Crypto glossary
Bitcoin layer 2
A Bitcoin layer 2 is a network built on top of Bitcoin to add speed, cheaper payments or smart contracts, with security models that vary enormously.
Bitcoin's base layer is deliberately slow and limited, so most attempts to scale or extend it happen on top. The Lightning Network uses payment channels secured by Bitcoin scripts, letting users exit on-chain unilaterally. Federated sidechains like Liquid rely on a group of functionaries to hold the bitcoin backing them. Other systems, such as Stacks or Rootstock, run their own chains anchored to Bitcoin, and newer projects build rollups using BitVM or propose designs like Ark.
Interest exploded after 2023, as Ordinals and the search for Bitcoin DeFi pushed dozens of projects to label themselves Bitcoin L2s, many with their own tokens. Investors use the term loosely for anything that uses BTC as its main asset.
The label hides big differences. A true layer 2 should let users recover their bitcoin even if operators disappear; many projects instead depend on multisig custodians, bridges or their own validator sets, making them closer to sidechains. Bitcoin cannot yet verify complex proofs natively, so most designs require extra trust. Checking who holds the BTC and how withdrawals work is essential.
Example
A user moves 0.5 BTC into a new Bitcoin L2 to earn yield, then reads the documentation and discovers the coins are held by a 5-of-9 multisig controlled by the project's partners.