There’s a false narrative that has been doing the rounds for far too long. It’s time to dispel this misguided storyline. Many people within the cryptocurrency industry have mistakenly convinced themselves that Bitcoin’s reduced scalability and slow transaction speeds would be its undoing. If it couldn’t scale, they said, then a better and more efficient chain would take its place. No BTC killer has ever emerged.
Experts were wrong, because they saw Bitcoin’s scaling limitations as a hindrance, rather than part of its design. Now, they have to watch BTC flip silver, approach $2tn MCAP, and become the most significant piece of financial infrastructure since the internet. They saw only the caterpillar, while those with a wider lens saw the butterfly.
Last year we emerged from the crypto winter, though still stretching, yawning, and slowly coming to terms with the resurgence of the digital asset world. In 2024, however, things have really accelerated, from BTC ETFs and the rise of Layer-2s, to Crypto-AI, BTCFi, Runes, are more.
At the start of 2023, Bitcoin’s DeFi TVL was less than $100m, at the start of 2024 it was just over $300m, in April it hit $1bn, in October it hit $2.6bn, and then recently, in November 2024, it surpassed $4.3bn. The sky is the limit for BTCFi, and one can only expect that the emergence of exciting Dapps and attractive staking opportunities with lucrative yields will only bring more investment as BTC becomes a true DeFi powerhouse.
The Lightning Network was Bitcoin’s first L2 solution, offering two-way payment channels between participants, processing transactions off-chain, and recording final results on the main chain. It proved to be fast, cheap, and good, effectively achieving the Iron Triangle that eludes most operations. In 2024, Babylon and exSat arrived on the scene to further extend Bitcoin’s capabilities by introducing smart contracts, cross-chain interoperability, native asset issuance, and, excitingly, decentralized exchanges (DEXs). The three L2s have all combined to compound the Bitcoin network effect, attracting developers and investors, while transforming Bitcoin from “digital gold”, or a simple store of value, into critical financial infrastructure.
These changes have not been missed by retail and institutional investors alike, as BTC ETFs total over $100bn in value and $BTC approaches $100k. Now, BlackRock, Fidelity, and many of the world’s biggest asset managers have changed their tune, and are now big fans of Bitcoin.
Both Bitcoin and Ethereum have undergone serious changes in the last 18 months, with both unlocking the rejuvenating potential of Layer-2 development. While Ethereum has also undergone major upgrades, like Dencun and the Merge, Bitcoin’s foundational code remains unchanged, with its permanence being its superpower.
The approach to L2s is notably different from these two blockchains. Ethereum, with so much developer power and mindshare, has seen a trend of Layer-2 blockchains popping up to do very similar things. It’s worth pointing out that each L2 built on Ethereum has a great deal of flexibility regarding its tradeoffs, allowing developers to choose speed over security, or security over speed. This, in turn, gives users multiple choices about their transactions. Bitcoin is far more binary, meaning Bitcoin L2s are competing to become the single dominant solution. The most secure design will win, and all users (especially institutional) will benefit from its security-maximalist solution.
While we’ve mentioned how exSat and Babylon extend Bitcoin’s capabilities, it’s important to highlight other innovations that have become dominant winners too. Stacks is an early mover in Bitcoin programmability and leverages Bitcoin’s security inheritance to deliver the Proof of Transfer consensus and robust smart contracts that are anchored to Bitcoin. There’s also Velar, an emerging L2 with novel architecture that is designed to focus on high-performance transactions.
The cryptocurrency ecosystem has matured, BTC ETFs, pro-BTC investment managers, and a change of presidency have delivered institutional adoption and backing, and cryptographic breakthroughs have been made without compromising decentralization (Babylon, ExSat, Stacks, Velar etc). To add to that, the developer talent pool is growing in an encouraging way, with established programmers and builders moving over to Bitcoin. The 2017 bull run, ICOs, and mass crypto-skepticism feels like a long time ago.
The next step for Bitcoin is consolidation. Smaller L2 projects will realize that in order to succeed, they will need to merge into one another (the same trend is present in AI too). They must leverage each other’s best features and code to emerge as the dominance protocols. The winning solutions will ultimately be decided by TradFi, which will integrate the best tools, remove UI complexity, and guide mass adoption.
This isn’t really about tech, it’s about the future of money, and BTC L2s have a much bigger role to play in the new financial world than they might yet realize.