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 <p class="paragraph">Bitcoin (BTC) has been leading the crypto <a rel="noopener noreferrer nofollow" title="market" href="https://thebittimes.com/tag/market.html">market</a> rally since late September 2023, with its <a rel="noopener noreferrer nofollow" title="dominance" href="https://thebittimes.com/tag/dominance.html">dominance</a> rising steadily from around 40% in 2022 to over 50% by May 2024.&nbsp;</p>
 <p class="paragraph">This surge is largely attributed to the approval of Bitcoin Spot exchange-traded funds (ETFs) in the US, driving increased trading volume on platforms like Bybit.</p>
 <p class="paragraph">Consequently, Bitcoin’s <a rel="noopener noreferrer nofollow" title="popularity" href="https://thebittimes.com/tag/popularity.html">popularity</a> is fueling interest in Layer 2 solutions aiming to enhance Bitcoin’s scalability and functionality for faster and cheaper transactions.&nbsp;</p>
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 <h2 class="wp-block-heading" id="h-understanding-bitcoin-layer-2">Understanding Bitcoin Layer 2</h2>
 <p class="paragraph">Bitcoin Layer 2 refers to networks closely linked with Bitcoin, designed to improve its scalability, reduce transaction costs, and enable programmability.&nbsp;</p>
 <p class="paragraph">These networks operate separately but connect to Bitcoin through bridges or other solutions.&nbsp;</p>
 <p class="paragraph">The rise of Bitcoin Layer 2 solutions gained traction in early 2024, particularly with the <a rel="noopener noreferrer nofollow" title="popularity" href="https://thebittimes.com/tag/popularity.html">popularity</a> of projects like Ordinals and Stacks, coinciding with Bitcoin’s outperformance compared to Ethereum (ETH) and other alternatives.</p>
 <p class="paragraph">According to BTCL2.INFO, there are 74 Bitcoin Layer 2 solutions, with significant growth in the past two quarters.&nbsp;</p>
 <p class="paragraph">These solutions fall into three categories:</p>
 <ul>
  <li><strong>State Channels</strong>, which offer faster transactions and reduced fees through separate channels between parties. Their limitations, however, include limited capacity and lack of smart contract capability;</li>
 </ul>
 <ul>
  <li><strong>Sidechains</strong>, or independent networks with their consensus algorithms, which bridge with the main network. Examples include Stacks and Rootstock;</li>
 </ul>
 <ul>
  <li><strong>Rollups</strong>, which nhance transaction processing by batching transactions off-chain. Notable examples include optimistic and zero-knowledge rollups, with projects like Merlin Chain.</li>
 </ul>
 <p class="paragraph">dApps built directly on the Bitcoin mainnet, like Mirror, Runes, and Ordinals, provide additional functionality such as staking and NFT creation.</p>
 <h2 class="wp-block-heading" id="h-companig-bitcoin-layer-2-solutions">Companig Bitcoin Layer 2 solutions</h2>
 <p class="paragraph">Rollups are seen as more advanced and are likely to dominate Bitcoin Layer 2 in the long term. They offer better scalability and efficiency compared to state channels and sidechains.</p>
 <p class="paragraph">Layer 2 solutions face risks including security vulnerabilities and interoperability challenges, while state channels and sidechains have specific risks such as counterparty risk and reliance on validators.</p>
 <p class="paragraph">Bitcoin’s mainnet limitations, such as lack of smart contract functionality, pose challenges to Layer 2 development.&nbsp;</p>
 <p class="paragraph">However, advancements in technologies like ZK-rollups provide opportunities for growth.</p>
 <h2 class="wp-block-heading" id="h-bitcoin-layer-2-wrap-up">Bitcoin Layer 2 Wrap-up</h2>
 <p class="paragraph">Bitcoin Layer 2 solutions are expanding Bitcoin’s utility beyond its status as digital gold.&nbsp;</p>
 <p class="paragraph">While challenges exist, innovations like ZK-rollups and new projects are driving development.&nbsp;</p>
 <p class="paragraph">More importantly, the community’s willingness to embrace change and new technologies will shape the future of Bitcoin Layer 2.</p>
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<p>Source: <a rel="noopener noreferrer nofollow" target="_blank" href="https://thebittimes.com/bitcoin-s-market-dominance-drives-layer-2-popularity-tbt88173.html">https://thebittimes.com/bitcoin-s-market-dominance-drives-layer-2-popularity-tbt88173.html</a></p>

Bitcoin’s market dominance drives Layer 2 popularity

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TheBitTimes

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