Bitcoin’s Lack of Layer 2s Is a Blessing in Disguise

Innovations need assistance. As far back as the wheel, the greatest innovations have only scaled through a catalyst – the additional support needed to solve the initial roadblocks of a technology. Books needed the printing press to make learning accessible, the Ford Motor Company needed factories, Coca-Cola needed supply chains, social media needed the mobile smartphone and now blockchains need layer 2s (L2).

In order to bring more people access to the technology and products that can revolutionize our world, we have to have builders interested in scaling the main technology.

Rena Shah is the head of operations and strategy at Trust Machines, the former head of exchange at Binance.US and an advisor at Tribe Capital.

Crypto’s first layer 2 solutions were born out of the need to scale layer 1s properly rather than creating hard forks of the base layer blockchains. And ever since, L2s have typically been marketed as the solution to scaling, faster transactions, lower fees and precursors for mainstream adoption of crypto. However, truly efficient, secure and stable scaling solutions in crypto are hard to come by.

Layer 2s have become more of a redirection from a problem than a solution. For layer 2s to have longevity, they must become complementary resources for the base layer blockchain. Ethereum, Avalanche and others have well-established L2 ecosystems that create temporary fixes to their L1s.

Bitcoin, the unscalable blockchain par excellence, might offer a longer-term solution to this L2 dilemma.

In recent months, Bitcoin has seen a surge of interest in utilizing the original blockchain as a settlement layer for activities beyond merely storing value. Inscribing bitcoin NFTs using Ordinals, creating BRC-20 tokens and other unexpected use cases have resurfaced awareness of the blockchain’s Achilles Heel: a lack of layer 2 solutions.

But Bitcoin’s lack of L2s could be a blessing in disguise.

If the original idea behind L2s was to create a pressure release valve for the base layer blockchain, then that is what Bitcoin builders can create. Recent solutions like sBTC have looked at the struggles of other L2s and decided on a path to allow builders to create applications and economies, such as Bitcoin-native decentralized finance (DeFi) and non-fungible tokens (NFTs), that are directly backed by the security and stability of the Bitcoin base layer.

The base layer is meant to be durable, immutable and changed infrequently, acting as a bedrock foundation allowing for an ecosystem to grow and flourish on the topsoil of L2s.

Why not implement L2 solutions directly to the L1 protocol? Tezos is an example of a blockchain that is tackling scaling in this way by upgrading its L1 frequently through on-chain governance. Even the Tezos builder community will tell you that doing this is still yet another temporary fix. There will be a point when an L2 ecosystem for Tezos is the right move for the chain’s success.

A flywheel economy simply cannot be sustained on the Bitcoin base layer, like on other smaller blockchains. Instead, robust ecosystems have to shift the value creation seamlessly between the base layer and L2s to be accessible and flexible enough for the next wave of adoption.

After 10 years of layer 2 development – Omni Layer being the first-of-its-kind in 2013 – Bitcoin has the chance to be the leader in finding a permanent solution to network scalability. At least part of the problem stems L2s that distract and dilute the integrity of the base layer through additional tokens, like Ethereum developers have been recently reckoning with. Similarly, having to bridge assets across L1 and L2 ecosystems can create an increasingly confusing and unsecure environment.

Instead developers need to create complimentary L2s that do not steal a base layer’s thunder. In other words, blockchains will solve the scaling problem when users are unable to distinguish between the base and scaling layers.

The solution to the problem with L2s is forgetting why they are needed. And it’s the same reason why everyone knows about Diet Coke and only a few know about the Diet Coke supply chain or how Henry Ford got an automobile in everyone’s driveway with just a few workers on the moving assembly line. In the next 10 years, we will still know about Bitcoin, Ethereum and others, but we will not know about all the L2 solutions powering their mainstream usage.

If there’s one thing true of technology across time and place: Everybody looks at the results, not the well-oiled machine.