Recent advancements in Bitcoin technology, including Ordinals, Inscriptions, BRC-20 tokens, and Runes, have intensified the discussions around Bitcoin scalability solutions. The average transaction fee for Bitcoin jumped from $1.50 in 2022 to $4.20 in 2023, and reached $9.50 so far in 2024, according to a new report released by Binance Research.
Ethereum, with a market valuation of roughly $450 billion, boasts around $45 billion in total value locked (TVL) across its various Layer-2 (L2) solutions, or 10% of Ethereum's total value. In contrast, Bitcoin, valued at $1.4 trillion, has only around $2 billion of L2 TVL, which constitutes a mere 0.13% of Bitcoin's total value.
"Key factors in evaluating Bitcoin scalability solutions include how they address the trustless two-way bridge issue, their relationship and alignment with the Bitcoin base layer, potential fork requirements, and the level of incentive alignment among users, developers, and newcomers to the cryptocurrency space," Binance Research stated.
The development of foundational Bitcoin technologies at the infrastructure level, such as Taproot and BitVM, has broadened the scope of protocols that can be built on Bitcoin. Although many of these implementations are still in their fancy, this has not deterred projects from creating solutions to Bitcoin's scaling challenges.
"Bitcoin-native projects like the Lightning Network and RGB are designed to enhance Bitcoin's peer-to-peer transaction capabilities and introduce smart contract functionalities while maintaining the core integrity of Bitcoin," Binance Research noted. The Lightning Network has achieved relative success, whereas RGB is still under development.
Moreover, various other scaling solutions are emerging, including sidechains and EVM Layer 1s that leverage bridged BTC as the staked asset to secure their chains. Despite somewhat tapping into Bitcoin's economic security, bridged versions of Bitcoin often involve centralized components and cannot genuinely claim to inherit much of Bitcoin's security.
Elsewhere, Zero-knowledge rollups have recently entered the Bitcoin Layer 2 scene, employing BitVM technology to more securely verify rollup data compared to other scaling solutions that merely post a hash of their block data into Bitcoin blocks. These rollups are considered to inherit the most Bitcoin security at the current stage.
"The coming months promise to be an exciting period, with significant developments anticipated," Binance Research concluded.