These Bitcoin L2 Solutions Can Drive Institutional Adoption: Report

Institutional adoption of the Bitcoin network has been hampered by a number of challenges, including technical scalability, programmability, and cultural alignment within the developer community.

However, Spartan Group, a leading player in the Web3 space, and venture capitalist and analyst Kyle Ellicott believe that the development of layer2 (L2) solutions can help the network overcome these limitations.

Developing L2 solutions on Bitcoin

According to the report “Bitcoin Layers: A Tapestry of a Trustless Financial Era” by Spartan Group and Ellicott, secondary networks built on the blockchain can “unleash” it into institutional adoption and leverage dormant capital.

Bitcoin had a market capitalization of over $800 billion at press time, but most of that capital is currently underperforming. Activating dormant capital requires fully exploiting the capacity and potential of the Bitcoin network.

It's worth noting that developers are striving to build protocols on top of or alongside Bitcoin that allow smart contracts to execute transactions. However, as BTC evolved beyond its intended role as a store of value, the approaches encountered several issues.

To ease Bitcoin's transition to a foundational technology platform for a trusted micro-financial system, Spartan Group and Ellicott introduced a concept focused on a group of secondary networks including Stack, Lightning, Rootstock and Liquid. The concept of Bitcoin Layers is led by the so-called “Big Four” protocols.

Adjusting Bitcoin Limits

Inspired in part by Ethereum's layered architecture, the Big Four aims to address Bitcoin's limitations by introducing functions such as increasing transaction speed and data availability to integrate the network with traditional, decentralized financial systems.

The stack that brings smart contracts and decentralized applications to Bitcoin began working in 2020 and is preparing for an upgrade — Nakamoto's release — to coincide with Bitcoin's upcoming April halving. The update promises to increase transaction speed and inherit 100% security and finality of the network reorganization, allowing users to move their BTC between Bitcoin and L2.

The Lightning Network facilitates fast and cheap Bitcoin transactions, Rootstock adds modern contract capabilities to the network, and Liquidity is a sidechain for more confidential transactions and digital asset mining.

While the Big Four have spearheaded the new concept, developers are making several attempts to bring more protocols to market. Spartan Group believes in the ongoing L2 development areas of Bitcoin for institutional adoption, just as they have made a cultural shift in the network landscape.