It’s about that time of the cycle when everyone and their Uber driver begins to pay attention to Bitcoin, and with more eyes on the prize comes more critiques of the network.
It’s slow, expensive, and cumbersome; we’ve heard it all before, and NO ONE ASKED YOU PATRICE! And yes, we know, and we’ve been actively working on it for years.
Fees are normally the catalyst for chatter and interest in Bitcoin scaling, but ever since the Runes launch, the free market has been well-behaved. This makes for a great time to do some housekeeping, like setting up cheap Lightning channels or consolidating all those smaller UTXOs you collected over the years.
Despite fees not spiking to the moon during this latest run-up in price, Bitcoin continues to face scalability and transaction throughput challenges.
But isn’t scaling about lowering Bitcoin fees? Yes, that’s part of it, but it’s not the only reason the network requires different settlement layers.
It’s also about taking control of your funds without the need for an intermediary, a problem that’s growing by the second. If you consider all this new buying pressure is funnelled through exchanges or OTC desks and paper products, it’s no wonder there’s no spike in fees; these latest rounds of buys are all settled internally and never on-chain with very few taking ownership of funds, funds are merely changing hands through internal ledgers.
Looking at exchanges, CoinBase and Binance hold millions of Bitcoins, the Spot ETF is pushing close to 1 million coins, and MSTR is holding over 400,000 coins.
That’s a lot of custodial risks consolidating around a few players; while businesses might be forced to use regulated custodians, a considerable portion of exchange customers and Spot ETF customers could have opted for the self-custody route, so why didn’t they?
Reasons that spring to mind are:
- They don’t know about self custody
- They don’t want to self custody
- They’re looking for convenience to tax efficient vehicles
- They’re in it for a short-term trade
If those are your goals or fears, by all means, go ahead and take on all the custodial risk you want, and hopefully, you don’t find out the hard way like we saw with Mt. Gox, QuadrigaCX, BlockFi, Voyagar, Celsius and FTX name a few.
Scaling Bitcoin for more than hodling
If you want to hold, there’s no question about it; on-chain is the best way to do it, and there is no second best!
But what if Bitcoin becomes your money of choice? Spending directly on-chain becomes costly and painful to manage, especially from a privacy perspective, and that’s where layer two options shine.
While side chains were one of the first alternatives, we quickly learned that you can’t force everything into another blockchain; Lightning has proved you can create a layer that only relies on block space to settle every transaction.
Lightning has been the poster child for layer two, and while progress on Statechains and Ark continues, they’ve yet to reach a point where they can be rolled out at any meaningful scale.
Another promising solution emerging in recent years is the concept of rollups; several have been in the works recently, like Sovereign rollups, Brollups, and now Strata—another sophisticated zero-knowledge approach to improving Bitcoin’s network efficiency and transaction capacity.
What are Strata Rollups?
Strata is a layered scaling solution that hopes to address Bitcoin’s fundamental scalability limitations. Unlike traditional layer-2 solutions, strata introduce a more complex, multi-tiered approach to processing and verifying transactions.
It is based on BitVM2, with new design changes for a more practical, scalable, and secure deployment and bridging funds between Bitcoin and the various modular rollups created in the Strata ecosystem.
The Strata network is divided into two blockchains, with each full node able to run a client for each of the following layers:
- Execution layer: Handles transaction execution and chain state.
- Orchestration layer (our version of Ethereum’s consensus layer): Coordinates various specialised tasks related to Bitcoin interactions, bridge operations, decentralised sequencing, and other Strata-specific operations.
This two-layer approach allows Strata to have:
- Modularity and specialisation: The execution and orchestration layers have distinct, specialised functions. This separation allows them to be developed, maintained, and iterated independently. For example, improvements to the orchestration layer’s coordination logic can be made without impacting the execution layer and vice versa.
- Future support for multiple execution environments: This separation allows us to support different execution environments in the future, each conforming to our modified Engine API. This means a future with different kinds of execution layers (e.g., WASM-based, privacy-focused, etc.) on top of the orchestration layer, all able to easily and trustlessly interoperate.
Optimistic-ZK Bridging 🧡
— Strata (@Strata_BTC) December 6, 2024
Strata’s optimistic-zk bridge is a key unlock for native bitcoin rollups 🧵 pic.twitter.com/R9FkUhdxRi
Key Characteristics
- EVM-compatible: The Strata block producer runs a client that is based on Reth, an Ethereum execution client. So far, no changes have been made that affect compatibility with the EVM spec. If you can deploy a smart contract to Ethereum, you can deploy it to Strata with no changes.
- Validity rollup: Every Strata state transition is proven to be valid using cryptographic validity proofs, which clients can use for fast, low-cost verification.
- On bitcoin: Strata uses bitcoin for consensus and data availability. When a Strata block gets confirmed on bitcoin, the only way to reorganise this block is to reorganise the bitcoin block that the Strata block was confirmed in.
- Layered Architecture: Rollup strata create multiple computational layers that work in concert to process transactions more efficiently.
- Batch Processing: Transactions are grouped and processed in batches, reducing the computational load on the main Bitcoin blockchain.
- Enhanced Scalability: The network can handle significantly more transactions by distributing computational tasks across different strata.
How Strata Rollups Work?
Strata is a type of sovereign validity rollup: sequencers post validity proofs on Bitcoin, which are verified by Strata nodes, including the Strata bridge.
Sequencers currently relay the full Strata blocks off-chain to full nodes and include only the validity proof, withdrawal data, and block commitments on Bitcoin so that it could be more accurately categorised as a Validium chain.
Benefits of Rollup Strata
This enables developers to create new kinds of applications for BTC with features such as:
- New signature types, “provide a valid P-256 signature to authorise a transfer”
- Vaults, “transfers must wait N days after being initiated to be effectuated, and can be cancelled in the meantime”
- Subscriptions, “address 0x123…9a can withdraw up to v BTC per month from this account”
- Strong privacy, “transaction details are end-to-end encrypted and verified using a zero-knowledge proof”
- Economically secured zero-confirmation payments, “if a double-spend from this sender is reported, the reporter gets to claim the sender’s full wallet balance”
- Financial transactions, “if enough BTC is locked as collateral to maintain up to X% loan-to-value ratio, then up to N of this other asset can be borrowed”
Challenges and Considerations
Despite its promising potential, rollup strata face several challenges:
- Complex implementation requirements
- Potential execution risks that come with EVM and smart contracts
- Technical complexity in maintaining cross-layer synchronisation
- Ensuring robust security across multiple computational layers
A major roadblock is that the Strata bridge design implicitly requires deployment covenants on the base chain. Placing requirements on certain outputs can enforce effective links between transactions while ensuring that those transactions (like claims, assertions, and payouts) have the structure required by the overall bridge design protocol.
I’m not like other EVM layers
Yeah, sure, that’s what they all say; while EVM has set the industry standard for smart contract deployment, it’s not exactly something new; we already have a working EVM layer in the Roostock side chain, so bringing more of the same to Bitcoin hardly seems exciting.
Sure, Rollups like Strata represent a change in the way blockchain technology has matured, from putting everything on-chain to a more resource-conservative methodology while still hoping to retain more freedom in programmability.
Instead of requiring a whole chain ecosystem with merge mining, whether users will find any use for it is the real question.
With more projects competing in the Bitcoin rollup space and all using some form of EVM client, we can expect more sophisticated and efficient implementations as they try to differentiate themselves.
The truth is many of these rollups might not see the light of day or only last a cycle before withering away, and one or two might find some product market fit.
Which ones will be is anyone’s guess!
Rollup and smoke em
Bitcoin rollup strata offer a glimpse into the future of blockchain scaling and options as the work done in the altcoin space starts to merge with the Bitcoin base chain.
To say Strata is changing scaling would be an overestimation at this point; its first major development milestone, Strata Devnet, has only recently gone live, so once developers get to play with it, battle test it, and it moves into manner, we’ll get to see what it’s all about.
As an EVM layer, it should be compatible with all of Ethereum’s infructuous features, such as wallets and dapps. I can add support for it pretty quickly, and it could likely support Rootstock dapps, too; the real question is why?
Why would people want to use this rollup? Roostock is not under considerable demand pressure for block space right now, and Ethereum does not lack remora chains and rollups offering a similar user experience.
Do your own research.
If you want to learn more about Strata, use this article as a starting point. Don’t trust what we say as the final word. Take the time to research other sources, and you can start by checking out the resources below.
