Since its emergence in 2009, Bitcoin has grown to become the largest and most well-known cryptocurrency. But even with its success, Bitcoin's rising fame wasn't without its problems, chief among them being scalability. To address these issues, the cryptocurrency community unveiled Bitcoin Layer 2 networks, a family of protocols intended to improve scalability, lower transaction costs, and open up new avenues for the Bitcoin ecosystem.

What are Bitcoin Layer 2s?

Protocols constructed on top of the Bitcoin blockchain are known as Bitcoin Layer 2s. Usually, they are made to deal with problems with performance or other constraints of the main chain. Transactions are processed by Layer 2 protocols outside the main blockchain, offering benefits like increased programmability, scalability, and capacity to allow a wider range of decentralized applications.

The Need for Layer 2s

Bitcoin blockchain was designed with decentralization and security as its major focus, leaving scalability. There are times when there are lots of transactions happening on Bitcoin, especially in recent times. During these times, the throughput of seven transactions per second (TPS) is inadequate to cater to the thousands of transactions happening all at once from all over the globe and this results in higher fees and delays.

To overcome these difficulties, the idea of Bitcoin Layer 2 networks was developed.

Examples of Bitcoin Layer 2s

1). Lightning Network: The Lightning Network, which was introduced in 2018, leverages state channels to allow microtransactions on Bitcoin. By completing several transactions off-chain and settling the opening and closing balances on the main blockchain, it enables quick and inexpensive transactions.

2). Rootstock: Rootstock introduced smart contracts on the Bitcoin blockchain by functioning as a sidechain. Sending Bitcoin to the Rootstock network enables users to store it in their RSK wallet as locked-up smart Bitcoin (RBTC), which facilitates faster and less expensive transactions.

3). Liquid Network: Liquid Network is a Bitcoin Layer 2 sidechain that enables its users to transfer their bitcoins back and forth. BTC is changed at a 1:1 ratio into Liquid BTC (L-BTC) upon transmission to the Liquid Network.