One of the Biggest Problems Holding Back Broader Adoption
By Bob Bodily, Co-Founder and CEO of Bioniq
Liquidity fragmentation is one of the biggest problems holding back broader adoption of the Web3 world. So much space is locked on certain networks. No more significant example exists than Bitcoin (BTC).
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 trade-offs of integrating with Bitcoin’s unique architecture.
The Key to Solving this Problem: A New ‘Layer 0’ Network
Implementing a new layer-0 network, designed to leverage smart contracts to sign Bitcoin transactions, is the key to finally solving this problem. This network would be built on top of the existing Bitcoin protocol, allowing it to interact with other blockchain networks and assets.
Liquidity Fragmentation Remains a Problem Across Multiple Networks
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.
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 with Real Utility
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 cross-chain 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.
The Technology Exists to Solve This Problem
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 protocol would consist of two main components:
- A Node Network that Offers Bitcoin Threshold Signing Subnets
- These subnets can leverage the Elliptic Curve Digital Signature Algorithm (ECDSA), Schnorr signatures, and Edwards-curve Digital Signature Algorithm (EdDSA) to enable true cross-chain signatures.
- Native Integration with Smart Contracts on Other Blockchains
- 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.
The Added Benefit: Unlocking True ‘BTCFi’ in Web3
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.
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.
Layer-0 Services Are Already Here
Ordinals and Runes can be programmed into much more complex financial products than were previously possible. Layer-0 services are already available to developers, allowing them to build applications on top of the existing Bitcoin protocol.
Introducing a Bitcoin-Native Layer-0 Protocol: The Solution That Changes This
Leveraging the power of using smart contracts to sign Bitcoin transactions, this network could rewrite the book on cross-chain 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.
Conclusion
Liquidity fragmentation is one of the biggest problems holding back broader adoption of the Web3 world. A new layer-0 network, built on top of the existing Bitcoin protocol, can solve this problem by leveraging smart contracts to sign Bitcoin transactions. This network would allow for true cross-chain interoperability and unlock new use cases for Bitcoin.
By introducing a Bitcoin-native layer-0 protocol, we can 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.
About the Author
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.
