Bitcoin Layer 2 falsified? Messari report summary: How institutions view Merlin Chain

Bitcoin scalability solution Merlin Chain may be one of the most disappointing airdrops this year, with users having high expectations for the Bitmap and BRC-420 team, but it went live and immediately crashed, plummeting from around $1 to a low of $0.15. In addition to the so-called BTC L2 "transaction proof uploaded to the mainnet for verification" being widely debunked by technical experts because "the Bitcoin mainnet does not have smart contract functionality." Some key opinion leaders (KOL) also questioned the Bitmap team for initially using activities like "treasure chests" to calculate airdrop points, essentially taking advantage of investors. However, research firm Messari recently published a comprehensive report on Merlin Chain.

How is Merlin defined? Messari: BTC Native Asset EVM Sidechain

Unlike the common belief that Merlin Chain is a BTC Layer 2, Messari considers Merlin Chain as an EVM sidechain for Bitcoin's native assets. This positioning aligns with the author's perspective, as if we define Layer 2 as executing transactions off-chain and then uploading them for verification on the mainnet. However, Merlin's mechanism is different because the BTC mainnet cannot execute smart contracts, so how is verification achieved?

Merlin Chain collaborates with RaaSRollup-as-a-service protocol Lumoz, using Polygon's CDK to develop its architecture. This enables Merlin Chain to implement zk-validium technology, enhancing scalability and transaction efficiency while maintaining security. It is worth noting that the blockchain trilemma concept states that decentralization, security, and scalability cannot all be achieved simultaneously, and Merlin's choices in this regard are quite apparent.

This framework consists of zkEVM and a Data Availability Committee (DAC). The DAC ensures the validity and availability of transaction data on the chain. DAC nodes retrieve and verify data from the sequencer, then store it in a database for network access, ensuring its integrity. The Polygon CDK validium framework defines Merlin Chain as zkValidium, utilizing Polygon zkEVM's off-chain proof generator to produce zero-knowledge proofs for validity verification.

However, Merlin Chain has not yet issued Bitcoin proofs, which is the aforementioned challenge of Bitcoin's mainnet inability to verify. To achieve true ZK-rollup, proofs must be issued and ensured verifiability, but current BTC Layer 2 operations are restricted by this verification. Merlin Chain plans to transition once the verification process is fully developed. Merlin Chain collaborates with BitcoinOS and Nubit to develop the necessary technology for Bitcoin ZKP verification, but their solution is still under development.

"BTC Layer 2" is a marketing term, not yet technically achieved

Currently, Merlin Chain operates as a sidechain for Bitcoin's native assets like Ordinals and Runes, with the main obstacle being technical challenges. Overcoming these challenges will lead to the transition to BTC Layer 2. What are the differences between a sidechain and Layer 2 specifically? Messari also points out that at this stage, "BTC Layer 2" is more of a marketing term rather than a technical reality.

Firstly, sidechains do not inherit Bitcoin's security; they rely on their own consensus mechanisms, introducing trust assumptions. Secondly, sidechains allow withdrawals, meaning users must trust validators to withdraw. Lastly, as of September 27, 2024, Bitcoin's Script language lacks support for rollups and complex smart contracts, rendering Layer 2 unable to verify on the Bitcoin mainnet.

zkProver Generates Zero-Knowledge Proofs, Aiming to Generate Certifications on the Bitcoin Mainnet

Merlin Chain collaborates with BitcoinOS, where BitcoinOS aims to address Bitcoin's scalability and computational limitations. BitcoinOS introduces the validator BitSNARK, focusing on zkSNARK verification, allowing verification on the Bitcoin blockchain with minimal computational costs. This integration enables Merlin Chain to utilize secure and decentralized Layer 2 rollups, establishing a more efficient and scalable solution for Bitcoin's native assets.

Merlin Chain ensures scalability through recursive STARK, enabling the system to handle large user demands and ensure rapid transaction finality. Currently, Merlin Chain's verification architecture mainly consists of three components: nodes, zkProver, and a database.

Nodes: Responsible for processing and transmitting transaction data. They transmit Merkle tree data to the database for storage, process transactions in zkProver, and interact with zkProver to ensure transaction validity and correctness.

zkProver: Utilizes zkSNARK technology to generate ZKP and verify transaction validity. It interacts with nodes and the database to collect information, generate verifiable proofs, including Merkle Root, sibling keys, and hash values. zkProver sends the transaction proof back to nodes for verification and recording, ensuring transaction legitimacy and security.

Additional: Sibling keys refer to hash values between two nodes that share the same parent node. Essentially, when you have two or more child nodes, for example, hash A and hash B, sharing the same parent node, they are considered siblings, and their hash values are sibling keys. Sibling keys are crucial for efficiently conducting Merkle Proofs, allowing users to verify specific data without downloading the entire tree.

Database: Stores key data, including Merkle tree content and transaction information.

The database receives and stores Merkle tree data transmitted by nodes, providing information required for zkProver to generate transaction proofs.

Merlin Chain collaborates with Nubit to integrate Nubit's Bitcoin native data availability layer into Merlin Chain. If successful, this integration could utilize full nodes and light nodes to enhance scalability and data integrity, although this solution is still under development and not yet implemented. Their goal is to enhance Merlin Chain's decentralization and security.

Multi-Signature Wallets Ensure Asset Bridge Security, Using Account Abstraction to Enable BTC Wallets to Interact with EVM

How does Merlin Chain achieve interoperability with the Bitcoin mainnet specifically? Firstly, Merlin Chain collaborates with Cobo to utilize MPC-TSS multi-party computation - threshold signature schemes to protect assets bridged from the Bitcoin mainnet to Merlin Chain. This technology shares private keys between Cobo and Merlin Chain, ensuring no party has full control over the keys. The jointly managed MPC multi-signature wallet protects assets bridged to Merlin Chain by preventing single point failures, enhancing the security and integrity of bridged assets on Merlin Chain.

On the other hand, Merlin Chain partners with Particle Network for BTC Connect, enabling Bitcoin native wallets to interact with EVM-compatible dApps without switching wallets. This is achieved through account abstraction AA, utilizing Paymaster contracts to pay gas fees for users, ensuring smoother transactions. This integration strengthens asset transfers between Bitcoin and Merlin Chain, allowing Bitcoin native wallets to directly interact with EVM dApps. For more information on account abstraction and Particle's explanation and participation, you can refer to this link.