Key Insights:
As Bitcoin Halving approaches, we are sure of a rise in Bitcoin's price. But, will it be beneficial for Bitcoin's scaling solutions too? For the uninitiated, Bitcoin scaling solutions (also called L2s or Layer-2s) help people transact Bitcoins at a lower fee.
We examined the Bitcoin Halving event and found how it would impact its L2 solutions. We have also made some interesting discoveries that might help you capture the market trends as Bitcoin Halving approaches.
The Bitcoin Halving event is expected to have no direct impact on Bitcoin scaling solutions (Layer-2s). This is because the reduced supply of Bitcoins after the halving event will have zero impact on its transaction fees.
Since layer-2 solutions are only impacted when Bitcoin's transaction costs change, they would feel little to no direct impact of Halving.
However, there is an indirect impact. The halving event is expected to bring a surge in Bitcoin's price. With increased prices, more people would be attracted to buy Bitcoins. This is where the utility of Layer-2 solutions would be maximum.
As a result, these layer-2 solutions might experience more usage due to an increased user count. Since Lightning Network does not have its coin or token, the benefit of increased usage after Bitcoin Halving can be only reaped if you own the cryptos of the new layer-2 solutions.
With the rise in Bitcoin's prices, there has been also a subsequent rise in its transaction fees. As per the latest estimates by YCharts.com, it now costs $8.7 per transaction on the Bitcoin network.
These high fees limit Bitcoin from achieving its full potential and reaching broader adoption levels.
That's where Layer-2 solutions come into the picture. Layer-2 solutions such as Lightning Network, Stacks, and Rootstock, roll up the transactions and help save transaction fees on the Bitcoin blockchain.
It is evident that the Bitcoin network desperately needs these scaling solutions for multiple reasons.
Here is a list of three Bitcoin layer-2 solutions that might benefit the most after Bitcoin halving.
The lightning network was the first popular Bitcoin scaling solution. The network rolls up multiple transactions between two parties which are then validated by tallying the net amount of tokens sent or received.
Recently, it crossed 40 million users. The rise in lightning network users appears to grow in tandem with Bitcoin's price.
Rootstock is a new-age Bitcoin layer-2 scaling solution that brings smart contract functionality to the Bitcoin blockchain through its blockchain.
Being compatible with both Bitcoin and Ethereum, Rootstock also allows easy migration between Bitcoin and Ethereum.
RBTC is the native crypto of the Rootstock Smart Bitcoin network and is listed on CoinMarketCap. As of Feb 29, 2024, its price was at $61.9k with a market cap of $170.8 million.
Stacks is also a smart-contract-based Bitcoin scaling solution that uses Bitcoin as a secure base layer. This helps secure all transactions with Bitcoin's security as well as lets users benefit from DeFi, DApps, and other functionalities.
STX is the native cryptocurrency of the Stacks blockchain and is listed on CoinMarketCap. At the press time, its price was $3.03 with a market cap of $4.3 billion.
Both Bitcoin Layer-2s and BRC-20 projects are new to the crypto markets and these might create confusion for new users. We have tried to simplify these as much as possible for easy understanding.
Bitcoin L2s are networks that provide some way of rolling up multiple Bitcoin transactions into a single transaction. They could either do it for transactions between two entities, like Lightning Network or summarize multiple Bitcoin transactions through a smart contract like Rootstock does.
Either way, these layer-2 networks help securely verify Bitcoin transactions. These are separate networks altogether.
BRC-20 tokens on the other hand are simply tokens issued on the Bitcoin blockchain using the ordinal protocol. These tokens are fungible tokens that are inscribed on individual Satoshis using JSON code. They are not separate networks and merely exist on the Bitcoin blockchain.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.