2024-03-25 14:21:00 +07:00 by Mark Smith
On a recent What Bitcoin Did Podcast, Dhruv Bansal outlined a big picture view of the Bitcoin blockchain, how it is designed to be extended and built upon in layers. Fundamentally it's all about auctions.
Dhruv's main idea:
"Bitcoin is layers of markets. Each layer relies on functionality of the layer below"
The Bitcoin stack
- Layer 0 - Creating / releasing bitcoin, deeply connected to time and energy
- The network is putting out a bid for computation with a set reward, the first to solve wins, the order book is trivial, single asking price, first order that comes through settles that order
- Layer 1 - Transfer bitcoin to each other, deeply connected to blockspace and mining pools
- Settlement of orders is chosen when an individual miner (actually now we have mining pools), the order book of layer 1 is non trivial, it consists of all pending transactions in the mempool, which is much bigger than 1 standing asking price. More complex than layer 0, there are more degrees of freedom
- Layer 2 - Allows much larger amount of people to transact, about small payments, deeply connected to routing (onion network lives inside the lightning network)
- Something like the Lightning network, this is now a market for fast settlement that doesn’t go directly on the blockchain, the scarecity we see in this market is liquidity or the availability of bitcoin, number of orders in order book is vastly bigger than in layer 2, it’s not just every transaction we are trying to get into a block, it’s all the lightning payments that could potentially ever be made between all the people trying to buy coffee or whatever it is we use the Lightning network for
- Layer 3 - Something about the internet, about routing and the transmission of information digitally online
He goes on:
Each layer increases the reach and scope of Bitcoin, and allows it to do more interesting things. We have to create new markets that allow Bitcoin’s reach to grow.
I thought it was a really valuable way of looking at Bitcoin architecture so I've extracted the essence of what he was saying here, so that I have something to link to from other articles I write. Feel free to do the same from your articles.
It's still worth listening to the full episode to get additional context. They talk about layers about 30 mins into the episode.