Posted February 17, 2024 at 9:30 am EST.
Bitcoin developers have been experimenting with novel ways to make the blockchain network more than just an immutable peer-to-peer payment network known for its ability to store value over time, ushering in a new era in which Bitcoin becomes as exciting as other blockchains, potentially shedding its reputation as a “boomer coin.”
Key aspects of this new era include a proposal to revive an old functionality, fundamental changes in Bitcoin’s technology, and the increasing prevalence of layer 2 networks developed on Bitcoin that seek to improve smart contract functionality and transaction speed for the 15-year-old blockchain.
While Bitcoin maximalists tend to harbor skepticism toward other blockchains, save for the one created by Satoshi Nakamoto and known for its open-source and permissionless principles, they live in the same ecosystem as other Bitcoin advocates who have drawn inspiration from other networks such as Ethereum.
“The vibe that I’m getting right now is people are curious and excited to start experimenting on Bitcoin again,” said Colin Harper, head of content and research at Bitcoin mining firm Luxor, in an interview with Unchained.
Quantum Cats Push To Implement OP_CAT
For example, in early February, Taproot Wizards, a Bitcoin-focused Ordinals project, released a non-fungible-token collection called “Quantum Cats,” in support of enabling more functionality on the Bitcoin network through the restoration of a scripting function named OP_CAT which was previously sunsetted by Satoshi Nakamoto in 2010.
OP_CAT allows a person to join two values that provide instructions for a transaction into a stack, which is a set of data that one publishes to the blockchain.
Satoshi initially removed OP_CAT from Bitcoin’s original technology stack more than 10 years ago because, at the time, a bad actor could take advantage of the function and conduct a denial of service (DoS) attack. However, the 2021 Taproot upgrade, which limited the number of bytes of data per stack, would prevent a user from conducting a DoS attack through OP_CAT if it were attempted today.
One major benefit of implementing OP_CAT would be improving the functionality around covenants, which are restrictions on how and where BTC can be sent.
“Right now, you can basically make a distinction for who is going to send the bitcoin. You can make a restriction for specific transactions on who the sender of the bitcoin is, but you can’t currently do it in such a way where you restrict who receives,” said Harper. Placing restrictions on the recipient of a transaction enables a more secure custody solution than what is currently available.
People in the Bitcoin ecosystem are discussing the reactivation of OP_CAT because it not only allows a more secure custody solution than what is currently available, but it will also likely make building on Bitcoin easier.
“Basically there’s a lot of people bullshitting right now about building L2s or what now. They’re mostly full of shit. Bitcoin currently isn’t capable of the types of L2s that people want, in its current form,” wrote long-time Bitcoiner and Taproot Wizards co-founder Udi Wertheimer in Discord. “An upgrade would be required. OP_CAT would help us get there.”
The activation of OP_CAT requires a soft fork where developers need to update Bitcoin’s core software and add in new conditions that do not exist currently in the consensus rules, Harper added.
BitVM Sounds like EVM, Ethereum Virtual Machine
Another recent development is a new model for how Bitcoin can operate called BitVM.
“BitVM is a computing paradigm to express Turing-complete Bitcoin contracts,” according to its most recent whitepaper published in December. Essentially that means BitVM enables Bitcoin to have optimistic rollups, which are scalability solutions most prominent now on the Ethereum blockchain.
Unlike OP_CAT, BitVM does not need a soft fork to activate because it uses Taproot programming logic which already exists.
BitVM is designed to have computations for Bitcoin smart contracts execute off chain, while data is verified on chain, similar to the mechanisms for Ethereum’s largest scaling solutions — Arbitrum and Optimism.
“People [in the Bitcoin ecosystem] are looking at things that are going on in Ethereum and saying, ‘How can we do that?” Harper said.
Similarly, Castle Island Ventures general partner Nic Carter wrote on X that “BItVM appears to be a fundamental step change in Bitcoin tech, enabling Optimistic Rollups without a soft fork[;] ORs Bitcoin will likely be live in ‘24.”
Bitcoin Layer 2 Developments
At the same time that OP_CAT and BitVm are gaining attention, certain layer 2 networks on Bitcoin are maturing, with others just entering the scene.
Proposed in 2015 and rolled out in 2018, the Lightning Network enhances transaction speed and scalability on the Bitcoin network by enabling offchain transactions. The layer 2 network has a total locked value of nearly $250 million at press time, a 108% increase since Oct. 1, data from DefiLlama shows.
Another well-known blockchain network built on Bitcoin is Stacks, which had its mainnet launch in 2021. Stacks is expected to undergo a major upgrade, named “Nakamoto,” in order to enhance transaction throughput and finality guarantees, among other things, as outlined by the protocol’s documents. The locked value in Stacks’ smart contracts is currently at an all-time high of roughly $111 million, a nearly sevenfold jump since Oct. 1.
Meanwhile, new entrants have joined the Bitcoin layer 2 race.
Bitcoin-focused infrastructure company Chainway Labs introduced Bitcoin’s first ZK rollup, Citrea, earlier this month. While a developer network is currently operational, Citrea’s test network for users has not launched yet, but will “once the rollup and bridge components are complete,” wrote the team a few days ago on X.
Moreover, about two-and-a-half months ago, software development firm Botanix Labs activated the test network for its second layer Ethereum Virtual Machine (EVM) on Bitcoin, which aims to enable smart contracts for developers and users.
As the software environment where all smart contracts reside, the EVM is responsible for executing and processing smart contracts. Other blockchains are considered to be EVM-compatible if they are capable of executing smart contracts written in Ethereum’s programming language.
“You had Bitcoin on the one hand, which can be considered the best secure decentralized money, and then you had the EVM really powering huge amounts of smart contracts,” said founder of Botanix Labs Willem Schroé on a recent episode of Unchained Premium. “I’m a strong believer in building layers on top of each other… And so the idea came for a second layer, EVM, on top of Bitcoin.”
Overall, the activity around Bitcoin layer 2’s and new network technologies and proposals signal a significant change in how Bitcoin is being perceived. “It’s exciting to see people get kind of jazzed about Bitcoin development,” said Harper.
