Eric Lombrozo is the CEO of Ciphrex and a longtime contributor to Bitcoin Core. At the recent Blockchain Agenda Conference in San Diego, Lombrozo gave a talk on the future of Bitcoin in which he mainly focused on the issue of scalability. He discussed many specific proposals and concepts that could eventually lead to a more scalable Bitcoin network over the long term, but he also covered the idea of designing Bitcoin with a layered approach — similar to the Internet.

Near the beginning of his presentation, Lombrozo noted:

“We need to have a layered, heterogeneous architecture. For instance, with the Internet you have at the base level [things like] IPv4 and IPv6, then on top of that you have a transport layer (TCP, UDP), on top of that you have an application protocol layer, and then on top of that you have your actual applications.”

This statement from Lombrozo gets at the core of a key divide in the Bitcoin community right now. While some agree with the Ciphrex CEO’s approach of building new protocol layers on top of Bitcoin, others believe that most Bitcoin activity needs to take place directly on the blockchain. In the past, Lombrozo has stated the Bitcoin blockchain will eventually become a settlement layer.

Bitcoin’s Base Layer is Not a Network Protocol

During his talk, Lombrozo used the analogy of the Internet stack to describe the various layers of the Bitcoin network. He noted Bitcoin’s base layer does not actually involve any networking:

“For Bitcoin, at the bottom level we have this consensus layer. The consensus layer is actually not a network protocol at all. It’s actually a set of cryptographic commitment structures, which allow you to construct proofs that things happened according to certain rules. This is something that allows everyone to eventually come to agreement on what the state of the network is.”

This base layer of cryptographic proofs is what allows Bitcoin to be utilized as a decentralized system for trust. On the blockchain, transactions are, essentially, written in stone every ten minutes. No one can reverse a transaction or pretend to have funds that they don’t have because the entire system is based on cryptographic signatures that cannot be faked.

The P2P Propagation Layer

Above the base layer of cryptographic trust is the P2P networking protocol. Lombrozo explained this is the layer that allows everyone to communicate with each other in regards to the current state of the network:

“Then above that, you have this peer-to-peer propagation relay network that allows nodes to synchronize with one another, download the blockchain in the first place, and propagate transactions.”

The layers of cryptographic proofs and peer-to-peer networking are the two parts of the Bitcoin stack that are already fleshed out. Bitcoin applications and companies are, for the most part, currently built on top of these two layers.

Off-Chain Protocols for Bitcoin

The third layer in the Bitcoin stack, off-chain transactions, is currently in development. While there are already methods of transferring bitcoin to other parties without touching the blockchain, nearly all of them require a high-level of trust in a third party.

Lombrozo noted off-chain protocols will allow developers to build “higher level applications” on top of the blockchain. Examples of systems found on this layer include Open Transactions and the Lightning Network; although, the argument could be made that Lightning Network transactions still take place on-chain (eventually).

Both of these projects will allow Bitcoin transactions to take place at a much faster rate (usually instantly) and much lower cost. Having said that, they also come with their own tradeoffs when compared to on-blockchain transactions in terms of placing at least some trust in other parties.

It’s likely that many of the most widely-known Bitcoin companies, such as ChangeTip, will eventually move to this third layer as it matures over time. This would mean there would then be a fourth layer in the Bitcoin stack — the wallets and other applications built on top of the layer for off-chain protocols.