Bitcoin is a protocol. You can compare it to the internet. The internet is a protocol which allows communication of data. Bitcoin is a protocol which allows communication of value.
The Bitcoin protocol was put on-line in 2009. We call this protocol “the Base Layer”. It is made up of computer code running on decentralized computers all over the world.
The protocol provides a standard for the Base Layer. Meanwhile, new layers are being built on top of the Bitcoin Base Layer.
In this article, we highlight a few layers to give you an impression of what kind of layers are being developed, as well as the reasons for it.
Good to know: We write Bitcoin when we talk Bitcoin. We prefer to write “bitcoin” when we simply refer to “bitcoin the money”. For instance: Only 21 million bitcoin will ever exist on the Bitcoin blockchain.
Base Layer
The Bitcoin Base Layer
Bitcoin adds trust-less features to Money. First time ever features like Multi-sig Shared Ownership, Proof of Ownership, Complete Traceability (with optional full confidentiality/privacy on higher layers), Time-locking money and more.
Usability: Fairly easy. On-boarding in minutes.
1. Install any Bitcoin Wallet app (which generates your Key) on your Smartphone.
2. Make a physical backup of your Key -> say, carefully write down the 12 of 24 words that make up the Key and store the paper back-up(s) somewhere save.
3. Ready! You can now receive, store and send bitcoin, safely from your Smartphone. Any bitcoin you own in your Wallet is truly yours. We call this “self custody”, an important aspect of Bitcoin.
Second Layers
Lightning Network: instant cheap payments
Payment network built on top of Bitcoin’s Base Layer. The lightning-bitcoin in your possession can be instantly transferred into bitcoin on the Base Layer. The Lightning Network seems to evolve as the main settlement layer between the Base Layer and higher layers. Limited traceability within the Lightning Network.
Useability: Fairly easy when you trust the Wallet provider (you lose the Bearer aspect of your bitcoin). On-boarding in minutes by installing a custodial Bitcoin Lightning Wallet app. More advanced users can use Lightning through a non-custodial Wallet: you still hold the Keys to your bitcoin without the need to trust the Wallet provider (self custody).
Advantages over the Base Layer: A payment over the Lightning network is settled instantly (within seconds). This is faster than the Base Layer where you need to wait for your transaction to be included in a block (on average every 10 minutes). Also, Lightning payments are very cheap, while a payment on the Base Layer involves fees (the higher the fee, the more likely your payment will be included in the next block). Besides, payments over Lightning provide more privacy when compared to the completely transparent blockchain of the Bitcoin Base Layer.
Third Layers
FediMints: free, instant and privacy preserving payments within any group of trusted peers
Federated Mints on top of the Lightning Network (hence: third layer). Mints can be freely established between any group of trusted peers. Think of a family, a group of friends, an association.
FediMints provide payments which are completely free of charge (within the Mint). Also, payments are settled instantly and complete privacy within the Mint is guaranteed by design.
FediMints are presently being developed and built. It is a new development and limited information is available on how FediMints work in practice (written January 2025).
FediMints are expected to play a big role in the on-boarding of the world population onto Bitcoin. The Base layer as well as the Lightning Network do not have enough capacity to provide a payment network for the masses.