In recent times, the concept of building new assets on top of Bitcoin has been seen as a mere novelty or a way to gain publicity. However, a new trend emerged in 2023 called “ordinals,” which is a form of NFT that is recorded as part of a Bitcoin block.
Previously, Bitcoin provided tools for tokenization, but they were rarely utilized by users and did not gain much traction. As a result, Ethereum became the preferred network for tokenization and Layer 2 scaling projects. However, Bitcoin Layer 2 solutions are now poised to revolutionize decentralized finance.
The purpose of these new projects in the second quarter of the year is to not only offer scalability to Bitcoin but also to create a hub for liquidity and new markets. Currently, the sector is relatively small, with less than 10 projects officially recognized.
However, there may soon be new listings as more projects generate excitement around their Layer 2 tools. As with any blockchain trend, some projects may end up being ineffective or not delivering on their promises. Nevertheless, Layer 2 solutions are here to stay in the post-halving season.
There has been a surge in new L2 launches and announcements in recent days. Various tokens are gaining attention on social media, with more expected to be added in the future.
One notable project among the new launches is Elastos (ELA), which made its debut during the 2018 ICO season. It has reinvented itself as a builder of a L2 Bitcoin-based product.
The Bitcoin network now contains assets that could form the foundation of the new L2 economy. Ordinals and BRC-20 tokens are already occupying transaction bandwidth. The latest addition in April is Runes, a new standard that is already reflected in the transaction logs.
Runes is an innovative standard for creating fungible tokens on Bitcoin. It was introduced by the team after the Halving and gained significant traction during the initial hype period, accounting for up to 75% of Bitcoin traffic. The goal of Runes is to enable lightweight transactions that do not overwhelm the main network.
The new standard was immediately utilized to launch Runestones, which trade similar to NFTs in a highly competitive marketplace. Runestones will also be launched on the Solana network. Many of the L2 projects on Bitcoin are also exploring other existing networks to maximize user reach and liquidity.
There is an ongoing debate about whether Bitcoin is a suitable platform for decentralized finance. While the idea of utilizing Bitcoin for all purposes is a maximalist position, alternative coins and blockchains have proven to be effective. Nonetheless, new projects are emerging daily, seeking attention and liquidity deposits.
The reception to L2 tools is not entirely positive, as miners view them as a misuse of the Bitcoin network despite appreciating the transaction fees. In the past, Bitcoin’s usability was compromised due to congestion in the mempool caused by bot-driven traffic and micro-transactions.
The question of whether Bitcoin can effectively serve decentralized finance purposes remains unanswered. However, the increasing number of launches and social media hype indicate a willingness to explore Bitcoin with L2 scaling as a means to address some of the functions provided by Ethereum and Solana blockchains.
The L2 craze resembles the hype surrounding NFTs, ordinals, and meme tokens. Nonetheless, these new assets are generating value as they change hands and create new markets. Consequently, the Bitcoin mempool is experiencing an increase in transactions per block, and average fees are once again approaching $30.
