Bitcoin changed the financial landscape upon its emergence thanks to its innovative blockchain technology, but it has faced significant challenges over time regarding scalability and transaction processing speed. As the network became congested and the number of users increased, transactions became slower and their costs higher, which limited the potential use of Bitcoin in everyday life. Here, layer two networks emerged as innovative solutions aimed at significantly speeding up Bitcoin transactions and reducing their costs by executing transactions off the main chain to alleviate congestion and lower fees. These technologies serve as an additional layer over the Bitcoin network, improving its performance without sacrificing security. In this article, we will explore what Bitcoin layer two networks are and how they work, along with reviewing their benefits and the most prominent Bitcoin layer two projects in 2025 that promise to bring a qualitative leap in the world of digital currencies.
What is a Bitcoin layer two network?
Bitcoin layer two networks are any subnetworks or technologies built on top of the Bitcoin blockchain to expand its capabilities and improve its performance. In other words, they are protocols that act as an additional layer over the original Bitcoin network (layer one) to process transactions more efficiently without overloading the main network. These networks inherit the security of the Bitcoin chain itself, as transaction data is ultimately documented through the Bitcoin network to ensure reliability. Through this integration, layer two can provide multiple advantages including increased transaction processing speed, reduced transfer fees, and even adding new capabilities such as supporting smart contracts on the Bitcoin network. For example, the Lightning Network and sidechains are models of layer two networks that extend Bitcoin's functionality beyond its original limits.
How do layer two networks work?
Layer two networks rely on a fundamental idea, which is to shift the transaction load off the main Bitcoin chain while maintaining a connection to that chain to ensure security. These networks operate in different ways to achieve that goal, with the most famous methods being: payment channels, sidechains, and rollup technology.
Payment channels: Allow two or more users to create a two-way transaction channel off the Bitcoin chain. A certain amount of Bitcoin is reserved at the beginning of the channel opening, and then both parties can make an unlimited number of transfers between them instantaneously and without significant fees. When finished, both parties close the channel, and only the final result of the transfers is recorded on the Bitcoin blockchain. In this way, each individual transaction does not need to be instantly recorded on the public network, reducing burden and congestion. The Lightning Network is the most prominent example of payment channels, allowing micropayments to be made at lightning speed with negligible fees.
Sidechains: Independent blockchains that operate in parallel with Bitcoin and have their own consensus mechanism, but are linked to Bitcoin via a two-way peg allowing assets to be transferred between the two networks. Sidechains provide higher processing speeds and additional features (such as smart contract support) compared to Bitcoin itself. Security is achieved either through shared mining with Bitcoin or through periodic documentation on the Bitcoin network. An example of a sidechain is the Rootstock network, which we will review later. However, it is worth noting that some sidechains are not considered 'true' layer two if they rely entirely on independent validators, as the main criterion for a layer two is that transactions on the subnetwork are secured by the main Bitcoin network.
Rollups: This technology relies on executing a large number of transactions off the Bitcoin chain and then compressing the resulting data into a concise cryptographic proof that is periodically recorded on the Bitcoin chain. The rollup model processes a batch of operations in a separate 'aggregated chain,' and once completed, sends a cryptographically encoded summary representing the final state of those operations to the main network in one go. In this way, rollups benefit from Bitcoin's security (by recording the proof on its chain) while achieving significant savings in space and speed. The Merlin Chain, which we will discuss, is an example of a project that uses rollup technology to enhance the speed and efficiency of Bitcoin transactions using advanced zero-knowledge techniques.
In general, all layer two networks share the idea of relieving the burden on the main Bitcoin network. They process transactions off the main chain and then ultimately relay part of the information or results to the Bitcoin blockchain to ensure the validity of what occurred. This approach allows overcoming Bitcoin's current limitations without the need to modify its original protocol or sacrifice elements of decentralization and security.
Benefits of Layer Two Networks for Bitcoin
Layer two networks provide fundamental solutions to the scalability challenges faced by Bitcoin and carry several key benefits that make using Bitcoin more practical and widespread:
Increasing transaction speed: Layer two handles many operations off the main Bitcoin network, significantly increasing the number of possible transactions per second. For example, some layer two protocols have managed to raise the theoretical capacity for processing transactions to hundreds of thousands per second, compared to about 7 transactions per second on the main Bitcoin network. This massive acceleration in transactions makes Bitcoin closer to being used in everyday life and rapid business transactions.
Significantly reducing fees: Since fewer transactions are actually recorded on the Bitcoin chain, congestion decreases and transfer fees become much cheaper. This opens the door to new uses for Bitcoin, such as micropayments that were not economically viable on the main network due to high fees. With layer two, sending tiny amounts or conducting numerous repetitive transactions becomes possible at a very low cost.
Expanding Bitcoin's functionality (supporting smart contracts and applications): Bitcoin was not originally designed to run smart contracts or complex decentralized applications, but some layer two solutions have come to add this capability. Some networks enable developers to build decentralized financial applications (DeFi) or issue non-fungible tokens (NFTs) and more, while benefiting from Bitcoin's security as a base. This means the possibility of creating new financial tools and services on top of Bitcoin without the need to launch a separate blockchain from scratch.
Improving liquidity and adoption: By making Bitcoin transactions faster and cheaper, the currency becomes more attractive to both users and investors. Layer two networks can increase the available liquidity of Bitcoin in markets and applications, allowing value to transfer more smoothly between Bitcoin and other networks. This integration enhances Bitcoin's role in decentralized finance platforms and increases the efficiency of the capital used within it. Additionally, improving the user experience through faster transactions will lead to wider adoption of Bitcoin, considering it not just a store of value but also a practical payment system.
In short, layer two contributes to the development of the Bitcoin ecosystem to keep pace with increasing demand and technological developments without compromising the fundamentals of the network. Now, let’s take a look at the most prominent leading projects for layer two on Bitcoin in 2025 that embody these benefits in practice.
Prominent Bitcoin layer two projects in 2025
The year 2025 witnessed the launch and development of many promising layer two projects aimed at enhancing the Bitcoin network and expanding its capabilities. Here are the most important of these projects:
Lightning Network
The Lightning Network is the most prominent name when it comes to layer two solutions for Bitcoin. Its concept began to emerge in 2015 and came into effect around 2018, and since then it has been the cornerstone of speeding up Bitcoin transactions. The Lightning Network operates by creating payment channels between users, allowing them to conduct an unlimited number of transactions almost instantly and at negligible costs without needing to record each transaction on the blockchain. Only when opening and closing the channel is the final balance documented on the Bitcoin network, significantly reducing the number of operations sent to the main chain. Thanks to this mechanism, the Lightning Network has managed to raise the theoretical capacity for processing transfers to astonishing levels (estimated to reach a million transactions per second under optimal conditions) compared to around 7 transactions on the Bitcoin network itself. The network has gained increasing support and popularity over time, having been adopted by various wallets and platforms, and has even been used in global applications such as providing fast payments via the Twitter platform. In summary, the Lightning Network represents a fundamental step in making Bitcoin a usable currency in daily transactions as a fast and effective payment method.
Stacks
Stacks is a unique blockchain platform designed to expand the functionality of Bitcoin by bringing smart contracts and decentralized applications to the Bitcoin world. The project started under the name Blockstack and was renamed Stacks in 2020. Stacks relies on a separate network that integrates with Bitcoin, benefiting from Bitcoin's security while offering advanced functionalities similar to Ethereum. The Stacks platform allows developers to launch DeFi applications, NFT platforms, and other decentralized services by using its native currency STX to run smart contracts and process transactions. What makes Stacks unique is that it directly links its economy to Bitcoin through a consensus mechanism called 'Proof of Transfer,' where STX is mined using Bitcoin, and participants are rewarded with Bitcoin, creating a close connection between the two networks. Stacks has seen significant developments, most notably the launch of what is known as the 'Nakamoto' release, which allowed some data from the Stacks network to be recorded directly on the Bitcoin chain and introduced a digital asset called sBTC that acts as a Bitcoin-pegged currency on the Stacks network to facilitate decentralized asset exchange. In summary, Stacks expands the horizons of Bitcoin so that it becomes not just a network for transferring value, but a foundation for building advanced financial applications secured by the Bitcoin network.
Merlin Chain
The Merlin Chain has recently emerged as one of the promising layer two projects on Bitcoin, launched by Bitmap Tech. Merlin aims to enhance Bitcoin's scalability and efficiency using advanced zero-knowledge rollup techniques. The idea behind Merlin is to compress a large amount of transaction data into small bundles through cryptographic proofs, allowing for a massive number of operations to be executed quickly and at a very low cost compared to traditional Bitcoin transactions. The project launched a test network in early 2024 and is expected to launch the main network soon. In addition, Merlin integrates a decentralized oracle network to improve the reliability of external on-chain data, along with mechanisms to detect fraud on-chain to enhance security and transparency. Merlin has its own digital currency called MERL, which is used in the governance of the project and is also considered a standard token of type BRC-20 (i.e., it operates according to Bitcoin's token standard). The project is also characterized by supporting compatibility with the Ethereum Virtual Machine (EVM), allowing for seamless interaction between Merlin and decentralized Ethereum applications, thus increasing the system's attractiveness to developers. Thanks to its active developer community and robust economic system (where its digital assets have maintained relative stability even during market downturns), the Merlin Chain is seen as an advanced step towards integrating advanced blockchain technologies directly into the Bitcoin ecosystem to enhance its speed and functions without compromising its security.
Rootstock Infrastructure Framework - RIF
The RIF framework (Rootstock) is one of the most prominent initiatives that leverage the concept of layer two to enhance the Bitcoin environment. RIF is a comprehensive suite of decentralized protocols and services designed to make application development on the Rootstock (RSK) network easier and faster. RSK is a sidechain linked to Bitcoin launched in 2018, providing a smart contract platform compatible with Ethereum but secured through its connection to the Bitcoin mining network. The RIF framework operates above the RSK network to provide ready-made tools for developers such as payment solutions, storage services, identity naming systems, and other essential components that facilitate the building of integrated decentralized applications. The fundamental principle here is to leverage the security of the Bitcoin network while providing the flexibility of smart Ethereum, combining the best features of both worlds. The RIF project has its own digital currency used to access those decentralized services and pay for costs within the system. Recent developments around RIF include the developer company IOVLabs launching incentive initiatives such as a grant program worth $2.5 million to support developers and startups in building decentralized finance applications on the Rootstock platform. This contributes to expanding the Bitcoin ecosystem by attracting more innovations in blockchain-based financial services. In short, the RIF project represents a comprehensive infrastructure enabling developers to create revolutionary applications by harnessing the reliability of Bitcoin and the flexibility of smart contracts together.
CKB Public Chain
In its effort to contribute to improving Bitcoin's scalability, the Nervos network announced the adoption of the CKB chain (Common Knowledge Base) as a new layer two project for Bitcoin. This project is characterized by being the first solution that combines Proof of Work (PoW) and Bitcoin's Unspent Transaction Output (UTXO) model within a layer two. The idea lies in leveraging the security power of Bitcoin mining through Proof of Work while adopting the more flexible UTXO model for processing transactions in a scalable manner. The CKB chain will operate as a layer two over the Bitcoin network, meaning it will closely link to the original blockchain to gain security and decentralization properties, but it will provide a more efficient environment for processing transactions and better support for interoperability. This dual approach enables the creation of a decentralized platform capable of running various decentralized applications and issuing digital assets while maintaining a high degree of security due to its connection to Bitcoin. The project has its own digital currency called CKB, which plays a crucial role in the Nervos ecosystem, as it is used to manage resources, pay transaction fees, and participate in governance. With the transition of CKB to a layer two solution for Bitcoin, its significance is expected to increase, and its role will shine as projects seek to leverage Bitcoin's security without sacrificing speed. In short, the Nervos public chain offers a unique vision for integrating the best of the Bitcoin world (security) with improved scalability, which may contribute to expanding the range of applications and services that can be built relying on Bitcoin in the future.
In conclusion, Bitcoin layer two networks represent a new wave of innovation in the world of digital currencies. They are solutions born out of the need to overcome Bitcoin's current limitations in transaction speed and costs, without losing the most important advantage of Bitcoin, which is the trust derived from the security of the blockchain. With the emergence of leading projects in 2025 such as the Lightning Network, Stacks, Merlin, Rootstock, and Nervos, it is clear that Bitcoin's future will not be limited to its traditional role. These projects and others are pushing Bitcoin a step closer to becoming a comprehensive financial platform capable of supporting advanced applications and services, paving the way for further adoption and acceptance of this leading digital currency in various aspects of our daily lives.