and economies. But guess what? It’s limited to a single platform with its own currencies that vary based on activity and growth happening within that one ecosystem. However, imagine if there was a way for all P2E to be included in all of the games out there using the world’s most powerful network, which is not bound by some strange threshold in between the games. There is, however, a solution!

The GIF below demonstrates how ZEBEDEE integrated immediate Bitcoin transactions into one of the most popular multiplayer games available: Counter-Strike: Global Offensive 🤯

So, how did it go?
1. When you join an “infused” server, you must pay an admission fee (this is easily done with a ZEBEDEE wallet).

2. All entry fees are collected and contributed to the total prize pool. If you play well, you will receive a larger share of the reward based on your score. Because Lightning transactions are so quick, you don’t have to wait until the conclusion of the game for all scores to be tallied: you may leave the game whenever you choose and withdraw your profits up to that moment.

The Lightning Network, a fast and scalable network built on top of Bitcoin, is responsible for the ZEBEDEE ecosystem’s magic. Transactions are nearly immediate and have almost no costs (seriously, Lightning fees are tiny). While transactions on the normal Bitcoin network can be too expensive and slow to handle the type of micropayments we intended to add to games, the Lightning Network provides ZEBEDEE with a quick and nearly free means to move money. More crucially, Bitcoin’s digital nature makes it programmable — it’s money that can be programmed to respond to in-game actions or events. That is the true charm of ZEBEDEE.

Creating a New P2P Internet Standard — Impervious AI

Impervious claims

“Zoom, without Zoom.
Google Docs, without Google.
Medium, without Medium.
WhatsApp, without WhatsApp.
Payments, without banks.
Identity, without the state.
All without centralized intermediaries and built into the Impervious Browser.”

Can they, ultimately, deliver? They appear to be capable.

The image below displays Impervious Browser’s ability to provide a whole suite of simple P2P capabilities.

Impervious launched a set of APIs based on the Bitcoin Lightning Network in August 2021, resulting in the creation of a programmable layer for Bitcoin (i.e. “Layer 3”). Any application or service may use the Impervious APIs to stream cryptographically secure, censorship and surveillance-resistant data transfer channels.

Impervious is developing tools and infrastructure for the peer-to-peer internet. The Impervious Browser is able to deliver a whole range of simple P2P features by combining Lightning, Decentralized Identifiers (DIDs), a DIDComm system, WebRTC, IPFS, and more into a recognizable application. More Info on this from here.

Miscellaneous

The chronology of new classes of bitcoin-related protocols is shown in the graphic below, which started in 2012

The graphic below depicts the complete landscape of bitcoin-based protocols, including Lightning Network, RSK, and Stacks incubating their own ecosystems. This also includes major ecosystem members who are building on or collaborating with these networks

Furthermore, Lightning Labs, a major Lightning Network development organisation, has launched Taro, a protocol that leverages Taproot to add numerous assets to the Lightning Network, with a focus on stablecoins. Networks like Taro have the potential to re-establish Bitcoin as a significant platform for stablecoin creation and transfer. More on this from here.

Disclaimer: This post is solely for informational reasons. It is not investment advice, nor is it a suggestion or solicitation to purchase or sell any investment, and it should not be used to assess the merits of making any investment decision. It should not be used to provide accounting, legal, or tax advice, or to make financial recommendations. The opinions expressed herein are subject to change without notice.

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