Sidechains & Layer 2
Bitcoin's base layer processes ~7 transactions per second. To scale to global usage while preserving decentralization, the ecosystem uses layered solutions — each with different trust assumptions, speed, and capabilities.
For deeper coverage of individual protocols, see Protocols on Bitcoin.
The Scaling Landscape
Lightning Network
The primary L2 solution for instant Bitcoin payments.
| Aspect | Details |
|---|---|
| Type | Payment channel network |
| Speed | Sub-second |
| Fees | Typically < 1 sat |
| Trust | Trustless (requires monitoring) |
| Capacity | Limited by channel liquidity |
| Best for | Frequent small payments, streaming sats |
How it works: Two parties lock funds in a 2-of-2 multisig on-chain, then exchange signed transactions off-chain. Payments route through multiple channels using HTLCs.
Implementations: LND, Core Lightning, Eclair, LDK
Developer entry point: LND API or LDK
Liquid Network
A federated sidechain by Blockstream.
| Aspect | Details |
|---|---|
| Type | Federated sidechain |
| Speed | ~1 minute blocks |
| Fees | Low, fixed |
| Trust | Federation of ~65 functionaries |
| Features | Confidential Transactions, Issued Assets |
| Best for | Trading, asset issuance, privacy |
How it works: BTC is pegged in via a federation-controlled multisig. Liquid BTC (L-BTC) exists on the Liquid chain with confidential amounts.
Developer entry point: Liquid Developer Docs
Fedimint
A federated custody and e-cash protocol.
| Aspect | Details |
|---|---|
| Type | Federated e-cash |
| Speed | Instant (within mint) |
| Fees | Minimal |
| Trust | Federation of guardians (threshold) |
| Features | Chaumian e-cash, Lightning gateway |
| Best for | Communities, custodial wallets, privacy |
How it works: A federation holds BTC and issues e-cash tokens. Users transact with unlinkable e-cash. Lightning gateways enable interoperability with the broader network.
Developer entry point: Fedimint GitHub
Ark
An emerging off-chain protocol for shared UTXO management.
| Aspect | Details |
|---|---|
| Type | Off-chain UTXO protocol |
| Speed | Seconds (within rounds) |
| Trust | Service provider + timelocks |
| Features | No inbound liquidity needed, UTXO-based |
| Best for | Onboarding, small payments |
| Status | Early development |
How it works: An Ark Service Provider (ASP) batches user transactions into periodic on-chain commitments. Users receive virtual UTXOs (vTXOs) that can be redeemed on-chain unilaterally.
Comparison
| Solution | Speed | Trust Model | Privacy | Capacity |
|---|---|---|---|---|
| Lightning | Instant | Trustless | Medium | Channel-limited |
| Liquid | ~1 min | Federation | High (CT) | Block-limited |
| Fedimint | Instant | Federation | High (e-cash) | Mint-limited |
| Ark | Seconds | ASP + timelock | Medium | Round-limited |
| Stacks | ~10 min | PoX consensus | Low | Block-limited |
Choosing a Solution
| If you need... | Consider... |
|---|---|
| Instant retail payments | Lightning |
| Confidential trading | Liquid |
| Community wallet / bank-like UX | Fedimint |
| Simple onboarding for new users | Ark |
| Smart contracts anchored to Bitcoin | Stacks |
For Developers
Regardless of which L2 you work with:
- Understand the trust assumptions — Every L2 trades some trust for scalability
- Plan for failure modes — Channels can close, federations can fail, timelocks expire
- Test with real Lightning — Use testnet or signet for realistic Lightning testing
- Consider UX — Users shouldn't need to understand the underlying protocol