Bitcoin

Bitcoin's Identity Crisis: Standalone or Multichain? You Decide!

Discover how Bitcoin evolves through two distinct approaches: standalone and multichain.

In recent years, the Bitcoin layer has grown far beyond the transaction ledger bitcoin introduced, with projects like Bitfinity leading the way.

But sooner than later it had found itself at crossroads, split between two main approaches: building directly on its base layer (standalone) or building around it using connected chains (multichain). While the two approaches are already being tested, each has its unique way of doing things.

In this article, we will provide a direct comparison of the two, their strengths, weaknesses, and use cases... So let's go!

Understanding The Two Approaches

Before we take a look at the two approaches and ask ourselves which way to proceed, it is important that we first understand what building on the Bitcoin blockchain means.

In simple terms, 'building on Bitcoin' refers to using Bitcoin as a foundation layer to create new applications, tools, or services. It involves making Bitcoin more useful by adding features like NFTs, DeFi, and dApps with the help of the most trusted and foundational blockchain layer to date.

And with that, let us now look at the two approaches Bitcoin can take or the people who want to build are considering...

The Standalone Approach

As we began by saying, the standalone approach involves building directly on Bitcoin's base layer, or what we commonly refer to as Layer 1.

This is thanks to two main Bitcoin upgrades: the SegWit upgrade of 2017 and the Taproot upgrade of 2021. The former improved data efficiency, while the latter enabled greater scripting flexibility.

This path of native innovation continues today, with active community debate around proposals like OP_CAT a potential upgrade that would unlock more sophisticated smart contracts and covenants directly on Bitcoin's base layer.

The former separated transaction and witness data for more efficient storage, while the latter further improved data storage and enabled greater flexibility in creating and using complex scripts.

As a result, you can now create NFTs and digital artifacts as tokens directly on Bitcoin, as we will see later.

The Multichain Approach

While the standalone approach builds directly on Bitcoin, the multichain approach builds on layers built on top of the Bitcoin blockchain (Layer 2 solutions: sidechains, rollups,...) .

In other words, the work that would be performed by the main chain is done by these chains. The Bitcoin base layer is only used for its security and settlement finality in the case of Layer 2 solutions.

With the two approaches now understood, let us look at how they compare to each other.

A Head-to-Head Comparison

Although the main aim of the two approaches is to upgrade the Bitcoin blockchain, the way they do it differs quite significantly.

🔐 Security

As we know, Bitcoin is the most secure blockchain in the world. Thanks to its decentralized nature and the Proof-of-Work consensus mechanism, anyone from around the globe can secure and view the network. Therefore, by building directly on the Bitcoin blockchain, standalone applications inherit this top-notch security, making them as secure as Bitcoin itself.

On the other hand, while many Layer 2 solutions anchor to Bitcoin, their security models can vary. Sidechains, for example, use their own consensus mechanisms, which may be less secure than Bitcoin's Proof-of-Work. However, this landscape is rapidly evolving with innovations like BitVM. Where it allows for complex, off-chain computations to be verified on Bitcoin's base layer.

Bitfinity secures its Layer 2 network on the Bitcoin blockchain by using the Internet Computer's advanced cryptographic capabilities to create a decentralized and trustless bridge. Instead of relying on vulnerable centralized bridges, it uses Chain-Key technology, a threshold signature scheme where the key controlling Bitcoin assets is split into shares and distributed across numerous nodes.

📈 Scalability

Scalability has been one of the key shortcomings of Bitcoin, since it can only process about 7 on-chain transactions per second. This means only a limited number of people can use it, and when the demand is high, congestion kicks in.

Therefore, standalone applications on its chain also inherit this limitation and, even worse, contribute to it. For instance, the launch of the Ordinals protocol in early 2023 was one of the causes of a historic record of the highest number of unconfirmed transactions in Bitcoin's mempool space that year.

While standalone applications suffer from scalability issues, multichain applications have nothing to worry about in this regard. In fact, relieving the Bitcoin chain from scalability issues is what the majority of multichain applications aim to achieve.

Bitcoin is under DoS attack. High transaction fees are the chosen pain point by the attacker, probably to makes bitcoin unusable for smaller players. pic.twitter.com/0J56liNSGf
— work-in-progress (@jogiwashere) May 7, 2023

Bitfinity, as a Layer 2 application, is designed to significantly increase transaction throughput and is capable of processing up to 1,000 transactions per second. While transaction processing and signature verification occur on-chain, historical block data is managed off-chain to handle the high throughput and avoid the infeasibility of storing terabytes of data on-chain.

💰 Fees

With scalability problems in standalone apps comes the issue of fees. When the usage demand is too high on the Bitcoin blockchain, fees also skyrocket. This was the case during the launch of the Runes protocol on April 20th, 2024 (which coincided with the fourth Bitcoin halving), where the average Bitcoin transaction fee rose to a record high of $128.45.

Similar to scalability, fees are not an issue for the multichain approach. Due to limited congestion, the majority of them generally offer much lower to near-zero fees for off-chain payments.

While our BTF token serves as the utility backbone for EVM gas, staking, and governance, our architecture is fundamentally designed to prioritize a low-cost user experience above all else.

🌐 DeFi Capabilities

Functionality is also limited for standalone applications. While they allow inscription and simple token creation, they lack full support for lending, liquidity pools, or smart contracts without external systems.

On the other hand, DeFi thrives very well in the multichain approach. Sidechains like Bitfinity enable smart contracts and are EVM-compatible, which offers full DeFi ecosystems.

🌉Interoperability

For standalone solutions, interoperability capabilities are limited, as they operate within Bitcoin itself, which is isolated and therefore requires additional solutions like wrapping to achieve connectivity.

Interoperability refers to a wide variety of methods that enable multiple blockchains to communicate, share digital assets and data, and work together more effectively.

In multichain solutions, interoperability is high, as the majority have mechanisms like bridges or pegs that let them interact with other chains.

Additionally, some are EVM-compatible, which means they can interact with and deploy Ethereum smart contracts across multiple EVM-compatible blockchains. Prime example is Bitfinity that acts as a bridge connecting Bitcoin to EVM-networks for asset transfers and other activities.