Summary
TLDR: Building on Layer 2 is dependent on Layer 1 capabilities, such as multisig scripts, timelocks, SegWit, and hashlocks. Without these features, protocols like Lightning Network would not be possible. Building on Layer 2 without these capabilities would require trusting entities, like federations, to control funds. Layer 2 is not a magic solution and has limitations based on Layer 1 capabilities. Discussions on improving Layer 1 must consider the limitations and dependencies on Layer 2. Ignoring these realities is not productive in advancing Bitcoin technology.
Key Points
1. An L2 protocol is an extension of the L1, and the capabilities of an L2 are ultimately limited by what is possible on the base layer.
2. The evolution of payment channels on the Lightning Network depended on key features existing on L1, such as multisignature scripts, timelocks, Segregated Witness, and hashlocks.
3. Building on Layer 2 is not a magic solution, as L2 also has limitations based on those of L1, and introducing trusted entities may be necessary to overcome certain limitations.