Bitcoin L2s Explained: How Stacks, Rootstock & BitVM Are Expanding BTC Utility

The Sleeping Giant

Bitcoin, the king of crypto, is the most secure, decentralized, and valuable blockchain globally; however, it is also a sleeping giant. Despite the Bitcoin price dominance over the years, the network itself is very limited in what it can do, as it is not a smart contract platform. But what if we could build a new layer on top of Bitcoin that could unlock its full potential?

The introduction of Layer-2 on the Bitcoin network represents one of the most interesting and significant new trends in the cryptocurrency ecosystem. A Layer-2 on Bitcoin is a secondary protocol built on top of Bitcoin’s mainnet, which is the Layer-1. The Layer-2 solutions handle most transactions and activities, such as computation off-chain and parallel chains, and periodically settle back to Bitcoin’s base layer.

For most of its history, Bitcoin has intentionally remained conservative in design, prioritizing security, decentralization, and monetary soundness over rapid future expansion. The L2 technology is designed to relieve network congestion on the main chain, reduce transaction fees, and improve speed. Among its exciting use cases, L2s can generate smart contracts, issue tokens, and run decentralized applications (dApps), while ultimately settling transactions back to Bitcoin’s base layer for security.

This article will provide a guide to the world of Bitcoin Layer-2s. We will explain how they work and the different approaches they take, and we will also do a deep dive into the three leading projects in the space: Stacks, Rootstock, and the new and ambitious concept of BitVM.

The Problem: The Limited Functionality of Bitcoin

A Simple and Secure Base Layer

Compared to Layer-2 Bitcoin, Bitcoin (base layer/L1) was intentionally built with a narrow focus, which is to make the transfer and storage of value secure and decentralized. This was not an oversight or structural error; it was a deliberate architectural choice. The anonymous creator of Bitcoin, Satoshi Nakamoto, kept Bitcoin’s protocol extremely simple by avoiding complex built-in functionality and sticking to a simple scripting language.

Bitcoin’s base layer plan was never intended to execute advanced computation, complex on-chain applications, or token ecosystems, unlike Ethereum and modern smart contract chains. This narrow-focused purpose is what makes Bitcoin secure and unique, while still enabling integration into digital asset banking services.

Why Was Bitcoin Built This Way?

• Minimal and predictable scripting, not a general-purpose VM: Bitcoin uses a scripting language called Bitcoin Script. Script is deliberately not Turing-complete: it does not support loops, recursion, or arbitrary stateful logic. That means scripts always terminate, and transaction validation remains bounded in complexity.
• Stateless and transaction-level logic only: Script is used to specify simple spending conditions, for example, “this output can be spent if the correct signature is provided,” or “only after a certain time,” or “if multiple keys sign (multisig).” There is no persistent on-chain state, no global storage, no concept of a long-running contract with internal state as on more expressive smart-contract chains.
• Security through simplicity and determinism: Because Script is small, simple, and deterministic, every node validates the same way, with no risk of infinite loops or unpredictable logic. This reduces the attack surface, makes auditing easier, and ensures every transaction behaves the same for everyone.
• Design philosophy (money first over smart contract platform): From its inception, Bitcoin prioritized stability, immutability, and consensus security over expressiveness. Its focus on a secure, decentralized medium of exchange and store of value allows investors and institutions to monitor Bitcoin price trends and leverage the network without risking unpredictable logic.

The Solution: Building on Top of Bitcoin

The Core Idea

Bitcoin’s core infrastructure is built to be predictable and secure, so every transaction is validated the same way, and each block represents the network’s truth. This is why, despite the consistent attacks on the digital asset, Bitcoin has stood the test of time, defying attacks while maintaining its role as the world’s most reliable cryptocurrency.

It was never designed to be flexible like layer 2s. In its strength, developers noticed that although being secure was good, Bitcoin lacked the ability to execute smart contracts, host DeFi applications, or even manage token ecosystems. Hence, a need to maintain its core infrastructure and build on top of it. Bitcoin Layer 2s allow Bitcoin to remain immutable and secure while providing new functionalities.

Stacks, for example, uses Bitcoin’s security through its Proof-of-Transfer mechanism; Rootstock (RSK) uses Mining with Bitcoin to enable Ethereum-compatible smart contracts; and BitVM enables verifiable off-chain computation with on-chain settlement, allowing programmability that Bitcoin does not have.

Through Layer-2s, Bitcoin can work beyond being a store of value to accommodate decentralized finance apps, issuing tokens, and running decentralized applications (dApps).

The Three Leading Approaches

Approach 1: Stacks (STX) – The Bitcoin Layer for Smart Contracts

Stacks (STX), a Layer-2 blockchain built on Bitcoin, enables smart contracts, decentralized applications, and tokenized ecosystems. It’s Proof-of-Transfer (PoX), which allows participants to spend or lock BTC to secure Stacks blocks, which means that all transactions and smart contracts on Stacks naturally use Bitcoin immutability and trust.

Stacks Proof of Transfer (PoX) Mechanism. Source: Stacks

Developers on Stacks write contracts using Clarity, a smart contract language that avoids the Turing-complete systems, a method that causes smart contracts to get stuck in continuous loops or have hidden bugs that could compromise security. Clarity ensures that contracts terminate any fishy bugs and behave as written. Developers can verify what a contract will do before deploying it, reducing the risks associated with mistakes and ensuring they are secure and reliable.

STX, the native token of Stacks, is used not only for transaction fees and smart contract execution but also as part of the PoX mechanism. Participants who lock or spend STX together with BTC can earn crypto rewards, creating incentives for network security and engagement.

Approach 2: Rootstock (RSK) – The EVM-Compatible Bitcoin Sidechain

Rootstock is designed to address specific limitations of the Bitcoin blockchain. Introduced in 2015 to boost the BTC price and provide smart contracts, RSK is not a cryptocurrency or coin; it is built to run alongside the Bitcoin blockchain. When BTC is transferred to RSK, it becomes RBTC.

The infrastructure seeks to overcome long transaction confirmation times and network congestion, increasing Bitcoin’s scalability. RSK is a sidechain that remains fully compatible with the Ethereum Virtual Machine (EVM), meaning any developer familiar with Solidity, Web3.js, or Truffle can deploy smart contracts on Rootstock without learning a new language.

Rootstock batches multiple user transactions into off-chain blocks to increase speed and reduce congestion. Once an L2 block is finalized, a summary or proof of that block is submitted to Bitcoin’s Layer 1 for verification. After it’s confirmed on L1, the transactions gain Bitcoin’s full security and immutability.

Rootstock (RSK) Transaction Processing and Settlement Illustration. Source. Rootstock.io

Rootstock uses two fundamental mechanisms, including merged mining and a two-way peg integrated through a bridge called Powpeg. With merged mining, Bitcoin miners use the same computing power to secure both Bitcoin’s mainnet and Rootstock. As of early 2025, over 80% of Bitcoin’s total hashing power has been contributing to Rootstock security, giving the layer 2 hashrate security.

When a user wants to contribute to Rootstock, they make use of the Powpeg two-way peg by locking BTC in a special multi-signature vault on Bitcoin’s main chain, which triggers the minting of an equal amount of Rootstock native token, RBTC. The token can be used to pay for gas fees, fuel smart contract execution, and interact with DeFi protocols while pegged 1:1 with BTC. The bridge is designed to minimize trust requirements.

It relies on specialized hardware security modules, known as PowHSMs, to protect private keys and prevent risks from human error or key theft. Transactions across the bridge only occur when Bitcoin’s SPV proofs and hash-power validation are confirmed, ensuring that digital wallet funds cannot be fraudulently accessed or duplicated.

Through its architecture, Rootstock can decentralize finance, tokenize assets, and run DeFi-style dApps to run on Bitcoin rails without compromising core principles.

Approach 3: BitVM -The Ambitious Newcomer

BitVM (Bitcoin Virtual Machine) is a new framework designed to let Bitcoin support more advanced logic, similar to smart contracts, without changing Bitcoin’s core rules. Instead of running heavy computations directly on-chain, BitVM keeps the complex work off-chain and only uses Bitcoin for verification.

It works through a “prover-verifier” model. The prover calculates the result of a function off-chain, while the verifier checks the claim. If everything is correct, nothing extra happens; but if something looks wrong, the verifier can challenge the result, and Bitcoin’s base layer steps in to enforce the truth using fraud proofs and simple scripts.

Illustration of how a BitVM bridge works. Source: BitVM

Using this model, a BitVM-based bridge can move BTC to another blockchain through a peg-in/peg-out mechanism. A peg-in user locks BTC on Bitcoin and receives xBTC on another chain; when returning, they burn xBTC, and the original BTC is released. Throughout the process, challengers can dispute any dishonest actions, helping keep the bridge more trust-minimized and secure.

Why BitVM Is So Ambitious And What It Could Unlock

• Turing-complete smart-contract potential: BitVM effectively gives Bitcoin the expressiveness of a general-purpose virtual machine, enabling complex contracts, dApps, and arbitrary logic, previously only practical on chains like Ethereum.
• No protocol changes/no hard-fork required: That’s a big advantage over proposals that require modifications to Bitcoin’s consensus or scripting system. BitVM works with Bitcoin as-is.
• Trust-minimized, decentralized bridging to L2s: With BitVM and its successor improvements like BitVM2, it’s possible to build a truly native Bitcoin L2, or multiple L2s, sidechains/rollups, that remain anchored to Bitcoin’s security yet provide the flexibility of smart-contract platforms.
• Minimal on-chain footprint, scalable off-chain computation: Since heavy computation is off-chain, on-chain activity is minimal unless there’s a challenge, which means a lower load on the main chain and better scalability.

Conclusion: The Re-Awakening of the Giant

Although Bitcoin is the king of crypto, the blockchain has maintained a quiet status, while Layer 2 solutions like Stacks, Rootstock, and BitVM are building on its infrastructure, allowing Bitcoin to evolve without compromising its core principles.

Stacks demonstrates how Smart contracts and decentralized applications can be hosted on Bitcoin through its Proof-of-Transfer (PoX) Mechanism. Rootstock uses Ethereum EVM compatibility to bring DeFi, tokenization, and smart contracts while maintaining hash-rate security through merged mining and the Powpeg bridge. BitVM offers off-chain computation with on-chain verification, making Turing-complete logic accessible without tampering with Bitcoin’s base layer.

Through Layer-2 blockchain, Bitcoin has become a platform that not only serves as a store of value but also accommodates decentralized finance, decentralized applications, and tokenized ecosystems while still maintaining its core principle of being a secure and immutable blockchain.

The Bitcoin ecosystem is on the verge of a major renaissance. If you want to position yourself for the next wave of Bitcoin innovation, the first step is owning BTC. Digitap provides a secure and regulated way to buy and hold Bitcoin as new Layer-2 applications continue to emerge.

Frequently Asked Questions (FAQs)

What is a Bitcoin Layer-2?

A Bitcoin Layer-2 is a secondary protocol built on top of the main Bitcoin blockchain to improve speed, reduce fees, and sometimes enable smart contract functionality. These solutions process most activity off-chain or on a parallel network, then settle results back to Bitcoin’s Layer 1 for security. They enhance Bitcoin’s performance without requiring changes to its base layer.

How is a Bitcoin L2 different from an Ethereum L2?

Bitcoin L2s are designed to extend Bitcoin’s limited programmability while preserving its conservative, security-first architecture, often using mechanisms like Proof-of-Transfer, merged mining, or fraud-proof systems. They aim to scale Bitcoin without compromising its decentralization or monetary integrity.

Ethereum L2s, meanwhile, build on a base layer that already supports smart contracts, focusing mainly on scalability by using rollups to lower gas fees and increase throughput. Since Ethereum is inherently programmable, its L2s concentrate more on efficiency than adding new trust-minimized functionality.

What is Stacks (STX)?

Stacks (STX) is a Layer-2 blockchain built on top of Bitcoin that brings smart contracts, decentralized applications (dApps), and a tokenized ecosystem to the Bitcoin network without changing its core layer. It uses the Proof-of-Transfer (PoX) mechanism, which links its security to Bitcoin by having users lock or spend BTC to secure Stacks blocks.

What is Rootstock (RSK)?

Rootstock (RSK) is a Bitcoin sidechain designed to bring smart contract functionality to the Bitcoin ecosystem while leveraging its security. It is fully compatible with the Ethereum Virtual Machine (EVM), so developers familiar with Ethereum tools like Solidity, Web3.js, or Truffle can deploy smart contracts on Rootstock without learning a new language.

What is BitVM?

BitVM, along with its improved design BitVM2, is a research-driven framework that enables complex, arbitrary program execution on Bitcoin by running computations off-chain and verifying them on-chain through fraud-proofs. It works without changing Bitcoin’s consensus rules, making it compatible with Bitcoin exactly as it is today.

By keeping heavy computation off-chain and using the blockchain only for verification or dispute resolution, BitVM opens the door to scalable smart-contract functionality, Bitcoin-native rollups, trust-minimized bridges, and other advanced applications.