I just reflected on how Bitcoin works and realized something quite interesting – most people misunderstand its transaction mechanism. When it comes to L2 solutions for Bitcoin, people are often influenced by the L2 concepts from Ethereum, but Bitcoin is entirely different. To understand why, we need to start with a basic question: what is utxo?

What is utxo? It stands for Unspent Transaction Output – simply "unspent transaction output." Imagine you have a wallet with multiple bills of different denominations. Each bill is a UTXO – an amount of money you can spend. When someone sends you 10 BTC and you haven't spent it yet, that 10 BTC is a UTXO.

Bitcoin's operation is completely different from Ethereum. Ethereum uses an account model – like a bank account or Alipay wallet. The system only tracks the balance in your account. Bitcoin, on the other hand, uses the UTXO model – it’s like you actually have physical bills in your hand. When you buy something costing 600 yuan with a 1000-yuan bill, you get 400 yuan in change. In Bitcoin, this is equivalent to "spending" a UTXO of 1000 yuan and creating two new UTXOs: one of 600 for the seller, and 400 returned to you.

But the next question is: what is utxo in the context of more complex applications? That’s where the concept of eUTXO (Extended UTXO) comes in. Blockchains like Cardano use eUTXO – which not only records the amount but can also contain data and more complex logic. For example, funds might only be used to purchase specific goods. This makes transactions more flexible but also more complex.

Now, what is BRC-20? It’s basically an effort to run an account model on Bitcoin’s UTXO model. All token activities – deployment, minting, transferring – are done by embedding JSON data into Bitcoin transactions. It’s like writing notes on paper bills. The problem is Bitcoin cannot manage this account model natively, so it relies on off-chain indexing servers to track it. This is a major weakness – it introduces centralization risks.

New protocols like ARC-20 and Runes try to solve this by directly making the number of tokens equal to the number of Bitcoin in UTXOs. However, this approach creates another issue – tokens cannot be subdivided due to the minimum output limit of the Bitcoin network.

So, what is the real L2 solution for Bitcoin? Lightning Network is a good L2 channel for payments, but it’s limited in supporting more complex functions. What’s truly needed is an L2 that applies a structured UTXO model with Bitcoin and extends it with eUTXO.

CKB is the first blockchain to consider implementing this. They propose RGB++, an extended protocol for RGB. The main idea is to use "structured binding" to map Bitcoin UTXOs to Cells in Nervos CKB – a modified version of UTXO that can be combined to implement smart contract capabilities. All RGB++ transactions will appear simultaneously on the Bitcoin and CKB blockchains.

What’s truly unique here is that CKB doesn’t use any cross-chain bridges. Instead, they use native client verification. This means assets issued on the Bitcoin layer can utilize smart contracts on the CKB layer to achieve more complex applications. It’s a pretty advanced idea – enabling cross-chain expansion purposefully rather than traditional asset cross-chain.

Although RGB++ is still a concept and not fully implemented yet, it’s considered a promising new direction for exploring Bitcoin’s L2 solutions. To better understand what utxo is and why it’s important, you need to realize that Bitcoin isn’t a "bank account" but a "real cash wallet." That’s why Bitcoin’s L2 solutions must be designed completely differently from Ethereum. The future of Bitcoin scaling could be very exciting.