Could sidechains and L2s become a problem for BTC?

[Satofan44]

The issue is that after the emergence of L2s nobody wants to pay L1 fees while they can get the same equivalent service on L2s so Ethereum has returned to inflation in spite of the sweeping changes.

You don't get the same with an L2s, your whole argument is based on a misunderstanding. It is as if you asked me if I would use Bitcoin because I can get the equivalent or better service of using Visa. After all, both have transactions and this one does more and does it faster?   The security assumptions of layer 2s are completely different than the security assumptions of layer 1s. You do not get the "same" by using a layer 2, you get much less.

This isn’t entirely true. Ethereum has always had high usage despite the existence of cheaper L2s.

Most of the usage is automated and not done by users.

Even though both networks are similar in that they have different layers, Ethereum’s overall approach to scaling is very different. Ethereum is constantly increasing capacity on their mainnet, which is something that Bitcoiners are reluctant to do through block size increases.

I would not put it like this, because it comes off as something that we should do but are refusing to do. Ethereum L1 is extremely centralized compared to Bitcoin, and shitcoins like Solana even more so. Even with all their trickery of skipping real validation of the chain, it is still extremely hard to synchronize it on home hardware and impossible on low end hardware like Bitcoin is. You can run a Bitcoin full node on Raspberry Pi, but you can't run any shitcoin full node on it.
People are seeing this through a reductionist lens and failing to grasp the full picture. There is a fee market on L1, there is a separate fee market (albeit less active in terms of competition due to massive scaling) on L2, and there is a fee-market between interaction L1 and L2. These markets are self-balancing. I love the use of LN, and will use it where appropriate regardless of the situation with L1. However, in most cases when fees are not extremely high, I will always use L1.

Furthermore, empowering layer 2s too much is extremely dangerous. Ethereum has basically dead locked itself in. Hundreds of millions of dollars were invested in layer 2s. If they "scale" layer 1 more to make it have even more TPS (at the cost of further centralization), it would wipe out many of these L2s. Incentives matter people, learn how to think about incentives.

[X-ray]

Most of L2 sidechains on bitcoin are very small in size, and they don't have much liquidity to become a real problem.
I think layer two projects can be useful, for example they can provide better privacy, but most of them are just trying to copy what ethereum is doing.
Any crisis with bitcon mining rewards in future has no connection with layer two projects whatsoever.
 

I agree and the Wrapped BTC in BSC and ETH is a bigger problem that prevent people from populating the on-chain transactions in bitcoin and instead offload it to something like Ethereum or even Base Layer 2.

We've got tons of them with various names from WBTC, CbBTC, BTCB and so on. The layer 2 of bitcoin usually aren't that much used, even their Total Value Locked are nothing and not that much people minting their BTC to layer 2 to begin with.

[alani123]

The issue is that after the emergence of L2s nobody wants to pay L1 fees while they can get the same equivalent service on L2s so Ethereum has returned to inflation in spite of the sweeping changes.

You don't get the same with an L2s, your whole argument is based on a misunderstanding. It is as if you asked me if I would use Bitcoin because I can get the equivalent or better service of using Visa.

See the thing is simple economics teach us that if a service is equivalent people can have a very high tendency to use the cheapest alternative that is essentially the same.
If the goal is to get BTC from point A to B most people won't care about decentralisation.
Yes, if visa comes up with a fully compromised way to transfer BTC that is free, many people will use it.
This is evident by how many transactions happen within any exchange. We see numbers that are up to the 10s of millions for any singular exchange. Bitcoin on chain transaction capacity can't even accommodate the number of transactions an exchange does in a day off-chain over the span of whole months.

But that's besides the point here.
The issue here is a much more fundamental one.
L2s and sidechains create a very odd situation especially if CORE decides to intergrade such functionality.
It will be economically pointless to transact on-chain while at the same time the security of the chain heavily depends on there being on-chain transactions so miners can have incentives to continue.

[davis196]

I'm looking at Ethereum that implemented some sweeping changes to potentially stabilise the supply by making a percentage of all fees paid go to burning coins and also locking validator holdings.

The issue is that after the emergence of L2s nobody wants to pay L1 fees while they can get the same equivalent service on L2s so Ethereum has returned to inflation in spite of the sweeping changes.

The issue here is different with bitcoin because there's no smart contract functionality, mining won't be gone etc. But the principle still applies. What if L2s and sidechains make on-chain transactions impractical and therefore affects the fee market adversely? Wouldn't that have a bad effect on bitcoin's longevity especially as block rewards diminish?

Couldn't bitcoin face a crisis over who's going to protect the network due to the lack of incentives down the line?

Right now the BTC transaction fees seem pretty low. Second layer solutions and sidechains aren't very beginner friendly. How can onchain transactions become impractical, since the transaction fees are low and the confirmation time is pretty much fast enough? Those L2s and sidechains exist as an addition to the BTC blockchain. They cannot exist without the foundation(the Bitcoin Core blockchain). If the quantity of Bitcoin transactions remain low, nobody would even use sidechain and L2s. All the hype around sidechains began when the BTC blockchain got stuck due to dust transactions or the ordinals. Removing the useless crap out of the blockchain kinda makes the sidechains useless.

[alani123]

So what are we going to rely on LN, L2s and sidechains to be hard to use forever?
Based on this do we accept that if off-chain transaction solutions become easier it's a threat or we'll just apply wishful thinking that we'll never have to face that issue because adoption will never pick up off or on chain regardless of off-chain solutions

[SquirrelJulietGarden]

So what are we going to rely on LN, L2s and sidechains to be hard to use forever?
Based on this do we accept that if off-chain transaction solutions become easier it's a threat or we'll just apply wishful thinking that we'll never have to face that issue because adoption will never pick up off or on chain regardless of off-chain solutions

I am not a fan of off-chain solutions because I know that Bitcoin blockchain is very strong and secure for itself and for our Bitcoin on-chain transactions. It's my favorite choice than off-chain solutions especially when I can broadcast my Bitcoin transactions on-chain with cheap transaction fees. I have no need to using off-chain, side-chain just for saving a little bit transaction fee while security of my bitcoin and Bitcoin transactions are affected negatively.

It does not mean I will surely lose my bitcoins by moving it off-chain but risk exists and I prioritizes security and safety than a little bit satoshis saved through transaction fee.

[Satofan44]

The issue is that after the emergence of L2s nobody wants to pay L1 fees while they can get the same equivalent service on L2s so Ethereum has returned to inflation in spite of the sweeping changes.

You don't get the same with an L2s, your whole argument is based on a misunderstanding. It is as if you asked me if I would use Bitcoin because I can get the equivalent or better service of using Visa.

See the thing is simple economics teach us that if a service is equivalent people can have a very high tendency to use the cheapest alternative that is essentially the same.
If the goal is to get BTC from point A to B most people won't care about decentralisation.
Yes, if visa comes up with a fully compromised way to transfer BTC that is free, many people will use it.
This is evident by how many transactions happen within any exchange. We see numbers that are up to the 10s of millions for any singular exchange. Bitcoin on chain transaction capacity can't even accommodate the number of transactions an exchange does in a day off-chain over the span of whole months.

No, because those things are not substitutes. They are complements. You are confusing the basics, and I made an extreme example to try to highlight where you error is and yet you still persisted with it.

But that's besides the point here.
The issue here is a much more fundamental one.
L2s and sidechains create a very odd situation especially if CORE decides to intergrade such functionality.
It will be economically pointless to transact on-chain while at the same time the security of the chain heavily depends on there being on-chain transactions so miners can have incentives to continue.

"Core" does not need to "integrate" anything. We already have LN and sidechains, and we will get many more. It is not "economically" pointless to transact on-chain. Again, you are making false assumptions and rolling far with them which leads to errors in conclusion. The security assumptions and guarantees of Layer 2 are completely different, and the overall security of it is nothing compared to Layer 1 on Bitcoin. You can argue from a theoretically narrow perspective all you want, but as long as we can easily draw on counter examples of users that disprove the theory it is a moot point. I've already told you that it is never going to happen.

Read the bold point. It has nothing to do with the usability or UX of layer2s, and nothing to do with the economics either. You do not get the core benefits of Bitcoin only because you are on a layer 2, they do not get passed down this way. Things don't work that way. Luckily nobody listened to people like you when the internet was built, otherwise they would believe that somehow the layer 5 of the internet would have destroyed layer 1.  

So what are we going to rely on LN, L2s and sidechains to be hard to use forever?
Based on this do we accept that if off-chain transaction solutions become easier it's a threat or we'll just apply wishful thinking that we'll never have to face that issue because adoption will never pick up off or on chain regardless of off-chain solutions

Again, stop making a conclusion based on false premises and then try to stir panic with the assumption that your conclusion is true. There is no issue at all, and you don't have a "solution" for your "issue" either. If others don't believe that your "issue" is a thing, what is the point of talking about it? This is not any different than quantum thread, a block reward thread, or many other similar threads. The economics are only one side of the story, and when it comes to Bitcoin they are a side-effect and not a primary feature or driver of usage. A L2 can not take away utility from the base layer that it does not provide itself. It is not a substitute, it is a complement. Learn the difference.