SoK: Bitcoin Layer Two (L2)

TL;DR

This paper systematically reviews Bitcoin Layer Two solutions, identifying key design patterns, evaluating security, and introducing inscription technology to enhance functionality and address scalability and security challenges.

Contribution

It provides the first comprehensive systematization of Bitcoin L2 solutions, including a new framework for security evaluation and the integration of recent inscription technology.

Findings

Inscription technology adds programmability to Bitcoin.

Existing proof-based solutions mainly improve scalability.

New attack vectors threaten data, assets, and user security.

Abstract

We present the first Systematization of Knowledge (SoK) on constructing Layer Two (L2) solutions for Bitcoin. We carefully examine a representative subset of ongoing Bitcoin L2 solutions (40 out of 335 extensively investigated cases) and provide a concise yet impactful identification of six classic design patterns through two approaches (i.e., modifying transactions \& creating proofs). Notably, we are the first to incorporate the inscription technology (emerged in mid-2023), along with a series of related innovations. We further establish a reference framework that serves as a baseline criterion ideally suited for evaluating the security aspects of Bitcoin L2 solutions, and which can also be extended to broader L2 applications. We apply this framework to evaluate each of the projects we investigated. We find that the inscription-based approaches introduce new functionality (i.e., programability) to Bitcoin systems, whereas existing proof-based solutions primarily address scalability challenges. Our security analysis reveals new attack vectors targeting data/state (availability, verification), assets (withdrawal, recovery), and users (disputes, censorship).