The buzz surrounding Bitcoin is due to the rapid development of the original blockchain, which was once viewed as a conservative and sleepy ecosystem, compared to Ethereum’s more frequent upgrades and greater programability. It’s also because of the newly approved bitcoin spot ETFs, which have attracted billions of dollars in investment.

Bitcoin, the cryptocurrency, is undergoing a strong rally. It’s on track to achieve its sixth consecutive monthly gain. This will be the longest streak of gains in three years. BTC Price Index and Live Chart – CoinDesk”>(BTC) accounts for roughly half the value of all cryptocurrencies; put another way, it’s worth as much as all other digital assets combined.

It’s this newfound spirit of innovation that has engineers and programmers, including Muneeb Al CEO of Trust Machines, and co-creator Stacks Project, suddenly making the rounds. Analysts are scrambling to evaluate the potential. NFT-like digital artwork on Bitcoin is fetching up to $100,000.

Jenn Sanasie, CoinDesk’s Jenn Sanasie, interviewed Ali. Ali has a Ph.D. He spoke about the recent flurry and the breakthroughs he believes are behind it. He also talked about the much-anticipated Nakamoto update for the Stacks Project, which is expected to dramatically improve speed.

Bradley Keoun transcribed the interview and edited it lightly for clarity.

What news are you watching these days?

Ali : A recent funding round for EigenLayer was one of the recent news items that caught my attention. They raised about $100 million from A16Z. The thing that I find most interesting about this protocol is the fact that it looks at capital that has been locked in ETH to try and find interesting uses for it. How can you reuse locked capital? These primitives are also very interesting to me.

Bitcoin is like an apex prey. It’s like the pristine asset. These concepts could be more important because Bitcoin has a trillion dollar capital. We are only just beginning to see people lock their BTC capital in smart contracts that run on L2s. I believe that if we could give people more flexibility to lock BTC into a contract but then reuse it in interesting ways in the future, it would be worth it.

EigenLayer has been a hot topic in recent months, a project that is really exciting and is being talked about by everyone. What would be the difficulty in bringing something like this to Bitcoin? And what timeline can we expect to see such a development within the Bitcoin ecosystem.

Ali : The main challenge in bringing such protocols to Bitcoin was always at the L2 layer of infrastructure. There are two aspects to this. The first is what is the consensus mechanism of the L2? Does Bitcoin really secure it? This is what Stacks did with their Stacks Nakamoto Launch, which secures your transactions by using 100% Bitcoin hashpower. The second question is about the security of moving your BTC into L2 from L1.

Stacks, for example, has worked with sBTC. But other projects, like BitVM, have actually reduced trust assumptions. I believe we are making progress in both of these critical infrastructure points. After that is done, which I believe we will be very soon, Stacks Nakamoto’s launch is just a few months away at this time, I think developers will have the freedom to program whatever they like within the L2 environment. This is the most exciting part. Once these infrastructure challenges have been overcome, I believe we can unleash a lot more creativity from developers by using BTC.

Bitcoin has been a relatively stable ecosystem for a long time, right? How does it feel, in 2024, to be seated here, discussing these developments and Bitcoin’s rapid evolution?

Ali : That’s certainly interesting. From where I am, I’d say it took longer than expected. We knew, for example, that ecosystems outside Bitcoin could move faster, take more risks and innovate faster. You can watch the experiments that are working. Stablecoins are a good example. Stablecoins are working now. These primitives are a good fit for the market, they have a clear purpose, and people want to use these products. It’s good to see that Bitcoin is finally coming. Casey Rodarmor deserve a great deal of credit. As an example, I think that when Ordinals was founded, it was like the spark which ignited a lot of other projects.

Bitcoin culture changed, and the amount of capital and developers that came into Bitcoin also began to change. Then, some of the OG Bitcoin projects such as Stacks or others that are already running got a new fuel to the fire. People saw that a lot of the stuff was already built, or nearly there, and developers are now getting excited about it. In some ways I’m happy that we have taken a slow and steady approach. I’m also glad we are still here to witness the innovation returning to Bitcoin.

Let’s discuss Stacks a bit more. You’ve mentioned that the Nakamoto update is coming soon. Tell me what you plan to do with Stacks in 2024.

Ali : Bitcoiners have different values. There is definitely a much longer-term mindset. There is a distinct reluctance to take unnecessary risks. The Stacks L2 Project is a good example of this. A lot of R&D was done to design safe programming languages. On the consensus side, there was a lot of effort put into using Bitcoin’s hashing power or Bitcoin security to its maximum extent. It shows a long-term mindset. Nakamoto’s launch was in the works for, at this point, about two years. There were a lot more challenges in operating a decentralized eco-system. The Stacks L2 eco-system is decentralized, and this goes back to the Bitcoin ethos. I would say that there are at least 10 different companies that contribute to the core software, and another 20 or so outside of it. There are challenges and overheads in running a decentralized system, but it is better for long-term health. With the Stacks Nakamoto things are finally coming into place and the timing may also work out. Many developers are excited to launch Nakamoto. It is a faster L2 secured by the hashpower of 100% of Bitcoin.

People are eagerly anticipating the increase in speed and functionality. The timing could be interesting, because it is currently scheduled to coincide with the Bitcoin halving. It would be interesting, because Bitcoin is getting a lot attention during the time of halving. If the L2 major is also launching around the same time I think it would be exciting.

I’ll be waiting on edge of my chair for that. Let’s discuss Bitcoin scaling. The Layer 2s were designed to help solve some of the scaling challenges that the network faces. Tell me if this is happening and what needs to be done.

Ali : Let us say, at a rough estimate, that 100 million people are using Bitcoin. I don’t think that the figures are accurate, depending on what data you’re using, but let’s say it’s about 100 million right now. We know that Bitcoin L1 will not be able to reach a billion users. There’s no way. If they couldn’t own a UTXO in-chain. We need L2 solutions.

One of the biggest changes in the Bitcoin community over the past year is the fact that before the Bitcoin community put all their eggs in one basket: Lightning. Don’t misunderstand me, Lightning is incredible. Some of the companies have done some groundbreaking work. They are growing and bringing more nodes online. Over the past year, however, it’s interesting to note that this attitude has changed. This is what happened with Ethereum. We have about 10-20 big projects. In terms of the experiments people have tried, there are probably 100 or 200. Some of them did not work out. Some of them grew into bigger projects, with more traction and capital, as well as more developers. We are now beginning to see this with Bitcoin. There are Stacks and Rootstock which are more OGs. There are also a new batch of L2s on the way. This is a very, very exciting thing.

The free market will experiment with different designs and then tweak them. Then they try different remixes and iterations of the same ideas. It’s much more likely that a few will work than to put all your eggs in one basket. This will increase my confidence that there will be some L2s which are working commercially and relieving a lot of the load from Bitcoin L1, where people can make fast and cheap transactions, and infrastructure is in the background. This is where we would like to be. Bitcoin infrastructure should just work in the background. It’s reliable. People can make fast, cheap transactions. With these new experiments, I believe some of the L2s will be able deliver on this.

The NFT narrative has been revived by the Ordinals. It’s also interesting that this came from the Bitcoin eco-system. Do you believe that some of the traction we saw with Ethereum will be transferred to Bitcoin?

Ali: Let’s separate the two. Ordinals. I think that when something is a good fit for the market, it usually has a core property that stands out. People just understand that, right? It’s usually something simple. Bitcoin is 21 million coins. That’s all there is to it. The people know there will only be 21 millions coins. It’s durable and won’t change. It’s very simple. If you look at Ethereum they have tried to make very complex arguments about ultrasound money, how supply changes, etc., but that complicated argument is not working. What’s actually working on the market is that there will be only 21 million coins.

The same with NFTs. There are other factors but the simple fact that the image on Ordinals is literally printed on the chain. It’s not even on a chain. It’s Bitcoin. Bitcoin will be around for a long time. One property really stands out. People feel like this is a real thing, that it will never disappear and my digital artwork is stored forever. That’s all. That’s it. There are also other things that surround it, which are causing a lot more interest. We’ll see the same primitives again with Bitcoin DeFi. This is what L2s enable. One example I can think of, is that many people do not want to sell Bitcoin. A very simple primitive would be to say, “Hey, don’t just sell your Bitcoin. Lock it up in a way that is decentralized and you can get some liquidity.” Consider a stablecoin. It’s a very simple concept, which many people can understand and use. This is how I believe you can start to get a product market fit.

Now, to answer your second question. I think there is a lot going on in the industry. There are a lot more capital and developers that have the idea that some alt L1 will come along, like Solana, or something else. They’ll start eating into Ethereum’s share of the market. There’s truth in it, I believe. Solana has gained a lot in popularity among developers, and is also gaining more traction. The market is starting to realize that Bitcoin L2s are a bigger category. They can compete with alt L1s and Ethereum on all features. They can compete on speed, expressivity and other features. This could be a bigger market, simply because they aren’t starting from scratch. You’re starting at zero when you start a new project. You’re launching a Bitcoin L2 on top of trillions of dollars in capital. I believe that there is a more straightforward path for capital to be deployed, and Bitcoin L2s will grow as a category. So, I think that they will start to give Eth L2s a little competition. But even Eth L1 could start to see competition from Bitcoin L2s.

What other Bitcoin L2 do you follow? What Bitcoin L2 has done something innovative that you are keeping an eye on?

Ali : Right now, the landscape looks like, uh… there are four big players, Stacks Rootstock Lightning Liquid. They’re all very different. Liquid is part of a federation. Lightning is mainly for payments, and it’s a peer to peer thing. I believe Rootstock and Stacks are what Ethereum or Solana devs expect from an L2. Right? These are the two biggest ones.

There will be new experiments. Babylon I believe is one. They are doing something interesting by allowing Bitcoin to be locked on the L1 level. It’s like proof-of stake on other chains. This is a model I find very interesting. Spiderchains are another interesting concept that has been developed by some people. There is a common trend to reuse BTC. They cannot take Bitcoin capital to become a validator in an L2 ecosystem or any other.

The project I am most excited about is bitVM. It’s not a L2, but a building block for other L2s. This could even be used to create ZK-style rollups. BitVM is a bridge between L1 and L2s. I believe we’re about a year away from seeing this in real production. Now that we’ve got a path which doesn’t need any changes made to Bitcoin L1, it makes this very, very practical and realistic. Before, many people would criticize to the right that you wouldn’t get any changes if your L2 required changes from Bitcoin L1. BitVM or the work we do with sBTC doesn’t require changes to Bitcoin L1. This is a more practical, pragmatic solution that everyone knows. It will ship and it will work. This is a game changer.

Many people are now interested in Bitcoin because the U.S. has approved the spot bitcoin ETF. What do you think is needed to make the mainstream more interested in other aspects of the Bitcoin network.

Ali : Spot ETFs are bitcoin’s digital gold or store of value. It’s like passively holding bitcoin. For mainstream users, I would love to see more wallets such as Leather or Xverse. These are like the next-generation web wallets. They are built with a lot of support for L2s. They can also expose people to using Bitcoin actively. In my mind, if you are using Bitcoin at the L1 level, maybe you use a hardware wallet or self-custody. Or you buy via an ETF. This is similar to the digital gold store-of-value use case. When you use your Bitcoin with a wallet such as Leather or Xverse (which is similar to a modern web-based wallet), you can do some interesting things. You may be able swap your Bitcoin for a stablecoin, purchase an NFT or Ordinal, or take part in smart contracts. The more people who use Bitcoin in this modern way will be very exciting, because you can feel and touch it.

Bradley Keoun is the editor.