From The Lightning Lab

As we discussed in Entering the Bitcoin Renaissance, our last edition, Lightning Labs CEO and Co-Founder Elizabeth Stark told The Block, “a major narrative of the next cycle will be the bitcoin renaissance, and it has already begun in full swing.” Only a few months later, and that is proving to be quite prescient!

Electric Capital’s annual Crypto Developer Report included this slide that highlighted what we’ve been feeling: developer interest in scaling bitcoin is at all-time highs! It’s easy to understand why. The bitcoin ETFs are live, the halving is only a couple of months away, and it seems that the design space for building on bitcoin has never been broader. The bitcoin renaissance is most definitely here. We at Lightning Labs are loving the surge in developer excitement because in general new talent and new ideas are good for bitcoin, but also specifically all of these new off-chain ideas are great for the continued growth of the Lightning Network, bitcoin’s biggest L2!

The growing developer community is excited about a few specific new categories of off-chain bitcoin protocols:

Federation-based solutions like fedimints, cashu, and spiderchains are all similar in that some group of off-chain operators receive bitcoin payments on-chain, and then mint new tokens backed (to varying degrees) by those new bitcoin deposits off-chain. This means that securely moving funds into and out of these solutions requires waiting an hour for multiple bitcoin block confirmations. For this reason, all of the federation-based solutions are building ways to connect to the Lightning Network so their users can send and receive instant payments to the many wallets, exchanges, and merchants already connected to Lightning. This makes Lightning the interoperability layer between these new systems! These new off-chain environments will only serve to expand the network effects of Lightning as a global routing protocol, bringing more users and more volume and keeping the flywheel spinning.

Lightning Labs CTO Laolu Osuntokun presented his ideas regarding bringing ZK proofs to bitcoin last year at Starkware Sessions, so we are thrilled to see developer momentum around the idea. In general, zero knowledge proofs allow for the compression of large datasets into compact, easily verifiable proofs, which will enable Lightning developers to bring instant, secure synchronization times to mobile users to dramatically improve UX. Taproot Assets developers can leverage the same techniques to make on-chain transfers more user-friendly by decreasing the on-chain proof sizes. Further, a new zero knowledge proof verifying op code could be included in the Taproot Assets Virtual Machine without a bitcoin soft fork to support next generation application building. 👀 

BitVM, originally proposed by researcher Robin Linus, has captured the attention of off-chain bitcoin developers because of its potential to enable a new trust model for off-chain protocols: instead of needing to trust the majority of a federation to be honest in order to withdraw your coins, users may only need to trust one member to honest. This would be a huge improvement if true. On Lightning, of course, users running their own nodes and holding their own keys don’t need to trust a counterparty, so BitVM would more be helping other off-chain protocols approach Lightning’s level of trust-minimization. Taproot Assets developers could make use of new BitVM techniques in building trust-minimized asset bridges from non-bitcoin blockchains back to Taproot Assets, or in productizing the Pocket Universe concept, a new type of solution for non-custodial, off-chain exchange development with native Lightning integration. 

Covenants, unlike BitVM, would require the bitcoin community to agree to an upgrade via soft fork that would empower developers to preconfigure the future conditions under which specific coins can be spent. Developers are currently discussing seven different proposals, with a focus on applications like vaults for more programmable cold storage, and also on enabling more off-chain protocols generally by decreasing end user interactivity requirements. As a specific example, certain covenant proposals would allow Lightning developers to build safer and more scalable Channel Factories (compared to what’s possible today) as a self-custodied off-chain option for users, in addition to making the protocol as a whole more developer-friendly. Taproot Assets developers will similarly be able to leverage covenants capabilities to build out Pocket Universes, and also to trustlessly bridge bitcoin itself into Taproot Assets as a 1:1 backed asset.

Importantly, building bitcoin DeFi (or finance tools that inherit as much of bitcoin’s trust minimization as possible) is a major motivation of these new off-chain projects, and DeFi will require the stablecoins issued on Taproot Assets in order to thrive, so the timing for these new projects couldn’t be better. Lightning will be the interoperable glue that will connect them all! 

In 2024, the vibe is about everything coming back to bitcoin, as Lightning Labs CEO Elizabeth Stark noted. To that end, we are so excited that the bitcoin developer community is growing and focusing on expanding bitcoin’s off-chain capabilities. Lightning Labs and the open source community have leveraged the 2021 Taproot upgrade to build a scalable asset issuance protocol in Taproot Assets that will bring stablecoins to the Lightning Network, and to bring Taproot channels to node operators for more cost effective and private channel and liquidity management. Imagine what will be built with new federation-based solutions, zero knowledge proofs, BitVM, and (possibly) covenants!