What Is Merlin Chain? The New EVM-Compatible Bitcoin L2

Since the inception of Bitcoin, developers have been looking for new techniques to scale this popular blockchain, making it more efficient and enabling new use cases. 

Layer 2 (L2) solutions have risen in popularity in recent years, bringing a plethora of new projects to Bitcoin. Merlin Chain is one of these new L2 solutions.

Read on to learn about Merlin Chain, its main features, and what it can potentially bring to the Bitcoin ecosystem. 

What is Merlin Chain? 

Merlin Chain is a Bitcoin L2 solution built on the Polygon CDK, a blockchain stack for developers launching L2 chains. 

The team behind Merlin Chain says it aims to improve Bitcoin’s efficiency and bring to this blockchain new use cases with zero-knowledge (ZK) rollups, on-chain BTC fraud-proof modules, and a Decentralized Oracle Network.

Developed by Bitmap Technology, the developers behind Bitmap.Game, a metaverse operating on Bitcoin, and its BRC-420 token standard, Merlin Chain debuted in January 2024. 

Main Features of Merlin Chain

The Merlin Chain is a feature-rich blockchain, with the most notable features being: 

ZK-Rollups

This protocol leverages ZK-rollups, a combination of ZK and rollups, technology, which allows the necessary computations to be performed off the Bitcoin blockchain. It then aggregates and compresses transaction data into batches before submitting them to the Bitcoin mainnet.

In this way, ZK-rollups reduce Bitcoin's computational load and help keep transaction fees lower. Moreover, using zero-knowledge technology also strengthens privacy for Merlin Chain's users.

Decentralized Oracle Network

Another vital element of Merlin Chain is its Decentralized Oracles Network (DON). Nodes in this network help batch transactions and upload them to the Bitcoin blockchain. 

All raw data is stored on DON, while users can verify the data through ZK proofs. Additionally, the network of oracles implements a fraud-proof mechanism that provides final transaction confirmation on Bitcoin.

On-Chain Fraud-Proof Mechanism

To ensure the blockchain's data integrity and security, the developers of Merlin Chain plan to introduce a fraud-proof mechanism. The mechanism involves two parties, the Prover and the Verifier, who pre-sign a series of transactions, which is necessary to enable a challenge-response mechanism.

For example, if the Verifier suspects incorrect data or fraudulent behavior, they can challenge the Prover to provide the necessary proofs that confirm the correctness of the data.

EVM-Compatibility

Merlin Chain is EVM (Ethereum Virtual Machine)-compatible, a feature made possible by the BTC Connect solution developed by Particle Network, a Web3 infrastructure service provider.

As a result, BTC wallets can connect to EVM-compatible dApps (decentralized applications) and swap BTC for Ethereum-based cryptoassets. This means Merlin users do not need to switch to an EVM-compatible wallet.

How Does Merlin Chain Work?

To prove that state changes are valid, Merlin Chain uses zkEVM, an EVM-compatible scaling solution that utilizes zero-knowledge proofs. These proofs are generated by the operators of Merlin's zk-rollups, known as sequencer nodes. 

The nodes also bundle transactions and send them to Bitcoin's main chain, where the data is stored permanently, making it immutable.

Merlin's oracle network is tasked with implementing a fraud-proof mechanism that ensures the data processed by the chain is correct. Chain users can challenge the validity of batched data.

All these elements are designed to help Merlin process more transactions and ensure their correctness, as well as offer lower fees while leveraging Bitcoin's security. The developers are aiming for a consistent block time of three seconds.

Merlin also says that its multi-signature and cold storage technologies help ensure the security of staked assets, such as BTC, MERL, and others.

What is the MERL Token?

MERL is Merlin Chain’s native cryptoasset, with a total supply of 2.1 billion, which the team expects to reach in approximately four years. 

According to the project documentation, the token is used in the governance process of the protocol, for paying fees on potential new networks built on Merlin Chain, and serves as collateral and a liquidity source. 

Additionally, MERL holders can stake the token, contributing to the security of the chain.

Limitations of the Merlin Chain

While the Merlin Chain promises improvements to the Bitcoin network, it has its shortcomings. Here are the main ones:

Integration Challenges

As Bitcoin-focused L2s and similar scaling solutions on other blockchains differ, this may introduce an additional learning curve for developers accustomed to working with non-Bitcoin chains and willing to move their project to Merlin Chain.

Turing Incompleteness

While Merlin Chain aims to provide a solution for bringing smart contracts to the Bitcoin network, it may still fall short of providing a smooth experience due to Bitcoin's Turing incompleteness. This is an intentional design choice meant to enhance Bitcoin's security, for example, by preventing Denial of Service (DoS) attacks.

Dependence on Bitcoin Block Time

Despite aiming for a block time of three seconds, Merlin Chain is still dependent on Bitcoin's average 10-minute block time for the final settlement.

Significance of Merlin Chain to the Bitcoin Ecosystem

If successful, the integration of the Merlin Chain with the Bitcoin network might improve the premier blockchain and cryptocurrency ecosystem in these areas:

Scaling the Bitcoin Network

Through its zk-rollups, the Merlin Chain could help the Bitcoin network scale by processing larger amounts of transactions more quickly. At the same time, L2 solutions increase demand for Bitcoin block space, allowing miners to collect more fees and making the network more secure.

Making Transactions Cheaper

Without scaling solutions, BTC transaction fees can easily skyrocket when demand for Bitcoin's block space is high. By performing computations off-chain and batching transactions, Merlin Chain helps keep fees lower while processing the same number of transactions.

Enhancing Bitcoin’s Interoperability

By being EVM-compatible, Merlin Chain can help increase interoperability between Bitcoin and other blockchain ecosystems, allowing users to interact with a wider range of dApps and transfer cryptoassets across chains. Additionally, smart contracts created on EVM blockchains should also work on Merlin Chain.

Increased Innovation

Increased efficiency and interoperability can also benefit Bitcoin-native assets, such as Ordinals, BRC-20, and Runes, which, in turn, could further increase demand for the Bitcoin network.

The Bottom Line

Merlin Chain aims to enhance the capabilities of Bitcoin by being EVM-compatible and leveraging scaling solutions such as zk-rollups and its network of oracles. 

If successful, this protocol could become a significant player in the growing ecosystem of Bitcoin L2s, all of which compete to attract more users by leveraging the security of the most decentralized network.

Sign up for Samara’s Monthly Market Commentary to stay current with the latest trends and developments in Bitcoin and tech-driven alternative assets.

‍