Apr 13
Merlin Chain and the Making of a Bitcoin-Native Layer 2 Network
It was officially announced in January 2024, and a testnet bridge was launched soon after. In February, the mainnet was rolled out with a fair launch event tagged Merlin’s Seal that achieved a TVL of over $3.5 billion. Merlin Chain recently secured seed round funding from 24 investors, led by OKX Ventures, ABCDE, Foresight Ventures, and Arkstream CapLike. Like other Bitcoin Layer 2 solutions, Merlin aims to unlock greater utility for Bitcoin, boosting its adoption and enhancing its user base.
Various projects have announced attempts to launch a Layer 2 network on top of Bitcoin, but Merlin Chain’s approach differs.
First, Merlin Chain is a Bitcoin-native Layer 2 network that aims to ‘Make Bitcoin Fun Again’ by deploying Bitcoin’s native assets and protocols to connect users between Layers 1 and 2.
It was officially announced in January 2024, and a testnet bridge was launched soon after. In February, the mainnet was rolled out with a fair launch event tagged Merlin’s Seal that achieved a TVL of over $3.5 billion.
Merlin Chain recently secured seed round funding from 24 investors, led by OKX Ventures, ABCDE, Foresight Ventures, and Arkstream CapLike. Like other Bitcoin Layer 2 solutions, this one aims to unlock greater utility for Bitcoin, boosting its adoption and enhancing its user base.
Merlin: An EVM-Compatible Bitcoin Native Layer 2
Merlin Chain is driven by the belief that Bitcoin will unlock its potential via its native assets and protocols. Therefore, while other Bitcoin L2s try to focus on replicating the way Ethereum works, Merlin Chain is a Bitcoin-native innovation. Supported Bitcoin native protocols include BRC-20, Stamps, BRC-420, Atomicals, Pipe, and Bitmap.
At the same time, it is EVM-compatible, meaning users don’t need a Bitcoin wallet to interact with dApps on Merlin Chain. It is connected to over 40 Ethereum chains, so users can always use familiar wallets, such as MetaMask, and familiar assets, including ETH, BNB, and stablecoins, to interact on Merlin Chain.
If they do use a Bitcoin wallet, though, thanks to Particle Network’s account abstraction, users can switch between the two layers (L1 and L2) without an EVM wallet.
With the BTC Connect technology, Merlin Chain users can connect Bitcoin-native wallets to EVM-compatible dApps seamlessly or swap BTC for Ethereum assets.
An important problem this solves is that, ordinarily, the innovation should make it impossible for Bitcoin users to interact with EVM-compatible dApps. But Merlin Chain makes it not so. In these ways, Merlin distinguishes itself in Bitcoin L2 solutions.
How Merlin Chain Works
Merlin Chain’s approach may seem to come with security risks. Still, it has taken steps to enhance security and scalability, notably by adopting Polygon’s zkEVM to build a ZK-Rollup solution using zero-knowledge proofs.
In summary, the ZK L2 collects and batches transactions while zkProver generates proof through sequencer nodes. Then, the sequencer nodes send both data to the Bitcoin base layer through an Oracle network.
The nodes that make up Merlin Chain’s Oracle network constitute the Data Availability Committee (DAC), responsible for confirming transaction data received from the sequencer nodes. Oracle network nodes stake BTC to participate in the L2 network to avoid manipulation.
When a user successfully challenges the validity of some ZK proof and batched data, the Oracle network node that confirmed that series of transactions is penalized by having some of their staked BTC taken away.
Overall, Merlin Chain transactions are much faster than Bitcoin’s, with 1.2 seconds of block time for the former, compared with 10 minutes for the latter.
The Merlin Chain Testnet allows users to transfer BTC to Merlin Chain and back and transfer BRC-20 assets from the BTC chain to Merlin Chain and vice versa. It supports various assets, including BTC, BRC-20 tokens, Bitmap, BRC-420, EH, USDT, USDC, and more. Supported wallets include UniSat, OKX, and MetaMask, with others coming soon.
The MERL Token
MERL, the governance token of the Merlin Chain, is a BRC-20 token. BRC-20 tokens are Bitcoin-native fungible tokens built on the Ordinals protocol, which allows inscribing data onto individual satoshis.
Though experimental, they leverage Bitcoin’s established proof-of-work mechanism for security and open doors for new DeFi (decentralized finance) applications and functionalities on Bitcoin.
The BRC-20 standard was introduced amid the meme coin frenzy because it makes creating tokens on Bitcoin relatively easier than traditional methods. With the adoption of this standard for its token, Merlin Chain is banking on BRC-20 to see wider adoption in the coming years.
MERL has a total supply of 2.1 billion, and 1% (21 million) of the total supply was distributed at the Seal Fair launch event earlier in February.
Bitmap Tech
Merlin Chain has secured partnerships with other Web 3 projects to maintain its operations. It uses Polygon’s ZK technology as its underlying infrastructure, Celestia’s data availability protocol, and Lumoz’s decentralized ZK computing power network.
However, the team behind Merlin Chain is Bitmap Tech (formerly Recursiverse), the team behind BRC-420 and Bitmap.Game. The company is worth over $500 million, and its Bitmap.Game metaverse project is the metaverse asset with the highest number of holders (30,000) across all blockchains, surpassing Sandbox.
Layer 2 Roll-up Competitors
Bitcoin was originally designed for peer-to-peer value transfer but now faces scalability issues that threaten further adoption and growth of its user base. Layer 2 solutions were developed to solve these challenges by enhancing Bitcoin’s utility and improving efficiency without compromising security.
Layer 2 solutions also ensure lower gas fees. However, each project tries to develop innovative methods of addressing the limitations. For Merlin Chain, the key is to make the L2 Bitcoin Native. Some competitors in the L2 ZK roll-up space include:
- LumiBit: a Bitcoin-native Layer 2 solution based on Halo2’s ZK scheme and offering full EVM equivalence, with Bitcoin as the Data Availability layer.
- Project BitcoinOS: a roll-up Layer 2 solution currently being developed by the decentralized trading platform, Sovryn, with a testnet launch scheduled for Q3 2024
- ZKBase: a project developing multiple L2 services, including an automated market maker (AMM) exchange, BRC-20 trading platform, and other Bitcoin-Ethereum cross-chain services. Launch expected in Q3 - Q4 2024.
- Citrea: one of the earliest projects adopting ZK roll-up for Bitcoin, launching in February, around the same time as Merlin Chain.
Conclusion
The blockchain trilemma refers to the theoretical challenge of simultaneously achieving scalability, security, and decentralization. Bitcoin prioritizes security and decentralization, and Layer 2 solutions such as Merlin Chain help address the scalability bottleneck.
Disclaimer: Nothing on this site should be construed as a financial investment recommendation. It’s important to understand that investing is a high-risk activity. Investments expose money to potential loss.
