Bitcoin Layer 2 Solutions Overview (Part 1)

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Bitcoin has long been recognized as the pioneer and leader in the cryptocurrency space. Holding Bitcoin alone can outperform 95% of financial assets during a market cycle. Yet, the community continues to push for more — greater functionality, faster transactions, and broader use cases. This demand has fueled growing interest in Bitcoin Layer 2 (L2) solutions, especially as recent developments like Nervos’ RGB++ and Seal minting have reignited momentum across the ecosystem.

In 2024, projects such as BEVM and BOB secured multi-million-dollar funding rounds, signaling strong institutional confidence in Bitcoin’s expanding infrastructure. With increasing activity and innovation, now is the perfect time to explore the current landscape of Bitcoin Layer 2 technologies.

This article categorizes existing Bitcoin L2 approaches into four main types:

We’ll cover the first two categories in this part, offering a clear, structured overview grounded in technical accuracy and real-world applicability.

The Goal of Bitcoin Layer 2

Bitcoin’s design prioritizes security and decentralization, but it comes at a cost: slow transaction speeds, high fees during congestion, and limited support for smart contracts. These constraints make it challenging to build complex decentralized applications (dApps) directly on Bitcoin.

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Bitcoin Layer 2 solutions address these limitations by operating on top of the base layer. They process transactions off-chain or in parallel, then anchor final results back to Bitcoin for security. The core objectives are:

By handling computation and state changes off the main chain, Layer 2 networks maintain Bitcoin’s robust security while enabling richer functionality — from DeFi to tokenized assets.

Bitcoin Sidechains: Expanding Functionality Beyond the Base Chain

A sidechain is an independent blockchain connected to Bitcoin via a two-way bridge. Users lock BTC on the main chain and receive a pegged asset on the sidechain, where they can perform various operations — including smart contract execution — that aren’t possible natively on Bitcoin.

While sidechains offer flexibility, they come with trade-offs. Unlike native Bitcoin transactions, sidechains require their own validator sets, which means they don’t inherit Bitcoin’s full security model. If the sidechain has few validators or centralized control, it becomes more vulnerable to attacks.

Despite these concerns, several notable projects have emerged in this space.

Stacks: Smart Contracts for Bitcoin

Stacks positions itself as Bitcoin’s smart contract layer, aiming to bring programmability to the world’s most secure blockchain. It uses a unique consensus mechanism called Proof of Transfer (PoX), which ties its security to Bitcoin by leveraging actual BTC transfers during block production.

Developers on Stacks use Clarity, a predictable smart contract language that prevents common bugs like reentrancy attacks. The upcoming Nakamoto upgrade will further enhance performance by enabling faster block finalization and full resistance to Bitcoin chain reorganizations.

Stacks also supports sBTC, a decentralized stablecoin backed 1:1 by Bitcoin, enhancing composability within its DeFi ecosystem.

While Stacks has been active for over five years and boasts a market cap nearing $500 million (as of early 2025), many of its ecosystem projects have seen limited traction. However, the long-awaited Nakamoto upgrade could be a catalyst for renewed growth.

RSK (Rootstock): EVM-Compatible DeFi on Bitcoin

RSK aims to bring Ethereum-style smart contracts to Bitcoin. It is EVM-compatible, meaning developers can deploy Solidity-based dApps directly onto RSK with minimal changes.

One of its key innovations is merge mining — Bitcoin miners simultaneously secure both the Bitcoin and RSK blockchains. This allows RSK to benefit from Bitcoin’s immense hash power, significantly improving security compared to other sidechains.

Instead of a native token, RSK uses RBTC, a pegged version of Bitcoin used to pay gas fees. It also hosts the RIF (RSK Infrastructure Framework), which provides tools for storage, identity, payments, and decentralized domain services.

Despite solid technical foundations, RSK’s ecosystem remains underdeveloped beyond RIF. In response, the team launched a $2.5 million grant program in early 2025 to incentivize new projects.

Liquid Network: Institutional-Grade Asset Issuance

Developed by Blockstream, Liquid Network is a permissioned sidechain designed for institutions and asset issuers. It enables fast settlement (under 1 minute), enhanced privacy, and issuance of digital assets — including stablecoins and security tokens.

Like RSK, Liquid relies on a federation of signers to manage the two-way peg. This makes it more centralized but highly efficient for enterprise use cases.

Notably, Liquid does not support general-purpose smart contracts. Its focus is on secure asset issuance and inter-exchange settlement, making it ideal for regulated financial players rather than decentralized app builders.

Lightning Network: Scaling Payments Off-Chain

The Lightning Network is perhaps the most widely adopted Bitcoin Layer 2 solution today. It’s built specifically for fast, low-cost micropayments using off-chain payment channels.

Users open bidirectional channels by locking BTC on-chain. Once open, they can conduct unlimited transactions instantly and privately — only the final balance is settled on Bitcoin’s main chain.

Lightning excels in use cases like:

In April 2025, Coinbase integrated Lightning Network support across all user accounts via partnership with Lightspark, marking a major step toward mainstream adoption. Today, the network holds over $320 million worth of BTC in active channels.

However, Lightning doesn’t support smart contracts or complex dApps — its strength lies purely in payment efficiency.

UTXO + Client-Side Validation: A More Native Approach

While sidechains offer flexibility, they sacrifice some degree of trustlessness. An alternative approach seeks to build Layer 2 solutions that remain deeply aligned with Bitcoin’s architecture — particularly its UTXO (Unspent Transaction Output) model.

UTXO + client-side validation aims to scale Bitcoin without altering its core rules. Transactions are processed off-chain, but their validity is verified by individual users (clients), not centralized or semi-centralized validators.

This model emphasizes data sovereignty: users retain control over state validation, reducing reliance on third parties.

However, implementing this vision is technically demanding. Bitcoin’s scripting language is intentionally limited, making complex off-chain logic difficult to enforce securely.

Let’s examine key projects pursuing this path.

RGB: Off-Chain Assets Anchored to UTXOs

RGB is a protocol designed to enable high-throughput asset issuance and smart contracts on top of Bitcoin and Lightning. It binds off-chain transactions to specific UTXOs, using them as anchors for ownership and state transitions.

Assets created via RGB — such as tokens or NFTs — are validated client-side. Only cryptographic proofs are stored on Bitcoin, keeping the base layer lightweight.

Despite being conceptually elegant, RGB faces slow adoption due to high implementation complexity and limited developer tooling.

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RGB++: Bringing RGB to CKB with Full Smart Contract Support

Inspired by RGB, RGB++ was introduced by Nervos co-founder Jan Xie in early 2025. It enhances the original concept by leveraging CKB (Common Knowledge Base) — Nervos’ Layer 1 — as a validation and data availability layer.

Unlike RGB, which requires users to run full validation clients, RGB++ offloads verification to CKB while preserving Bitcoin-level security through homomorphic mapping — a technique that mirrors UTXO states between chains without compromising trust assumptions.

Crucially, CKB is Turing-complete, meaning RGB++ assets can benefit from advanced smart contract functionality — something pure RGB cannot offer.

This hybrid model allows RGB++ to support not just custom tokens but also complex protocols like decentralized exchanges and lending markets — all while remaining anchored to Bitcoin’s security.

Moreover, CKB isn’t limited to RGB++. It can support any UTXO-based protocol — including Runes and Atomicals — making it a versatile execution layer for the broader Bitcoin ecosystem.

BitVM: Turing-Complete Computation Without Changing Bitcoin

Proposed by Robin Linus of ZeroSync, BitVM represents one of the most ambitious attempts to unlock programmability on Bitcoin without forking the network.

BitVM introduces a virtual machine abstraction where complex computations happen off-chain. Only fraud proofs are submitted on-chain if disputes arise. This model resembles optimistic rollups on Ethereum but adapted to Bitcoin’s constraints.

Though still theoretical, BitVM could one day enable:

Its reliance on interactive dispute resolution means low throughput for now, but research is ongoing.

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Summary

Bitcoin Layer 2 development is entering a new phase. While early sidechain projects like Stacks and RSK laid important groundwork, progress has been slow and ecosystems remain underdeveloped.

Newer architectures — particularly those based on UTXO + client validation like RGB++, BitVM, and CKB-integrated systems — aim to deliver greater functionality while staying true to Bitcoin’s principles of decentralization and security.

Though many of these innovations are still in early stages, their potential impact is significant. As tools mature and adoption grows, we may soon see Bitcoin evolve from digital gold into a fully functional platform for global decentralized applications.

What do you think about RGB++'s potential to reshape Bitcoin’s ecosystem? Let us know your thoughts as we prepare for Part 2, where we’ll dive into rollups and Taproot-based consensus models.

Frequently Asked Questions (FAQ)

Q: What is a Bitcoin Layer 2?
A: A Bitcoin Layer 2 is a secondary framework or protocol built atop Bitcoin that processes transactions off-chain to improve speed and reduce costs while relying on Bitcoin for security and final settlement.

Q: Why do we need Layer 2 solutions for Bitcoin?
A: Because Bitcoin’s base layer is slow and expensive for frequent transactions. Layer 2s enable scalability, lower fees, and support for advanced features like smart contracts and tokenization.

Q: Are Bitcoin sidechains secure?
A: Their security depends on their design. Some, like RSK via merge mining, leverage Bitcoin’s hash power. Others rely on federated validators and carry higher trust assumptions.

Q: How does Lightning Network work?
A: It uses bidirectional payment channels where users transact off-chain. Only the opening and closing transactions appear on Bitcoin’s ledger, enabling instant, low-cost payments.

Q: What makes RGB++ different from RGB?
A: RGB++ uses CKB as a verification layer, enabling Turing-complete smart contracts and better developer tooling while maintaining compatibility with UTXO-based assets.

Q: Is BitVM live on Bitcoin yet?
A: No. BitVM remains in the research and proof-of-concept phase. While promising, it requires further testing before practical deployment.