Programming on Bitcoin: A Survey of Layer 1 and Layer 2 Technologies in Bitcoin Ecosystem

TL;DR

This survey reviews recent protocols and upgrades like Taproot that enhance Bitcoin's programming capabilities, privacy, and ecosystem, analyzing their technical aspects and impact on blockchain performance.

Contribution

It provides a comprehensive overview of Bitcoin Layer 1 and Layer 2 protocols post-Taproot, highlighting technical improvements and ecosystem developments.

Findings

Taproot significantly improves privacy and scripting capabilities.

Protocols like Ordinals and BRC-20 expand Bitcoin's programmability.

Positive impact on block capacity and transaction fees observed.

Abstract

This paper surveys innovative protocols that enhance the programming functionality of the Bitcoin blockchain, a key part of the "Bitcoin Ecosystem." Bitcoin utilizes the Unspent Transaction Output (UTXO) model and a stack-based script language for efficient peer-to-peer payments, but it faces limitations in programming capability and throughput. The 2021 Taproot upgrade introduced the Schnorr signature algorithm and P2TR transaction type, significantly improving Bitcoin's privacy and programming capabilities. This upgrade has led to the development of protocols like Ordinals, Atomicals, and BitVM, which enhance Bitcoin's programming functionality and enrich its ecosystem. We explore the technical aspects of the Taproot upgrade and examine Bitcoin Layer 1 protocols that leverage Taproot's features to program non-fungible tokens (NFTs) into transactions, including Ordinals and Atomicals, along with the fungible token standards BRC-20 and ARC-20. Additionally, we categorize certain Bitcoin ecosystem protocols as Layer 2 solutions similar to Ethereum's, analyzing their impact on Bitcoin's performance. By analyzing data from the Bitcoin blockchain, we gather metrics on block capacity, miner fees, and the growth of Taproot transactions. Our findings confirm the positive effects of these protocols on Bitcoin's mainnet, bridging gaps in the literature regarding Bitcoin's programming capabilities and ecosystem protocols and providing valuable insights for practitioners and researchers.