BitVM and Bitlayer: The Secure Scaling Path of the Bitcoin Ecosystem

Recently, the price of Bitcoin has been fluctuating in the range of 90,000 to 100,000 USD, and market participants are looking for the next hot spot. For Bitcoin ecosystem builders, although the past six months seem calm on the surface, there have been significant advancements in BitVM Open Source research and the implementation of trust-minimized Bitcoin bridge products, which are worth following.

On February 12th, the first Bitcoin Layer 2 solution built on the BitVM paradigm, Bitlayer, invited several industry experts to engage in an in-depth discussion on the topic "Bitlayer Finality Bridge: The Trust-Minimized Bitcoin Bridge Based on BitVM", exploring topics such as Bitcoin scalability, BTCFI, and future opportunities.

The main content of this discussion includes:

• Prediction on the Bitcoin ecosystem in 2025, as well as sharing key tracks and opportunities

• Discussion on different solutions for Bitcoin L2, especially the trade-off analysis of security and scalability.

• BitVM Technical Paradigm: BTC Bridge Classification and BitVM Bridge Implementation Progress

• Bitcoin L2 Development Trends and Market Opportunities

The following is a summarized content of the organized conversation for reader reference.

Bitcoin 2025 Development Prediction and Layout

Kevin( Co-founder of Bitlayer): From a technical perspective, many projects' directions and commitments have been realized over the past year. BitVM has made good progress after a year. Many business models have also been successfully implemented, including various asset management needs of Bitcoin.

Our strategy is to ensure that BTCFI occurs in a decentralized environment through the implementation of technologies like BitVM. The focus is on addressing the asset management needs of BTC holders, including earning returns, risk management, obtaining liquidity, and other investment demands. These already exist off-chain, and what we want to do is bring them on-chain through the latest generation of secure scaling technologies.

Old Bai ( ABCDE Investment Research Partner ): We mainly follow three directions:

1. BTCFI represented by Solv may be integrated with the US stock market BTC ETF and traditional finance.

2. The BitVM on-chain technology represented by Bitlayer may stimulate on-chain transactions of Bitcoin. In the long run, this is important for maintaining the security budget of Bitcoin.

3. Taproot Assets. Tether has decided to issue USDT using Taproot Assets, which is a positive development for Taproot Assets.

May ( Web3Caff researcher ): From the perspective of policy regulation, the influence of Bitcoin is growing larger, having risen from a niche investment target to a reserve asset at the national level. By 2025, Bitcoin may face stricter regulations, which also means it will become more mainstream. Regulatory clarity helps eliminate market uncertainty and attract more institutional participation.

In terms of market ecology, by 2025, Bitcoin will not only be a value storage asset, but with the acceleration of BTCFI, Bitcoin will gradually transform into a financial instrument. The rise of decentralized platforms has driven liquidity and efficient financial tools, making Bitcoin not only used for value storage, especially in areas such as lending. With the acceleration of the compliance process, yield-bearing derivatives will greatly enrich the financial ecology of Bitcoin.

WongSSH( Developer ): I started following the Bitcoin ecosystem in 2024, when there were various technical solutions. I believe BitVM is a very good solution. BitVM has made significant progress compared to before, with a real implementation starting from version BitVM2.

I value the Bitcoin cross-chain bridge and Bitcoin CDP more. They can unlock the liquidity of Bitcoin, such as building a true on-chain micro strategy that allows access to more stablecoins through Bitcoin as collateral, minting stablecoins, and then using stablecoins to continue purchasing Bitcoin, realizing a strategy that leverages Bitcoin with stablecoins.

CH999( Vice President of the Peking University Blockchain Association ): For the entire Bitcoin ecosystem, I personally take a wait-and-see attitude, because a Bitcoin bull market does not equate to a bull market in the Bitcoin ecosystem, and currently, there is not a strong binding state between the two.

The Bitcoin ecosystem, including layer two networks and other applications, can ultimately be realized or just be a bubble; this depends on on-chain data, whether there are real applications, real returns, and real users. We hope to see a more innovative or different application system compared to Ethereum and Solana. Whether the Bitcoin ecosystem can emerge with representative applications that attract more users is the point I am personally more concerned about.

Bitcoin Scaling: The Trade-off Between Security and Scalability

Kevin: There is a certain contradiction between Bitcoin's security and its application scenarios. For example, you can choose to have sidechains with rich application scenarios, or you can only perform simple transfer applications, such as the Lightning Network or Taproot Assets. There is a trade off here: either you feel very secure but with limited functionality, or you have sufficient application scenarios but with questionable security. The problem we want to solve is how to combine these two characteristics, or how BitVM can combine these two characteristics, so that it can be either trustless or trust-minimized, while also supporting programmable.

Lao Bai: Our initial investment in Merlin was a bet on a short-term scaling solution, because Merlin is similar to Polygon; to put it simply, it is just a sidechain, but it is EVM, so it is very easy to migrate and expand. This was the short-term solution at that time. Taproot Assets, as well as RGB and RGB++, we believe are more Bitcoin native solutions that may take longer than BitVM to validate or explore market PMF, so we invested in UTXO Stack, which is also based on RGB++, laying out on this ultra-long-term Bitcoin solution. The core of the mid-term layout is to explore or bet on Solv and Bitlayer.

May: I want to emphasize the issue of security. In the BTC field, many EVM sidechain solutions initially appeared, which essentially unlock the liquidity of Bitcoin through cross-chain bridges. In my personal opinion, this model has obvious security issues and appears more vulnerable compared to BitVM, which we discussed earlier. I believe the importance of BTCFI exceeds that of BTC L2. BTC L2 needs to first address security issues; only by solving security problems can it attract more funds, allowing BTC to appreciate as an asset in the Web3 space, which is crucial.

WongSSH: As a developer, when I first saw some EVM scalability solutions for Bitcoin, I found that these solutions did not have very good security measures while reading their documentation, so I did not participate in any Bitcoin EVM sidechain projects. RGB++ and the Lightning Network are topics I had researched before. At that time, I was studying Taproot, so I also learned about these technologies. From a developer's perspective, these theories are very complex and contain a lot of terminology I am not familiar with. Since I was mainly focused on EVM smart contract development, I was not particularly familiar with the UTXO system, so I took a lot of courses to better understand RGB++ and the Lightning Network.

CH999: At first, when we look at the so-called L2 of the Bitcoin ecosystem, we might think it is an easy product to create, using multi-signature wallets to form a public chain, quickly attracting developers to create exchanges, lending protocols, etc. However, its lifecycle is destined to be relatively short. After all, to serve Bitcoin users, everyone will definitely prioritize security, but if it is merely a public chain created using multi-signature wallets, the security is insufficient. If this fully necessary condition is not met, it will be quite difficult to go further in the long term. I strongly agree with what a guest just mentioned about RGB and BitVM; the two are RGB, which may have a longer development cycle. Betting on RGB is a bet on the long-term Bitcoin ecosystem, and we have indeed seen more breakthroughs in BitVM technology recently. I believe both of these are more mature and secure solutions for the Bitcoin ecosystem, and the current development progress of BitVM is quite promising.

( BitVM Technology Paradigm Implementation and Outlook

Kevin: Before deciding to engage in the Bitlayer project, we were helping ABCDE review projects. At that time, we thought about building a second layer network on Bitcoin. Based on our experience in L2 over the past few years, the core requirement is that off-chain computations or state transitions need to be validated on-chain. Theoretically, obtaining validation at any layer or on any main chain, and driving corresponding actions, such as Slash or redemption in emergency mode, which is like an escape pod mode, means that the chain theoretically inherits the security of the parent chain. This model has been widely understood and tested over time.

Based on this concept, we are looking for the possibility of achieving verification on Bitcoin. Initially, there was indeed no solution. Fortunately, around October 2023, we noticed the paper by Robin Linus, whose white paper proposed a method to implement fraud proof or OP on Bitcoin, which is essentially a means of verification.

We believe its greatest value lies in several aspects: first, it does not require forking, which is the most important characteristic. If forking is needed, then achieving this goal will be a long way off, and many protocols based on these operation codes will find it difficult to land. Initially, I might have been somewhat optimistic, as historically, Bitcoin's fork upgrades have come quickly, but a year has passed, and I have conducted research that was published in the community, discovering that the situation is not optimistic. Therefore, our initial judgment ----- the importance of the no-fork characteristic ----- was correct. The OP model or the model for implementing fraud proofs on Bitcoin is very clear and easy to understand. Since everyone has been educated for many years, there is no need to re-understand concepts such as rollup, OP, Validity Proof, etc. This is also relatively easy for developer and user education. This is an important reason why we chose this direction.

Lao Bai: We can understand inscriptions and runes as the one-click issuance of coins on Ethereum. The two most common things for a public chain are issuing assets and scalability. BitVM is considered a way to scale up and be trustless, while inscriptions and runes are for issuing assets. After a year of speculation on asset issuance, everyone has desensitized to it. But in the end, some listeners may feel that Bitcoin doesn’t need anything else; it’s simply about Bitcoin, about being its digital gold. However, looking from the perspective of 20 or 50 years in the future, what will happen to our Bitcoin if there are no block rewards? It’s not like we can rely on miners to generate power out of love. When there are no block rewards or when each block only has a tiny fraction of a Bitcoin, how can we expect such a massive computing power to be built across the network to ensure the security of Bitcoin? If by then there’s no BitVM, or no applications based on BitVM, or other things to ensure miners’ transaction fees on the chain triggered by these transactions, what exactly should be used to cover these costs for Bitcoin? In short, who will foot the bill, who will pay the miners to maintain the security of Bitcoin? Apart from the path of converting Bitcoin to POS, the only direction I can currently see is BitVM. The applications may not necessarily be what we imagine now, but the inevitability of it is a question worth considering.

May: One of the practical scenarios for BitVM is a trustless cross-chain bridge. We can imagine that since ETH is still the dominant player in DeFi. If there is a BitVM bridge, could we make Bitcoin's liquidity potentially the core of a new DeFi development path, allowing Bitcoin to take a dominant position in DeFi and reduce people's reliance on centralized derivatives like WBTC? This is what I consider to be a more practical scenario for BitVM, which could activate BTCFI in the future.

WongSSH: As a developer, I read some papers and analysis articles on BitVM0 a long time ago, and I felt it was somewhat too complicated, hard to believe it could become a reality. After that, I didn't keep following BitVM. Recently, I saw BitVM2, which is simplified compared to BitVM0, and I can roughly understand its overall operating principle. Compared to BitVM0, it focuses more on specific implementations, rather than telling developers an expectation and then letting everyone implement it. Currently, I feel like BitVM2 may be about to become a reality, and I believe it could bring significant changes to this industry in the future.

) Bitlayer BitVM bridge solution's differentiation

Kevin: To put it simply, we are the first to implement BitVM in the bridge scenario. Before doing this, we had some considerations. First, there are indeed market pain points in Bitcoin packaging. The second is its model. A guest just mentioned that the bridge, as a relatively good landing scenario, is very suitable to become the first milestone because we are also promoting this direction together with the community. Now our product testnet has been online for more than a month, and the mainnet is expected to be launched in the next month or two.

We believe that as of now, Bitcoin packaging or bridging technology has developed to the third generation. The first two generations