The Future of Bitcoin

Beyond Lightning: other protocols to scale Bitcoin

The Bitcoin Journey

Beyond Lightning: other protocols to scale Bitcoin

Sidechains: parallel blockchains connected to Bitcoin
Ark: sharing UTXOs to reduce costs and improve the experience
RGB: contracts and assets with client-side validation
Taproot Assets: issuing assets on Bitcoin and moving them over Lightning
Bitcoin grows stronger by letting upper layers innovate

As we have seen in previous chapters, Bitcoin was designed as an extremely robust base layer: a public ledger, simple, secure, but naturally limited in speed, programmability, and payment throughput. Rather than forcing this layer to do everything (as is done on Ethereum, for example), the Bitcoin ecosystem has gradually adopted a layered approach: the blockchain serves as the foundation (final settlement), while higher layers add new properties, such as faster payments, more privacy, or the issuance of assets (stablecoins, tokenized securities...).

Bitcoin does not evolve only by modifying its base protocol. It also evolves by building on top of it, with solutions that make different trade-offs depending on the desired objective. Some aim for payment scalability, others for programmability (in a broad sense) and asset issuance, and others try to combine both.

In this chapter, we introduce four important protocols that each offer new possibilities on Bitcoin: sidechains (including Liquid), Ark, RGB, and Taproot Assets.

Sidechains: parallel blockchains connected to Bitcoin

A sidechain is a blockchain distinct from Bitcoin’s, designed to operate in parallel, with its own rules and its own consensus mechanism. It is connected to Bitcoin through a two-way peg mechanism (2WP), which in practice allows bitcoins to be used on the sidechain in a representative form (often a bitcoin locked on Bitcoin and recreated on the sidechain), and then later returned to the main chain.

The interest of a sidechain lies in offering functionalities that are difficult to achieve directly on Bitcoin: faster transactions, asset features, enhanced privacy, or greater development flexibility. In return, a sidechain always makes compromises compared to Bitcoin, particularly in terms of the trust model or decentralization.

The most well-known sidechain on Bitcoin is probably Liquid, developed by Blockstream. It is designed in particular to accelerate certain use cases: fast transfers between platforms, more frequent settlements, and asset issuance (stablecoins, securities...), with enhanced privacy. On Liquid, the bitcoins used are called L-BTC: they are designed to be pegged 1-to-1 to BTC through a two-way peg mechanism.

The major difference compared to Bitcoin lies in the security and decentralization model: Liquid does not rely on Bitcoin’s proof of work, but on a federation of operators (an identified group) that ensures block production and the operation of bridges between BTC and L-BTC.

Building with Elements and Liquid Network

Intermediate

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Learn to use and develop with the Elements open-source blockchain platform and its key features

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Building with Elements and Liquid Network

Learn to use and develop with the Elements open-source blockchain platform and its key features

Ark: sharing UTXOs to reduce costs and improve the experience

Ark refers to a family of proposals and implementations aimed at improving Bitcoin’s scalability by grouping many user operations into a reduced number of Bitcoin transactions. The idea is fairly simple: instead of creating one onchain transaction per user, a single onchain transaction is created that represents a batch, and then each participant’s rights evolve mainly offchain, until final settlement on Bitcoin is desired.

This second-layer protocol idea was unveiled by Burak in May 2023. Like the Lightning Network, Ark is a system deployed on top of Bitcoin’s main chain. It would allow bitcoin payments to be made offchain in a fast, anonymous, and low-fee manner. Compared to Lightning, Ark does not require inbound liquidity to receive payments, which significantly improves the user experience. In addition, it provides a level of privacy close to coinjoin transactions. Ark could also be non-interactive if covenants are added to Bitcoin.

Burak often criticizes Lightning’s ability to scale due to its dependence on the main chain and suggests that Ark could theoretically onboard the entire world’s population in self-custody. Even if Ark can be seen as a competing protocol to the Lightning Network, the two can in fact coexist. They could even be complementary.

Ark remains a very active but still young field: the objective is promising (drastically reducing the onchain footprint per user), but it must be kept in mind that this is a more complex architecture, with assumptions and risks different from those of Bitcoin and Lightning.

RGB: contracts and assets with client-side validation

RGB is a system of smart contracts and assets on Bitcoin that adopts a radically different approach from general-purpose blockchains. Its core idea is client-side validation: instead of publishing the full state of a contract on a global blockchain, participants store and validate locally the histories that matter to them, while the Bitcoin blockchain only serves to anchor cryptographic commitments and prevent double spending.

In other words:

the Bitcoin blockchain acts as a timestamping base and a minimal arbiter;
detailed data (contract rules, states, transitions) circulate offchain between the relevant parties;
verification is done locally, which improves scalability and can enhance privacy, since there is no global registry of all RGB activity visible to everyone.

RGB could serve as a foundation for issuing and managing a wide variety of assets: tokens (including stablecoins), NFTs, or digital securities, and even for building more elaborate contract logic, all without burdening the base layer.

The downside is data management: if you must validate on the client side, you must also properly store and back up the data that proves your rights.

RGB is a protocol that has been under development for many years. Progress is gradual, but today there are already concrete applications that make use of RGB. To go further, we offer an expert-level course on Plan ₿ Academy that explores this protocol in depth:

RGB programming

Expert

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Acquire the skills needed to understand and use RGB

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RGB programming

Acquire the skills needed to understand and use RGB

Taproot Assets: issuing assets on Bitcoin and moving them over Lightning

Taproot Assets (formerly "Taro") is a protocol led by Lightning Labs, which aims to enable the issuance of assets on Bitcoin, with the possibility of transferring them later via the Lightning Network for fast and low-cost exchanges.

It is often cited as a building block in the narrative of "programmable money" on Bitcoin: not because Bitcoin becomes a global computer, but because financial instruments (assets) can be layered on top of the Bitcoin base, and then circulated efficiently via Lightning.

Bitcoin grows stronger by letting upper layers innovate

Today, the most accurate image of the Bitcoin ecosystem is neither that of a frozen protocol, nor that of a super blockchain that does everything, as with Ethereum. Rather, it is a deliberately conservative foundation, surrounded by layers and protocols that experiment and enable innovation with minimal risk.

Quiz

btc1016.2

1/5

What are the bitcoins used on Liquid called?