What You Need to Know About Bitcoin Layer 2s


Everyone will come to. Our panel layer twos on bitcoin with melting juniors chief strategy officer at coin shares and nick carter general partner at castle island ventures. Welcome milton nick. Hi laura so exciting to be here. And i have to give thanks to nick in advance. I roped tim into sitek around like doing this. I wanna have. I'm risk can with you know. I'm very glad to be here though is a really great remix of of massive attack. Just before the saw's really enjoying that. Yes so was i. So let's start our discussion by just defining what layer one and layer to are for people who don't know just to make sure we're on the same page and also multiple layers are necessary at all. Shirk jonah kick it off nick. I can start. i can start in. Virtually every payments system there they functioned in layers so when we talk about layers and bitcoin or cryptocurrency. It's actually completely in line with how things work in the traditional payments base. So you know it's possible to send a wire as a consumer you know. We have access to fed wire. Want but you know for the most part when you use dollars you're transacting with credit systems or peer to peer payments like bone papon cetera. Those would be considered second or even third layer on top of more fundamental clearing infrastructure. Where you have backed payments which happen less frequently and their larger in size and those payments at the bottom of stack of higher assurances. So and they kind of settled immediately as opposed to higher layer payments which settle on a deferred basis so credit card payments are not final immediately so extend that analogy to Currency just sort of contextualized it a little bit. Bitcoin payments would be considered fast settling high assurance payments. So those are my mind can have utility scale transactions. You can use months. Value can have confidence. they're going to settle. Immediately layer to in. My view is more about deferring settlement getting more skill ability through training off against those settlement. Assurances are getting faster finality By trading off again against assurances so basically opening up the design space and mirroring. Those you know that that layered model that we have in payments itself and i think that's really how payments systems scale as far as we understand them it's unlikely that unite everybody on the bottom layer the that would be like all we ever used for. Transactions was sending wires to each other. So that's kind of my view of it multiple. Know if you've a different diagnosis. I think the way you articulated. Nick is a great starting point You know the analogy. We use often is the bitcoin. Blockchain is more akin to fed wire. And what we've seen you know. A lot of other protocols have moved more quickly to adopt layer twos. I think the ferryman particular is one that from the very early days had a mindset to sort of start moving towards layer two and one of the interesting observations is over the last six Six months pardon really as we've seen the explosion of defy a new financial primitives being implemented on top of the theory. Obviously it's resulted in a lot of challenges in network availability network throughput and rising price in in sending transactions across the network deploying contracts now. Obviously bitcoin doesn't function in the same way. But what. I think is important to note. Is you know. There is an important function here. Whereas bitcoin usage grows and the adoption of bitcoin grows a number of use cases that were utilizing for bitcoin grows. We're going to need different layers. That have these features. That are optimized for the specificity of the use case. And that's something that's talked about a bit more in other protocols that are newer and i've had an opportunity to learn from watching what's happened in bitcoin but i think it's been interesting to observe you know i'm in many people's minds we really don't ever think about the amount of bandwidth we're consuming or the cost of connectivity to the core protocol which were interacting and in many ways the way i think about bitcoin For the first time in human history we have a way to price computing activity. There is a very real price that you have to pay prioritize transactions in the meme pool and so in my view. It's actually like an internet interesting. Crossover pardon between some of the concepts around Computing connectivity and how rodham topologies work with money. Right you're basically punching routing policy using transaction fees and and money effectively that allow you to sort of create specificity in terms of what layer of the stack on operate without compromising the security guarantees of the coin and again is nick described. There are inevitably going to be trade-offs but we've observed so far as we look at. The proliferation of bitcoin is an asset across other chains. Whether that's in the form of rap. Bitcoin or other assets is people really do want to have the security. Guarantees of bitcoin is an asset. But they want to have the ability to adopt some of the parameters around how they're utilizing the network security guarantees of their transactions particularly lower few transactions perhaps being able to deploy smart contracts or a more complex as sort of logic that maybe isn't as easy to deploy bitcoin script. So i think that's very important the other piece. I'll just quickly add that. I think is really important since this conference is about developers developers developers. Tomorrow on cnn. Steve ballmer if you remember. His famous developers developers developers speech is electric capital puts out this great report on and it just came out. It's their state of the developer ecosystem report and one of the interesting observations. They have is there. A low more developers in other protocols than there are in bitcoin because bitcoin is notoriously hard to develop with and building a robust grasp of bitcoin. Core protocol takes much longer than perhaps some of these other protocols which was scripted in more familiar languages and have different types of logic. That's more intuitive to say like javascript developers or other developer communities that are much larger. So what. I think also been interesting to observe. We have this in the legacy financial system. The entire legacy financial system is built on. Something called coble right. Which is this archaic programming language. Like most people know coble really really well are probably over the age of sixty because they were designing corporate systems must seventies so there's actually really interesting technological risk that exists in our core financial system and our poor financial applications in that the group of people who know and really understanding our experts in kabul are gonna be retiring in the next ten years right so it's created this tremendous amount of pressure on the banking sector to replace some of these core banking systems. That were built fifty sixty years ago because there is a real risk of technological obsolescence not having enough talented people to step into those roles. And i started. See the same thing. Happening in in crypto. Right there aren't necessarily tens of thousands of the coin developers out there who can build really robust highly secure layers on top of bitcoin. And so it's been really interesting to see what's been happening in the sack seacoast system and i'm really excited about milan. Tax may not. Because i think one of the really important Designed space constraints that we have to get through is the fact that the bitcoin developer communities just inherently much smaller than other developer communities because the level of knowledge required is very specific amount of time it takes to become really proficient in bitcoin and to understand all of the nuances of y bitcoin. Core way does prior bibs the history of fly. Certain things are good. Ideas are bad. Ideas takes a long time. Like i'm seven years in. And i still know nothing neck. I don't know how you feel about that. But that's where i think. Layer twos can be helpful in improving extensive ability. Because you don't necessarily require a bunch of people to become incredibly proficient. Bitcoin core through layer. Tuesday can now introduce other programming. Language that really broaden the developer ecosystem and allow people from other ecosystems to be able to build on top of bitcoin without necessarily needing to go through that learning curve on that you otherwise would but again. It's just interesting to me that that's also married and legacy finance for like bank search shitting themselves because all their best. Cobo people are leaving and they don't have anyone to replace on so sort of an interesting parallel at least for me. I think it's it's

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