Ethereum

Bitcoin

Tap Protocol

Opinion by: Bob Bodily, co-founder and CEO of Bioniq
One of the biggest problems holding back broader adoption of the Web3 world is liquidity fragmentation. So much space is locked on certain networks. There is perhaps no more significant example than Bitcoin (<a data-ct-non-breakable="null" href="https://cointelegraph.com/bitcoin-price" rel="noopener noreferrer nofollow" target="null" text="null" title="null">BTC</a>).&nbsp;
Despite all the good done in the broader decentralized finance (DeFi) space, there’s no good way to connect the single largest asset by market capitalization to most of these services. Until now, existing solutions have struggled with Bitcoin’s lack of native smart contract support, security concerns with wrapped tokens, and the tradeoffs of integrating with Bitcoin’s unique architecture.&nbsp;
Implementing a new <a data-ct-non-breakable="null" href="https://cointelegraph.com/learn/articles/whats-the-difference-between-blockchain-layers-l0-and-l1" rel="noopener noreferrer nofollow" target="null" text="null" title="null">“layer 0” network</a>, designed to leverage smart contracts to sign Bitcoin transactions, is the key to finally solving this problem.&nbsp;
<h2 id="fragmentation-remains-a-problem">Fragmentation remains a problem</h2>
Liquidity and user fragmentation can be seen across layer-1 blockchains, sidechains and layer 2s (L2s), sometimes even within a single protocol. As new networks, assets and services increase, this issue only worsens because every new infrastructure in this ecosystem needs its users, developers and liquidity.&nbsp;
Multiple solutions are already being explored to bridge different blockchain networks. Still, these services don’t work with the biggest, most robust blockchain of all: Bitcoin. That is an unfortunate situation because the implementation of Segregated Witness, Schnorr signatures and Taproot have paved the way for Ordinals, BRC-20 tokens, Runes, and Atomicals, which expand the possibilities for tokens and financial products on Bitcoin itself. Users and markets have seen increased demand for assets that offer real utility, not just speculative value.
Unfortunately, because Bitcoin’s native smart contract capabilities are minimal, connecting these assets to most crosschain solutions is challenging. Even technology being built to enable interoperability on other chains will only be genuinely functional if adopted by the entire community, which is unlikely at best.
<h2 id="the-technology-exists-to-solve-this">The technology exists to solve this</h2>
Fortunately, a practical solution to this fundamental problem comes from what amounts to a Bitcoin-native “layer 0” protocol designed for broader interoperability. Bitcoin itself would be the central focus of the protocol, but other ecosystems — such as Ethereum, Solana, prominent L2s, etc. — could then be integrated as well.
This layer 0 would consist of two main components: first, a node network that offers Bitcoin threshold signing subnets that can leverage the Elliptic Curve Digital Signature Algorithm (ECDSA), Schnorr signatures and Edwards-curve Digital Signature Algorithm (EdDSA) to enable true crosschain signatures. Next, these subnets can be natively integrated into smart contracts directly on other blockchains, creating working “Bitcoin EVMs” that integrate Bitcoin with Ethereum-compatible protocols without the need for external or third-party bridges, as the threshold signing subnets are native to the protocol.&nbsp;
Recent: <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/bitcoin-metrics-suggests-bull-market-far-from-overvalued" rel="noopener noreferrer nofollow" target="null" text="null" title="https://cointelegraph.com/news/bitcoin-metrics-suggests-bull-market-far-from-overvalued">Bitcoin’s metrics suggest bull market is far from overvalued</a>
The added benefit is that this same technology can be used to make Bitcoin compatible with virtually any other type of blockchain. Now, developers can build omnichain applications that work with all Bitcoin-native assets regardless of the metaprotocols, sidechains or L2s on which they are deployed.&nbsp;
Once realized, a protocol like this can open up new use cases for Bitcoin that weren’t possible before, unlocking true “BTCFi” in Web3. The first and most direct result would be that Bitcoin could now be programmable like Ethereum and other assets.&nbsp;
<h2 id="layer-0-services-are-already-here">Layer-0 services are already here</h2>
Ordinals and Runes can be programmed into much more complex financial products than were previously feasible, and threshold-signing subnets bring these products to new ecosystems. Services like Rainbow Protocol, Tap Protocol and the Bitfinity Ethereum Virtual Machine are already working with this technology to achieve this type of interoperability with Bitcoin today.&nbsp;
Layer-0 technology also brings with it the possibility of overhauling the process of mining BTC. Bitcoin miners must battle with multiple factors, such as energy costs and market fluctuations, to turn a meaningful profit. Interoperability with DeFi can allow for a new model that will enable miners to sell their future hashrate now to get the cash to expand their infrastructure. Since the prices are locked in, the miners hedge against price volatility.
Retail investors who support this mining model can acquire BTC for cheaper than market prices simply by providing liquidity to miners. Because the system is built with smart contracts to allow for non-custodial escrow and a fully decentralized mining pool, users won’t be exposed to centralized counterparty risk.
Until now, interoperability has been a significant challenge to the entire Web3 ecosystem, especially Bitcoin. Introducing a Bitcoin-native layer-0 protocol is the solution that changes this. Leveraging the power of using smart contracts to sign Bitcoin transactions, this network could rewrite the book on crosschain interoperability. Doing so will bring Bitcoin into the broader market and tear down the silos currently holding back DeFi. That is how decentralized tech becomes ready for global adoption, and the technology is already available to developers.
Bob Bodily is the co-founder and CEO of Bioniq. His desire is to help users do more with their Bitcoin assets, with a focus on education, interoperability, trading, and games.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Layer 0: Solving Bitcoin’s interoperability challenges

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