5 Types of Bitcoin Scaling Solutions You Should Consider

From the recent trends and new project releases in the crypto space, it appears that the Bitcoin scaling race is on its way to becoming the next mainstream narrative.

Since Bitcoin's layer 1 does not currently support smart contracts, and the large block approach represented by BCH and BSV has been rejected, the Bitcoin scaling ecosystem is now primarily dominated by sidechains or Layer 2 solutions. However, there is also competition from new scaling models, including mainnet upgrades and one-way transfers.

This article categorizes Bitcoin scaling technology into five main categories: Sidechains, Inscription Script, Taproot Protocol, Mainnet Upgrades, and One-way Transfers.

By comparing the pros and cons of these new and old scaling solutions from multiple perspectives, the aim is to provide a guide to the Bitcoin scaling ecosystem's panorama and the advantages and disadvantages of different scaling directions.

Sidechains

The need for Bitcoin scalability is not a recent discovery; as early as December 2013, the Bitcoin community introduced the concept of sidechains, which allows BTC to be moved from the main chain to independently developed blockchain for transactions and then returned to the main chain.

Prominent sidechain solutions, represented by Blockstream's Liquid, Stacks, and RootStock, have differences in their incentive mechanisms. For example, Stacks' native token, STX, can be staked to earn transaction fees paid in BTC, while Rootstock aims to gain support from Bitcoin miners by using a "merge-mining" approach with the Bitcoin mainnet.

Advantages:

1. Strong Scalability: Sidechains, as separate blockchains, can break through the technical limitations of the Bitcoin main chain and incorporate more advanced blockchain technology. Generally, they can add Turing-complete smart contract functionality to encourage the development of application ecosystems similar to Ethereum.

   
   

2. Minimal Side Effects: Sidechains have a minimal negative impact on the Bitcoin mainnet. They mainly involve cross-chain transfers for specific addresses conducting token transactions.

Disadvantages:

1. Centralized BTC Custody: Similar to the management mechanisms of other cross-chain bridges, sidechains rely on multi-signature addresses controlled by multiple entities that hold the Bitcoin linked to the sidechain.

   
   

   It's difficult to guarantee that these custodians won't compromise or collude under pressure, and there's no assurance that nodes claiming to be "decentralized" aren't controlled by a single entity.

   
   

2. Team Control: Sidechains often grant significant control to the teams managing them, potentially undermining the initial decentralization of the mainnet.

   
   

3. Diverting Mainnet Fees: Shifting transaction fees from the Bitcoin mainnet to sidechains could reduce miner incentives on the mainnet and introduce potential security risks to the ledger.

   
   

In fact, since the concept of sidechains was first introduced, nearly a decade has passed, and it has still not become a widely recognized successful Bitcoin scaling mechanism, primarily due to the centralization issues as described above.

Inscription Script

Represented by Omni Layer, Ordinals, BRC-20, and Runes, these are blockchain data recording schemes that involve adding descriptive data directly to the output scripts of Bitcoin transactions for the issuance or transfer of assets.

This is typically achieved using the OP_RETURN opcode, and outputs with this opcode are ignored by regular Bitcoin nodes but can be interpreted by custom nodes that understand these token protocols. These nodes implement specific token protocol validation rules and handle asset issuance or transfers separately from the Bitcoin main chain.

This approach, known as coloring or inscription of blockchain data, is a result of the constraints imposed by the Bitcoin UTXO transaction structure and is not necessarily a maturely designed technical innovation. It can be seen as a patchwork solution.

Advantages

1. Simplicity: The data is often in intuitive formats like JSON, making it somewhat human-readable. Simpler protocols can lead to the rapid development of peripheral tools and ecosystems, which is a significant factor in the rapid adoption of protocols like Ordinals.

   
   

2. On-chain Data Availability: Most metadata is stored on the Bitcoin blockchain, and off-chain only requires interpretation of protocol-specific data.

Disadvantages:

1. On-chain Space Consumption: This approach takes up on-chain space, impacting the decentralization of the Bitcoin mainnet and causing congestion during the popularity of certain projects.

   
   

2. Asset Fragmentation: Representing each NFT with a single satoshi affects the interchangeability of BTC and generates a significant amount of "dust BTC."

   
   

3. Limited Scalability: This approach is primarily limited to asset issuance and cannot support additional DeFi demands.

   
   

4. Weak Security: Inscription is essentially a piece of specific format text that holds no meaning for Bitcoin and relies entirely on off-chain consensus to operate. Decentralized blockchains achieve security because related rules are executed and validated on-chain.

Taproot Protcol

Taproot is a technology for compressing, concealing, and structuring Bitcoin's unlocking scripts, allowing for more complex script logic without increasing data volume.

Represented by Lightning Labs' recent release of Taproot Assets, this is a Bitcoin meta-protocol that can be directly integrated with the Lightning Network, supporting both fungible tokens (FT) and non-fungible tokens (NFT).

It stands out for not relying on Bitcoin as a complete data availability layer. Users are defaulted to storing their data or can use off-chain data storage services.

Recently, ZeroSync developer Robin Linus introduced a new Bitcoin proposal known as BitVM, which can be viewed as an enhanced version of the Lightning Network.

In BitVM, the logic of Bitcoin contracts is executed off-chain, but validation takes place on the mainnet. BitVM's architecture is based on fraud proofs and challenge-response models, where provers can make claims, and verifiers can execute fraud proofs to penalize the prover for making false claims.

Additionally, the latest version of the RGB protocol, which has undergone multiple refinements and evolutions, is also compatible with Taproot and the Lightning Network.

Advantages:

1. Native to the protocol: Compatibility with Bitcoin's native protocol Taproot ensures strong technical security and higher market acceptance. Multiple protocols sharing the same infrastructure can potentially offer strong composability.

   
   

2. High decentralization: strong protocol openness and no concerns about funds being controlled by any founding teams.

   
   

3. Low side effects: Most operations or game-playing occur off-chain, with the Bitcoin mainnet only responsible for final settlement or arbitration.

   
   

   This approach avoids issues like the state bloat problem seen on Ethereum, as it doesn't require disclosing the entire script logic, only the effective data.

Disadvantages:

1. Poor scalability: Most of these solutions primarily support basic features for simple scenarios, such as hash locks, time locks, and multi-signatures.

   
   

   For example, the BitVM model's main limitation is that it only applies to situations where two parties mutually engage, with one acting as a prover of correct execution and the other as a verifier.

   
   

2. Complex interactions: It requires locking funds as a penalty target and constructing multiple script paths, then generating UTXO transactions.

   
   

   The BitVM also mandates that all parties involved maintain participation in cooperative situations.

   
   

3. Data redundancy: For example, the client verification mode of the RGB protocol requires users to retain all historical transaction records related to the tokens and send them together when transferring tokens to the recipient.

   
   

4. Complex protocols: Supporting programmability similar to Ethereum is constrained by the UTXO structure, resulting in a highly complex technical implementation that may be beyond the grasp of most people.

   
   

   Developing the relevant tool ecosystem becomes more challenging and scarce, which can significantly impact market adoption.

Mainnet Upgrades

Mainnet Upgrades Represented by LayerTwoLabs, Bitcoin Improvement Proposal (BIP) 300 and 301 have been released with the intention of enabling native Bitcoin protocol support for a particular Rollup scaling technology by adding new script opcodes.

It has to be said that attempting to drive upgrades to the entire Bitcoin mainnet's technology, even in a small way, can be the most hardcore approach.

This is because it directly acknowledges certain deficiencies in Bitcoin's existing state and recognizes that Bitcoin, as it stands, may not be the final and perfect solution.

Advantages:

1. Native Protocol: Directly iterating and upgrading the Bitcoin core layer to support Rollup-style scaling can offer advantages in data availability, security, and more.

   
   

2. Rapid Growth of Tools and Ecosystem: Once the mainnet upgrade is successful, it will receive more focused attention compared to other solutions. The community can trustingly concentrate efforts on building various tools and infrastructure.

Disadvantages:

1. Enormous Implementation Difficulty: At the moment, it appears to be an incredibly challenging, if not nearly impossible, task.

   
   

   Convincing the entire Bitcoin community, including institutions, miners, mining pools, development teams, key opinion leaders (KOLs), users, and ETF applicants, among others, to gain unanimous support and balancing the interests of everyone is an exceedingly daunting endeavor.

   
   

2. Technical Risk Concerns: Directly upgrading Bitcoin carries significantly higher requirements for the quality and maturity of scaling technology compared to other solutions.

   
   

   It cannot tolerate any potential errors, making the handling of protocol layer upgrades more cautious, thereby further increasing implementation difficulty.

One-way Transfers

Represented by Hacash's proposal for BTC One-Way Transfer, it can be considered an inheritance chain or parallel chain technology that elevates the sidechain in every aspect beyond the Bitcoin main chain.

Hacash not only iterates on scaling technology but also claims to upgrade the monetary attributes of Bitcoin.

In a sense, this is more revolutionary than BIP-based proposals for directly upgrading Bitcoin: it not only acknowledges Bitcoin's shortcomings but completely abandons the existing Bitcoin mainnet, detaching BTC's value from its technology and transferring it to an entirely new blockchain technology system.

In an imperfect analogy, the one-way transfer is like extracting a person's soul from their original body, injecting it into another body, and reviving it—the soul is the value of BTC, and the body is Bitcoin's mainnet technology.

Advantages:

1. Mature technology: It almost permanently resolves various technical legacy issues of Bitcoin, supporting DeFi on layer 1, large-scale layer 2 payments, and a multi-layer, multi-chain scaling model with a more mature architectural design.

   
   

2. True decentralization: It doesn't suffer from the typical centralization concerns of sidechain technology related to Bitcoin, and the new chain's decentralization in all aspects, whether in terms of technology or economic models, is at least as strong as Bitcoin's.

   
   

3. Upgrade on demand: No need for unanimous community support: Each Bitcoin holder can independently decide whether to upgrade (carry out the transfer).

Disadvantages:

1. Unconventional approach: The unconventional BTC "one-way transfer" model is non-reversible and challenges existing core consensus and value judgments. It requires more information and evidence.

   
   

2. Broad upgrade scope: The upgrade system is overly complex, involving multiple levels of scaling protocols and optimizations of monetary attributes, and also touching on monetary economics theories, making it difficult to understand.

The prosperity of an ecosystem inevitably comes from thorough discussions and widespread experimentation with various paths, ultimately leading to the emergence of high-quality solutions that align with the core logic of industry development.

Predicting the success or failure of these projects at this stage is premature, but nonetheless, we seem to catch a glimpse of a somewhat hazy future:

The return of the Bitcoin king, reclaiming the center stage, and once again illuminating the world with the great spirit of decentralization and trustlessness that underlies the cryptocurrency realm.