Arch is a decentralized execution layer focused on enhancing the programmability of Bitcoin. The network is currently in the testing phase and is expected to go live on the mainnet in a few weeks.

Authored by: Vishal Kankani, Head of Multicoin Capital Investment Team

Translated by: Golden Finance xiaozou

On May 9, 2024, Multicoin announced a $7 million seed round investment in the Bitcoin-native application platform Arch. Arch unlocks the potential of decentralized finance (DeFi) on the world's largest blockchain, Bitcoin, without the need for bridging. Other participants in this round of financing include OKX Ventures, Big Brain Holdings, Portal Ventures, CMS Holdings, Tangent, and others.

For the past decade, Bitcoin has operated as digital gold. Although discussions about enhancing smart contract functionality took place over a decade ago, these efforts largely went unnoticed. Part of the reason was the significant portion of the Bitcoin community that believed the corresponding trade-offs might jeopardize Bitcoin's ultimate mission of becoming the largest non-sovereign currency.

At that time, the mainstream view in the Bitcoin community was to abandon all programmability and innovations related to off-chain extensions, while maximizing potential without sacrificing the ultimate vision of a non-sovereign currency. The emergence of Ethereum and other smart contract platforms capitalized on this opportunity.

Smart contract platforms have been around for a decade. Some smart contract primitives, such as decentralized exchanges, lending markets, and stablecoins, have found their product-market fit. They are considered fundamental components of a well-functioning blockchain ecosystem.

Before the Taproot upgrade in November 2021, Bitcoin's smart contract functionality was very limited. The Taproot upgrade increased the witness field space to about 4MB, making it easier for developers to write complex script functions. This allowed developers to write scripts for:

• Atomic swap transactions
• Multi-signature wallets
• Conditional payments

Later, in July 2022, Casey Rodarmor introduced "Ordinal Theory," a scheme for numbering satoshis, allowing the tracking and transfer of individual satoshis. This unlocked the ability for users to directly "inscribe" any data into Bitcoin transactions, including images, text, games, etc., thereby unlocking full-chain NFTs on Bitcoin. These NFTs may not necessarily be JPEGs or songs; they can also be proofs of state from other chains.

The impact of the Taproot upgrade and Ordinal Theory has been significant, and now developers are finally conducting large-scale experiments on Bitcoin.

1. Current Development Status of Bitcoin

At the time of writing this article, over 50 teams are conducting various research on rollups, drive chains, side chains, etc., to expand Bitcoin and make it more programmable. Most of these projects claim to be "Bitcoin Layer 2," which is a broad term in some cases. Some of these projects are currently available, while others are still working towards breakthroughs in the future, such as BitVM, OP_CAT, and others.

In this field, each team has a clear set of design trade-offs. Several important variables related to design include:

• Custodial mode
• Programmability
• Scalability

We believe that in the short term, the first two points are the correct trade-offs:

• Native construction on Bitcoin - to support interaction with DeFi without additional trust assumptions outside of Bitcoin.
• Focus on making Bitcoin more programmable in a self-custodial mode.

A typical bitcoiner should be a security fanatic. When it comes to "Not your keys, not your coins," Bitcoin users are the most paranoid users on the planet. It should not be expected that Bitcoin holders will switch their BTC to a new multi-signature, relinquishing even a bit of self-custody, or worse, taking on bridging risks. We firmly believe this because WBTC and tBTC have been around for years, but their cumulative share of Bitcoin's total supply is still less than 1%. There simply isn't enough market demand to bear the bridging/centralization risk to achieve programmability benefits.

Additionally, we also see that most TVL on Ethereum resides on L1, rather than on L2 solutions like Base, Arbitrum, or Optimism.

To truly unlock DeFi on Bitcoin, developers need to come to the users' stronghold - Bitcoin L1.

Why focus more on BTC programmability than scalability?

As a developer, if all you want is to create a fast blockchain, there are many alternatives like Solana with a thriving developer ecosystem and more mature market infrastructure. Even with the most tolerant view of the current state of Bitcoin technology, we are not ready to achieve high throughput chains without sacrificing custody, as mentioned earlier, which is impossible for most bitcoiners. In this regard, most developers building on Bitcoin are "allied with Bitcoin" - they want to build the world's most secure blockchain, rather than masquerading as L2 multi-signatures. Within Bitcoin's current technical capabilities, we believe the correct sequence of operations is to prioritize programmability and further push speed and scale along the roadmap.

2. Bitcoin Native Applications on Arch

Arch is building the first Bitcoin-native application platform. The Arch network is currently in the testing phase and is expected to go live on the mainnet in a few weeks.

Arch is a decentralized execution layer focused on enhancing the programmability of Bitcoin. It makes several interesting trade-offs in Bitcoin expression design:

• It acknowledges that most Bitcoin holders will not switch to multi-signatures (almost all Bitcoin L2s are trusted multi-sigs).
• The core architecture allows takers of spot trades to interact with applications without assuming new trust; however, makers will face additional trust assumptions (makers are usually professional profit-seekers who explicitly take risks, rather than principled users holding Bitcoin for self-sovereignty reasons).

Technically, Arch introduces smart contract-like functionality to Bitcoin Layer 1 through a complex architecture that leverages a decentralized network of validator nodes and a specially built zero-knowledge virtual machine (zkVM) - ArchVM. The following is a general lifecycle of transactions (technical) on the Arch network:

• ZKVM: The core of the Arch network is zero-knowledge proofs (ZK proofs), which verify transactions and ensure secure application execution. ZKVM is a dedicated virtual machine that executes applications and generates encrypted proofs of correctness. It is supported by Risc0.
• Decentralized validator network: The generated ZK proofs are subsequently verified by Arch's decentralized validator node network. This network plays a crucial role in maintaining the integrity and security of the platform. By relying on a decentralized architecture, Arch aims to ensure that the verification process is not only secure but also resistant to censorship and central point failures.
• Integration with Bitcoin Layer 1: Once the ZK proofs are verified, the validator network can sign unsigned transactions. These transactions, including state updates and asset transfers determined by application logic, ultimately return to Bitcoin. This final step completes the execution process, and all transactions and state updates are directly confirmed on the Bitcoin blockchain.

While other projects position themselves as Layer 2, we believe Arch is clearly Bitcoin-native. Arch positions itself as a Bitcoin-native application platform in a unique way, operating directly on Bitcoin Layer 1. Arch's direct operation on the Bitcoin main layer eliminates the complexity and inefficiency that L2 solutions typically face, allowing users to directly benefit from Bitcoin's security and liquidity while exploring the scalability brought by Arch.

3. Development on Arch

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In the short term, DeFi applications (such as lending, decentralized exchanges, and the Ordinal market) can clearly be built on Arch. It would be fantastic if asset exchange, collateralized lending, and earning BTC returns without the need for trust could be achieved.

Furthermore, it would be great if high-end collectibles could reside entirely on the most valuable blockchain known to humanity (Bitcoin). We expect that the world's most valuable digital collectibles will reside on Bitcoin, which in itself is a huge technological breakthrough, ushering in the era of internet-native finance. Many Ordinals collectors clearly value this.

Several projects in the Bitcoin ecosystem have already started migrating to Arch. Recently, the Bitcoin lending market Liquidum began integrating liquidity pools, using Arch to support instant liquidity loans and homogenized token pools - something that Bitcoin, or even Discrete Log Contracts (DLC), cannot natively support. As of the writing of this article, over 20 projects are developing on Arch's devnet, involving stablecoins, decentralized exchanges, lending markets, and more. With the increasing excitement about Bitcoin, the Arch Foundation plans to support ecosystem development and fund a range of projects through upcoming hackathons.

4. The Next Chapter of Bitcoin

With the support of the Taproot upgrade and Ordinal Theory, we are witnessing unprecedented interest in the Bitcoin ecosystem. For the first time in 15 years, people are actively working to make Bitcoin more programmable without compromising its non-sovereign currency vision.

Arch is the first Bitcoin-native application platform to unlock DeFi on the world's most valuable blockchain, Bitcoin, without bridging. The emergence of Arch is a direct response to the Bitcoin community's desire to leverage the underlying security and liquidity of Bitcoin to enable more complex applications, similar to what is seen on other programmable chains like Ethereum and Solana. By providing a platform for Bitcoin programmability, Arch aligns with the vision and principles of the Bitcoin community and offers an innovative approach to enhancing Bitcoin utility while maintaining Bitcoin's integrity.

Arch invites people to reconsider the world's largest and most secure blockchain, bringing back the progress and innovation of other blockchains to Bitcoin.

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