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I’ve been hinting at this subject ever since I started writing on the topic of Bitcoin and crypto. I believe it is one of the greatest and most exciting things happening in the space right now. For some reason, unbeknownst to me, it hasn’t gathered as much attention as I would have expected. My initial assumption is that the Alt-Coins tend to be a bit louder and flashier, stealing the spotlight. While Btc silently just goes to work and gets better every day.
My goal is to write a simple and short post explaining what Layer 2 is, what it means. As well as naming the first applications that are live today using this new technology. I will, in future articles, deep dive into all of them separately.
The concept of money that works on Layers is difficult to understand. In my previous article (Eth vs Btc pt 1) I wrote about what makes Bitcoin and the other cryptos different. Mainly, Btc kept its blockchain extremely simple and slow. Most people think these are its weaknesses when competing with other cryptos, but this is not the case. Its precisely these characteristics that are its greater strengths.
In order to stay decentralized, so no one entity can gain control over it, the code needed to be kept as simple as possible. The drawback is the inability to write complex codes like Etherum does (and many other coins). In the last few years we’ve seen incredible things being built on Eth, entire companies, games and the rise of “decentralized finance” or DEFI for short (will write about all this stuff in later articles, don’t worry).
One would be tempted to believe that all the innovation is done outside of Bitcoin, and therefore, it would be outdated rather quickly. Many of my friends compare Btc to “Myspace” and say it will be forgotten. My opinion, however, is that they got it completely backwards.
Turns out the Bitcoin crowd was never against this “Smart Contracts” functionality. The question was, should they be implemented in the base layer? Sacrificing all that made Bitcoin so special?
The people behind Ethereum thought so, and thus, they created their own Layer 1 coin with this functionality. On the other hand, Bitcoin waited and preserved the base layer to be as strong, resilient and decentralized as possible. They always sustained that one day, we would have the technology to create a second layer that would sit on top of Bitcoin. This new layer could be much more complex and do all the stuff that ETH does. But because it rests on the simple and firm BTC Layer 1, it would also enjoy all it’s defensive properties.
For the longest time that was the plan, it was a promise. Today, it is a reality. Bitcoin Layer 2 is here, it works, and it is incredible. This makes the possibilities of what Bitcoin can do seem endless, while at the same time never sacrificing what makes it so special.
The 3 best examples of Layer 2 right now are: Stacks, Lightning network and Taproot (I will write about them specifically to go into depth of what they are and what they can do).
Most, if not all, the stuff being built on Ethereum (and the other Smart contract coins) will sooner or later be built in Bitcoin’s Layer 2. At that moment people will need to decide for themselves whether to put their money on the ones that share Bitcoins properties and protections or the ones who don’t.
It reminds me of an old greed fable “the Hare and the Tortoise”, seems like all the other coins rushed to be able to provide the smart contracts (making tradeoffs along the way). All the while Bitcoin focused on establishing the most stable ground first, and now is ready to have everything be built on it. Slow and steady wins the race.
In writing this I’m not trying to disparage the other cryptos, I only want to point out the fundamental key differences. Hopefully this helps people understand them, and be able to make an informed decision on where to invest. As always, please don’t take what I say as fact, research these things on your own. I’m only a fellow human being, trying to learn as much as I can while sharing what I find. But I also make mistakes, I’m not particularly smart nor wise, I’m only doing my best.
Once again, before finishing, I just want to say that the concept of money on layers is difficult to understand. It takes a while to comprehend what it means and how useful it can be. Just take your time, have these thoughts in your mind. I’ll try to continue to explore this subject and hopefully one day it will all click. It took me a long time to understand it too. It’s one of the main problems with Bitcoin, it is not easy to grasp and it takes time and effort. I can only hope to make this process a bit easier for you. If you have any questions just send me an email to [email protected].
Hope this helps, and have a great day!
