“Layer 2 Usage Soars Following Bitcoin Halving Event”


Welcome to the next phase of Bitcoin, known as “Epoch V.” On April 20, the fourth successful halving of Bitcoin occurred, reducing the amount of new bitcoin entering circulation through mining. This milestone has been celebrated worldwide, but it also brings attention to what the future holds.

Along with the halving, a new protocol called Runes was launched. This protocol allows for the creation of meme coins on the Bitcoin network. As a result, hundreds of tokens were introduced, contributing over $80 million in fees to bitcoin miners. This surge in trading activity has caused transaction costs on Bitcoin to skyrocket, reaching an average of $70 which is a staggering 1,395.8% increase compared to the previous 30-day average, according to TokenTerminal.

Many experts predict that during “Epoch V,” leading up to the next halving in 2028, Bitcoin layer 2 solutions such as the Lightning Network will gain more traction. This is due to the fact that on April 20, Bitcoin fees reached an all-time high of $128, prompting users to explore alternative solutions. Bitcoin Core developer Ava Chow stated, “High fee environments will prompt people to look into them,” referring to Lightning and other layer 2 options.

A recent report from Messari emphasized the importance of layer-2 solutions for Bitcoin as on-chain activity continues to rise. This signals a shift from Bitcoin being seen as just “digital gold” to a platform for innovation.

The launch of the Ordinals protocol last year, which enables new data storage methods on Bitcoin’s smallest units (satoshis), has accelerated this shift. Other layer 2 solutions such as BitVM, Babylon, Stacks, and Merlin also allow for off-chain computation, staking, earning yield on BTC, and hosting decentralized apps and meme coins.

Since the halving, tokens associated with Bitcoin layer 2s have outperformed BTC. For example, Elastos rose by 11%, SatoshiVM climbed by 5%, and Stacks gained nearly 20% to reach $2.87, partly due to the anticipated Nakamoto upgrade.

However, there are still challenges that exist with Bitcoin’s secondary layers. As BTC fees continue to rise, it may become too expensive for users with low balances to use platforms like Lightning, leading to the need for workarounds such as custodial services. There are also concerns about the loss of sovereignty and anonymity with custodial Lightning solutions.

This current landscape is a reflection of the Blocksize Wars, where the decision to prioritize layer 2 scaling over block size increases has shaped Bitcoin’s current trajectory.

As Chow points out, the choice between block size and transaction size adjustments represents a fundamental divide in Bitcoin’s scaling debate, and has greatly influenced its evolution to date.

Featured Image: Freepik

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