The Omni Layer Explained
Did you know that Litecoin and Bitcoin don’t just support their respective native assets? 🤯 🤯 🤯
You might think that the Bitcoin blockchain only supports bitcoin (BTC) or that Litecoin is only able to transfer value for litecoins (LTC) but actually both networks have the ability for you to create and transfer other assets on top!
Both are supported by something called the Omni Layer — a layer 2 network which exists on top these networks, as well as FeatherCoin. This was rebranded from ‘Mastercoin’ in 2015 and many consider it the first official ‘altcoin’ to bitcoin since it was proposed back in 2012 and implemented in 2013, two years before Ethereum launched.
The Omni Layer for Bitcoin currently has over 882 ‘properties’ (tokens) and $888m worth of Tether (USDT) alone. However with a few hundred transactions per day, the total bitcoin volume moving across the Omni Layer in the last 24hours is $478,548 — a not insignificant figure!
The Omni Layer on top of Litecoin is called OmniLite and has over 3,200 ‘properties’ although with single digit transactions per day, the most popular asset by far on Litecoin, is still litecoin (LTC).
How do you create an Omni Layer transaction?
If you’ve ever looked at a coinbase transaction (the first transaction in each Bitcoin block which is the creation of the newly mined bitcoin and the payment of the transaction fees for the block to the miner), then you may have noticed an output which isn’t in the format of a standard bitcoin address. Whilst this OP_RETURN output is usually used to add data such as the miner name or a message to a block/transaction it also allows you to encode an Omni Layer transaction and add metadata which references it being an Omni Layer transaction.
So what does an Omni Layer transaction look like?
N.B Not all block explorers will easily show the Omni Layer activity, so I recommend using Blockchair for the best view but I’ve had to switch between various block explorers to get the info below.
Here we can see an Omni Layer transaction moving over $1,500 worth of USDT:
On an Omni Layer block explorer we can see the full transaction details:
The information itself is encoded within the OP_RETURN output of the Bitcoin transaction with the transaction amount and asset being in the ScriptPubkey and any extra metadata being shown in the OP_RETURNDATA.
For this transaction the ScriptPubKey data is “6f6d6e69000000000000001f00000023e0fb954c”
Where “ 6f6d6e69” references the Omni network, “ 1F” can be converted to `31` which is the reference for the official USDT on Omni, and “ 23e0fb954c “ is the hexadecimal for the amount (in satoshis).
The OP_RETURNDATA is decoded to “omni#L”.
What about fees?
Since the Omni Layer transactions are processed on the layer one blockchains themselves, all fees are paid as part of these transactions and go to the layer 1 miners. This means that an Omni Layer token transfer on top of Litecoin will be cheaper than Bitcoin since the transaction fees on Litecoin are lower than Bitcoin.
What else can the Omni Layer do?
The Omni Layer allows for the creation and movement of ERC20-like assets however it’s also possible to add more complex conditions to your assets such as the ability to freeze or make each asset indivisible (an NFT-like property). In addition, the Omni Layer can be used for Crowdfunding, where bitcoins, litecoins or Omni Layer tokens can be sent to an issuer address to help them raise funds, and receive some new tokens in exchange. There are currently just three active crowdfunding and with limited activity.
Finally, the Omni Layer provides the ability to trade peer to peer with the OmniDEX, a decentralised exchange. However access is only by the Omicore client so you’ll need to sync this up and then use the pretty rudimentary UI.
and that’s the Omni Layer! A layer 2 solution for Litecoin, Bitcoin and Feathercoin which allows anyone to create tokens on top of these blockchains and transfer them as part of the layer 1 transactions.
Originally published at https://www.linkedin.com.
