Author: YBB Capital Researcher Ac-Core

1. Why Can’t You Buy Coffee with Bitcoin?

When most people think of Bitcoin, the first things that come to mind are its “decentralized” and “immutable” nature. But if you actually try to use it to buy a cup of coffee, you’ll quickly run into an awkward problem: waiting for the transaction to confirm takes even longer than waiting for your coffee, and sometimes the transaction fee is higher than the coffee itself. Assets on Bitcoin remain largely “immovable” — most users simply HODL; you can’t take out loans, can’t compose assets, can’t interoperate.

The Script structure of Bitcoin is extremely conservative, restricting most off-chain interaction scenarios. Its original design was never intended to handle tens of thousands of transactions per second. Yet, practical demands are right in front of us — people want to be able to use Bitcoin, even if just to buy a game skin or tip a video creator, and they don’t want to wait ten minutes for it.

2. Lightning Network: A Double-Edged Sword

The Bitcoin mainnet is like a highway, while the Lightning Network is a pay-to-use express lane built alongside it. Its core concept is a pragmatic compromise to the mainnet’s throughput limits: since on-chain transactions face speed bottlenecks, the system no longer insists on recording every transaction on-chain. Instead, it enables users to open dedicated “payment channels” for high-frequency transactions, only settling the final state on the blockchain when the channel is closed. This is similar to friends taking turns paying for meals and settling up after several outings, rather than transferring money after every single meal. The Lightning Network is essentially a network woven from tens of thousands of such payment channels.

However, this seemingly elegant system faces several real-world challenges. First is the high barrier to entry for channel setup — users must lock up funds in advance to establish a channel, meaning you need to pre-establish dedicated connections to transact with anyone. Next comes the complex routing problem: if user A and user B lack a direct channel, even if there’s an indirect route like A–C–B, the transaction can still fail if intermediate channels lack sufficient funds or if nodes are unavailable. More seriously, there are security risks: users must remain online to prevent counterparties from cheating by submitting outdated transactions when closing channels, placing unrealistic operational demands on ordinary users.

Although the Lightning Network has been live for years, these structural issues have kept its real-world adoption capped. Public data shows that the total value locked in the Lightning Network is still only around $100 million — a marginal figure compared to Bitcoin’s trillion-dollar market cap. This raises an industry-wide question: is it possible to build a better off-chain payment protocol to break through these bottlenecks?

According to ChainCatcher’s report on April 15, HSBC revealed in an official press release that Bitcoin Thunderbolt represents the most significant technical upgrade for Bitcoin in the past decade. Thunderbolt can be seen as “Lightning Network 2.0,” but it’s not just an upgrade — it’s more of a fundamental redesign of the off-chain Bitcoin interaction paradigm.

3. What Is the Thunderbolt Protocol?

Bitcoin Thunderbolt is a soft fork upgrade built directly on Bitcoin’s base layer. Unlike second-layer networks or cross-chain bridge compromises, Thunderbolt introduces protocol-level changes on the Bitcoin mainnet, fundamentally enhancing scalability, transaction performance, and programmability.

Performance Layer: Leveraging UTXO bundling technology, Nubit significantly optimizes Bitcoin’s traditional transaction model. While Bitcoin’s current design handles each UTXO individually, which limits throughput, UTXO bundling aggregates multiple UTXOs for simultaneous processing. This compression of transaction data boosts processing speeds by nearly 10x without compromising on-chain security.

Programmability: Thunderbolt reintroduces and extends the OP_CAT opcode — originally present in early Bitcoin versions but later removed. OP_CAT allows data concatenation, enabling developers to build more advanced script logic and deploy decentralized applications (dApps) directly on Bitcoin’s base layer, without depending on sidechains, rollups, or cross-chain bridges.

Asset Protocol Layer: Nubit also introduces a unified token standard called Goldinals, based on zero-knowledge proofs and state commitments. This framework enables native Bitcoin token issuance and verification without relying on external trust or complex bridging. It consolidates fragmented protocols such as BRC-20, Runes, and Ordinals via an on-chain automated market maker (BitMM), supporting trustless trading and verification entirely within the Bitcoin ecosystem.

Unlike conventional scaling approaches like sidechains, Plasma, Rollups, or wrapped assets via bridges, Nubit follows a “native mainnet scaling” path. It incorporates solutions like BitVisa for decentralized identity and credentials. Whether for transaction compression, smart contract enablement, or on-chain trading — all features operate directly on the Bitcoin mainnet using native BTC.

3.1 Core Mechanism Breakdown

Based on the paper “Stateless and Verifiable Execution Layer for Meta-Protocols on Bitcoin” (Reference 1), Bitcoin Thunderbolt — much like the Lightning Network — aims to address slow confirmation times on the Bitcoin mainnet. While both aim to improve speed and reduce cost, their design philosophies diverge significantly:

• Lightning Network centers on payment channels, optimized for peer-to-peer transactions only. It lacks programmability, involves complex channel setup and maintenance, and has limited scalability.

• Thunderbolt, developed by Nubit, offers a programmable off-chain protocol capable of Turing-complete operations, enabling the creation of complex stateful assets, liquidity protocols, and financial applications.

Key Innovations:

Adjustable Multi-Party Signatures
 Imagine a Bitcoin signature split in two: Alice holds one half, and a committee holds the other. Every time funds are transferred, each party adds a “secret tweak” — known only to the new recipient — allowing them to reconstruct the full signature offline without direct communication.

Asynchronous Committee Ledger
 A group of nodes (e.g., 4n+1) maintains ownership consensus. Even if some nodes fail, the system remains operational as long as a majority is online. These nodes cannot move funds themselves — they merely co-sign and record ownership, maintaining decentralization and security.

Atomic Swap-Based Finalization
 On-chain redemption involves three atomic steps:

1. Alice and the committee spend the original UTXO to transfer funds to the committee;

2. The committee locks the same amount into a joint vault accessible only by Zenni and the committee;

3. Zenni completes the redemption with a new two-part signature.
    This process ensures neither party can cheat or abandon the flow.

3.2 Thunderbolt’s Protocol Design & Technical Highlights

• Non-Interactive, Recursive Signature Delegation
   Using tweakable Schnorr threshold signatures, Thunderbolt eliminates multi-round messaging. Each transfer involves sending a single signature with a secret tweak, drastically reducing communication and uptime requirements.

• Fresh Locks for Every Hop
   Each transfer introduces a new secret-based signature. Old keys are invalidated, preventing signature reuse and enhancing security.

• Single On-Chain Trace
   The only on-chain action is the initial lock. All subsequent transfers are off-chain, and the final on-chain redemption comes only at the end. Compared to the Lightning Network’s frequent channel operations, Thunderbolt improves both efficiency and privacy.

• Offline Resilience
   Even if Alice or Zenni goes offline, the committee can continue processing redemptions or transfers — no time locks or forced closures required.

• Formal Verification with Machine-Proven Security
   Every critical protocol step is formally verified using Tamarin Prover, ensuring mathematically validated security guarantees — not just theoretical promises.

Thunderbolt represents a fundamental rethinking of how Bitcoin can support high-throughput, programmable, and trust-minimized off-chain interactions, all while maintaining the core principles of decentralization.

4. How Does Thunderbolt Differ from Existing Lightning Network Solutions?

Let’s now compare Thunderbolt with existing solutions such as the BOLT protocol, Breez SDK, and Phoenix, to understand the specific improvements it introduces.

Key Differences:

Thunderbolt stands out primarily in security and theoretical soundness. It is among the few solutions that can claim:

• Provable security in its protocol design.

• No scenario where a malicious user can unilaterally gain advantage or extract value.

However, it also has clear shortcomings:

• Deployment complexity: Running Thunderbolt requires a full protocol stack, making it difficult for ordinary wallet users to adopt.

• Mainchain compatibility limitations: Bitcoin’s script language is extremely limited. Thunderbolt has to work around these limitations, increasing implementation complexity.

• Lack of ecosystem support: Unlike BOLT, which is supported by numerous wallets and nodes, Thunderbolt is still in the early research and development phase.

5. Thunderbolt’s Potential Impact: A Catalyst for BTCFi?

So is Thunderbolt the optimal solution for BTCFi? A bold but informed take might be:

Thunderbolt is, in theory, the best possible solution for BTCFi, but in practice, it’s still in the alpha stage — much like Ethereum’s original 2.0 whitepaper: visionary, but not yet ready for production-scale deployment. Based on current observations, Thunderbolt’s development may follow three potential paths:

1. Rollup-Level Integration: A DeFi Engine for Bitcoin L2s

Given Bitcoin’s limited base-layer scalability, Thunderbolt could evolve into a modular off-chain execution layer within Bitcoin Layer 2 solutions such as BitVM, Nomic, or BOB. Think of it as a programmable contract engine embedded within a Bitcoin rollup.

Examples:

• BOB may integrate Thunderbolt’s payment channels for native BTC transactions.

• The RGB ecosystem could adopt Thunderbolt’s state management logic.

• BitVM, with its support for advanced logic, could incorporate Thunderbolt as a smart contract standard.

• Babylon, Bitlayer, and similar systems could embed Thunderbolt as an off-chain contract execution module.

2. Developing an Independent Parallel Ecosystem

Thunderbolt might follow in Lightning Network’s footsteps and develop its own infrastructure: nodes, operators, aggregators — perhaps even Thunderbolt-LSPs (Liquidity Service Providers). Backed by Nubit and early Bitcoin miners, its soft-fork proposals — UTXO Bundling and OP_CAT — give Thunderbolt the ability to natively support protocol assets like BRC-20, Runes, and Ordinals.

In this scenario, Thunderbolt could evolve into a fully-fledged ecosystem with:

• Thunderbolt Wallet (similar to Phoenix)

• Thunderbolt Node (light nodes for channel operations)

• Thunderbolt DEX (off-chain order matching)

• Thunderbolt AMM (off-chain liquidity pools)

3. Superseded by Simpler Solutions

Thunderbolt’s future isn’t guaranteed. It might eventually be replaced by simpler or more efficient alternatives:

• BitVM could offer a more scalable contract execution model.

• Cross-chain ZK technologies might enable fully trusted BTC deployments on other chains.

• A new native Bitcoin protocol could unify payment, lending, and contracts into one seamless system.

The Real Impact: Off-Chain Composability

Thunderbolt’s biggest breakthrough is not merely payments, but its introduction of off-chain composability to Bitcoin assets — a concept essential to Ethereum’s DeFi boom. Ethereum succeeded thanks to an integrated dev stack: Solidity, Hardhat, Ethers.js, Metamask. Thunderbolt could offer Bitcoin a similar foundation.

Its core innovations — OP_CAT and UTXO Bundling — are particularly exciting:

• OP_CAT enables native programmability on Bitcoin for the first time.

• UTXO Bundling compresses transaction data, enhancing on-chain throughput — much like Ethereum rollups.

Together, these advances bring closer the vision of unifying Bitcoin ecosystem protocols and enabling trustless asset exchange through BitMM — all without bridges or wrapped tokens. Still, Thunderbolt remains closer to a “powerful mathematical paper” than a ready-to-use developer stack.

About YBB

YBB is a web3 fund dedicating itself to identify Web3-defining projects with a vision to create a better online habitat for all internet residents. Founded by a group of blockchain believers who have been actively participated in this industry since 2013, YBB is always willing to help early-stage projects to evolve from 0 to 1.We value innovation, self-driven passion, and user-oriented products while recognizing the potential of cryptos and blockchain applications.

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Reference:
 (1) https://eprint.iacr.org/2024/408.pdf