Top 4 Directions of Bitcoin Ecosystem Scalability

The emergence of the Ordinals NFT and BRC-20 token has once again pushed the development of Bitcoin's scalability ecosystem to the forefront.

Today, supporters of Bitcoin are divided into two groups. On one hand, the conservatives believe that Bitcoin must preserve its pure monetary nature, even if it's solely used as a store of value, and does not need any form of scalability. On the other hand, the radicals believe that Bitcoin needs to be scaled and equipped with more native application ecosystems to promote its large-scale and sustainable development.

Neither side seems to be able to agree on the other's approach. Is there a possibility of satisfying both the conservatives and radicals, allowing Bitcoin holders to freely choose according to their needs?

Below, we will discuss the four major directions of Bitcoin's scalability ecosystem and explore the development trend from four perspectives: scalability level, decentralization, ledger security, and implementation difficulty.

Non-upgradeable scaling means that there will be no new inventions or changes to Bitcoin's existing technical system, and only the existing features of Bitcoin will be used to achieve a specific type of scaling.

The representative technologies include RGBand Bitcoin Script. RGB is a scalable and confidential smart contract system that can run directly on top of the Lightning Network, but all the data it generates exists outside of Bitcoin transactions (off-chain), which means that the security of the ledger cannot rely on the security of the Bitcoin mainnet.

The Ordinal theory is implemented using Bitcoin Script to add additional data and assign a unique sequence number to each smallest unit of Bitcoin, Satoshis(Sats). This approach can only achieve minor improvements in Bitcoin's scalability. Currently, the market has seen a wave of hype around Bitcoin NFTs and BRC-20 tokens, but the sustainability of their value remains to be seen.

Excluding the functionality that third parties assign to Sats, the data attached to various Scripts is meaningless gibberish from the perspective of the Bitcoin mainnet, causing waste of Bitcoin block space and transaction congestion, which has led to significant dissatisfaction from some Bitcoin community members.

Overall, non-upgradeable scaling technical solutions are decentralized and do not require overall consensus from the Bitcoin community in terms of implementation difficulty, but RGB has failed to rely on the ledger consensus security of the Bitcoin mainnet, and the scalability of Bitcoin transactions through Script is limited.

The second approach is the sidechain, which involves creating a separate public blockchain and linking it to the Bitcoin mainnet through specific cross-chain technologies.

This was once a popular and relatively easy-to-implement solution for scaling the Bitcoin ecosystem, mainly because sidechain projects could issue their own tokens, which could generate community attention and market interest as their value increased. However, this approach has several issues when it comes to scaling Bitcoin.

Projects like Liquid (BlockStream), Stacks, and Rootstock share the common feature of mapping BTC to the sidechain through a bi-directional cross-chain bridge, but they have subtle differences.

Liquid is more like a Bitcoin consortium chain sidechain composed of large corporate institutions, where BTC mapping and conversion between the sidechain and mainnet require multi-signature agreement from these institutions.

Stacks is a Bitcoin sidechain technology that issues new tokens, and PoX is a protocol that allows miners to stake BTC by staking the newly issued STX. However, how this protocol achieves decentralized distribution on both sides remains to be examined.

Rootstock is a sidechain technology that allows for merged mining, and BTC cross-chain transfers are controlled by multi-signature mapping coins from multiple institutions: rBTC.

Overall, sidechains can support smart contracts, build DeFi and other decentralized applications, have strong scalability, and are relatively easy to implement with a relatively secure ledger.

However, sidechain nodes are not accessible to everyone, and ledger consensus depends on the management of certain centralized institutions, resulting in low decentralization, which is likely the main reason why sidechain scaling solutions have had many attempts but have not yet achieved large-scale adoption.

Upgrade-based scaling means upgrading the technical architecture or technical system of the Bitcoin network. The representative example is the BIP-300/301 proposed by the LayerTwo Labs team. Its concept of scaling is called Drivechain, which essentially uses Rollup to scale.

Currently, LayerTwo Labs' approach is to directly hard fork a PoW blockchain Mainchain that has BIP-300/301. When the Bitcoin community reaches a consensus and recognizes this Mainchain, the Bitcoin mainnet will be upgraded with BIP300/301.

Overall, LayerTwo Labs' solution can ensure the decentralization of Bitcoin and solve the scaling problem. However, its scaling upgrade requires consensus from the Bitcoin community, and given the current overall atmosphere of the community, upgrading the Bitcoin mainnet is extremely difficult.

Bitcoin's two-way transfer is a common method used in cross-chain and side-chain scenarios, while the Bitcoin one-way transfer type scalability solution is currently proposed by the Hacash community and the Hacash.com team. The principle is to irreversibly transfer Bitcoin to a theoretically more decentralized and technologically mature new chain, and then use a multi-layer approach for scalability.

Hacash's first layer can achieve the one-way transfer of Bitcoin, transferring BTC on the Bitcoin chain to the Hacash chain. During the transfer process, the user's private key does not change, and the same private key can be used to directly use Bitcoin on the Hacash chain. The control of BTC has not been transferred to any other entity.

Based on the Hacash chain's Layer 1 and Layer 2 payment network, the Hacash.com team proposed a Layer 3 multi-chain scalability infrastructure. Bitcoin can be used for instant payments on Layer 2 and for application eco-scalability on Layer 3. The essence of Layer 2 is to use state channels for instant payments, and the essence of Layer 3 is to use a multi-rollup and multi-chain approach for customizable scalability.

Overall, the Hacash chain, which accepts one-way transfer of BTC, still uses a pure PoW consensus mechanism, and anyone can run a full node. Its decentralization level and security are not weaker than those of the original Bitcoin chain.

On top of this, Layer 2 and Layer 3 solve the scalability problem. Anyone can choose to transfer their BTC to the Hacash mainnet, and it's up to each Bitcoin holder to decide whether they need scalability. The implementation difficulty is relatively low compared to other solutions, and the level of choice is strong.

There are four main approaches to scaling the Bitcoin ecosystem: non-upgradeable scaling, sidechain, upgrade-based scaling, and one-way transfer. Non-upgradeable scaling cannot achieve both strong scalability and ledger security at the same time, Sidechain has the weakness of centralization, Upgrade-based scaling are difficult to implement, and one-way transfer performs relatively well in all four evaluation dimensions, but has not yet received a lot of market attention.

Over the past decade, despite the fact that Bitcoin was created for the goal of decentralized money, its proven role remains that of a store of value, and theoretically does not require any scaling to achieve this primary goal. How to scale up while maintaining Bitcoin's ability to store value, or even address a sustainable scale for the future after 21 million coins are mined, will undoubtedly be the future direction of Bitcoin.

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