. 4 min read

‘Bitcoin is a Constantly Evolving Suite of Protocols’

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Bictoin (BTC) managed to bring in numerous developers to improve and build innovations on its underlying code base, from layer 2 technologies to emerging smart contract solutions, but it remained the same – nobody so far managed to change its core properties, says Lucas Nuzzi, director of technology research at Digital Asset Research, a cryptocurrency research company. Not everybody agrees with Nuzzi’s conclusions though, the Ethereum (ETH) camp especially.

Source: iStock/allanswart

“So much is happening at the many layers of Bitcoin’s technology stack, it can be incredibly difficult to keep track of emerging solutions,” says Nuzzi in his recent report and adds that “Bitcoin, in its totality, is a constantly evolving suite of protocols.” This is due to two of BTC’s biggest values, he says:

  • no single party can dictate how Bitcoin evolves;
  • the lack of centralized control protects Bitcoin’s monetary properties.

But “In spite of the limits enacted by this constitution, innovation is still flourishing,” tweets Nuzzi. “There’s too much at stake to move fast and break things, so innovation is implemented as modules. These layers of software can ultimately fail without infringing upon the monetary system.” When it comes to BTC, leadership is minimized, says Nuzzi, and its technology is a sum of dozens of interconnected protocols. It is due to the inflexibility of Bitcoin’s core layer that several additional protocols specializing in various applications have been created in the Cryptoworld.

Nuzzi shared a diagram, in an “attempt to map all relatively new initiatives and showcase a more complete picture of Bitcoin’s technology stack.”

(Find the full size diagram here.)

Layer 2: the Lightning Network

When it comes to adoption, metrics commonly looked at are the number of channels and total BTC locked in Lightning, which some find are in decline, but Nuzzi warns that these metrics are fundamentally flawed given the way Lightning operates.

“One of the most underrated virtues of the Lightning Network is its straightforward privacy properties,” he says. He cites the estimates of Christian Decker, core tech engineer at Blockstream (an important contributor to the Lightning Network), which says that 41% of Lightning channels are private, and 59% are public.

Activity happening within these channels is not captured by popular Lightning explorers. As such, an increase in private usage of Lightning results in a decrease in what can be publicly measured, leading observers to erroneously conclude that adoption is down.

Though there are “substantial usability barriers” to overcome, among the interesting recent developments in layer 2 privacy, Nuzzi mentions WhatSat, a private messaging system atop Lightning, and points out the growth of Lapps (Lightning Applications).

Smart contracts

There have recently been new approaches to smart contract architecture in Bitcoin, says Nuzzi, which can minimize unpredictability and provide vast functionality. Among these we find:

  • Merkleized Abstract Syntax Trees (MAST), prompting the creation of more supporting technologies that attempt to optimize the trade-offs between security and functionality, such as Taproot;
  • a new architecture for the implementation of covenants, or spend conditions, on Bitcoin transactions;
  • Schnorr signatures as the basis of potential new smart contract applications.


Since Bitcoin mining pool operators still retain a power structure that can be further decentralized, new technologies are being created to try to flip that power structure. Two relevant changes have been seen here:

  • the second version of Stratum, the most popular protocol used in mining pools – Stratum V2, which “enables mining pool constituents to decide the composition of the block they will mine and not the other way around”,
  • reignited interest in hashrate and difficulty derivatives.


“Although it is likely that privacy in Bitcoin will continue to be more of an art than a science,” this area has also seen interesting innovations, writes Nuzzi, and adds:

the biggest impediment to private transactions across digital assets is the fact that most solutions are half-baked. Privacy assets that focus on transaction-graph privacy often neglect network-level privacy, and vice versa. Both vectors suffer from a lack of maturity and usage, which makes transactions easier to de-anonymize via statistical traceability analysis at either the P2P network layer or the blockchain layer.

Among the solutions for these issues, Nuzzi mentions: the privacy-preserving network protocol Dandelion, a new transaction relay protocol Erlay, as well as CoinJoin’s P2EP, CheckTemplateVerify and the proposal of SNICKER (Simple Non-Interactive CoinJoin with Keys for Encryption Reused), a new way to generate CoinJoins with untrusted peers.

Pro and Contra and ETH

On the one hand, there are certainly a number of supporters online who found the report an interesting and informative contribution to the community. There are also those, from the Ethereum camp mostly, who didn’t think much of the diagram’s value.

Others persisted that BTC is old technology, prompting another ‘new vs old vs innovative vs limited’ debate.

And then, ETH was mentioned. Some ETH supporters didn’t think BTC is that impressive or deserving of the praise, with BTC fans jumping to its defence.

Meanwhile, BTC is currently (15:23 UTC) trades at c. USD 7,500. It’s up 1.8% in the past 24 hours and 2.8% in the past seven days.