I am not even personally convinced of the utility of smart contracts, but that aside, is it theoretically possible for a side chain or second layer solution to utilize/implement smart contracts? Ie is there is possibility that the 'DeFi' space eventually transitions to simply being a 2nd layer solution on the BTC network instead of on ETH, etc...? Not so much asking about likelihood, just feasibility given the structure of the BTC network and what is possible with sidechains/2nd layer solutions.
Yes. Given that many applications for smartcontracts would have vastly diverging blockspace and interaction frequency requirements from the payment usecase, segregating such usecases onto sidechains or second layer networks with different performance trade-offs seems like a promising approach. There are already tentative beginnings of such a development. You may find it interesting to read for example more about:
- Lightning Network
- Discreet Log Contracts
What is a smart contract?
Smart contracts go beyond the vending machine in proposing to embed contracts in all sorts of property that is valuable and controlled by digital means. Smart contracts reference that property in a dynamic, often proactively enforced form, and provide much better observation and verification where proactive measures must fall short.
Computerized devices that respond to the environment according to price signals or other contractual terms, customer preferences, and other states or events that are encoded in them or that they are encoded to respond to. Many smart contracts in the future may be programmed using a contract drafting language for specifying their event-driven behavior.
If a loan was taken out to buy that car, and the owner failed to make payments, the smart contract could automatically invoke a lien, which returns control of the car keys to the bank. This smart lien might be much cheaper and more effective than a repo man.
Smart contracts allow a new freedom of contract that is no longer possible, if it ever was, with traditional law.
What is DeFi?
Being honest, its the new buzzword for selling your tokens to newbies for most of the projects. DeFi or Decentralized Finance in reality could be a term used for financial applications that use decentralized protocols.
Are smart contracts and decentralized finance possible with Bitcoin?
Is it theoretically possible for a side chain or second layer solution to utilize/implement smart contracts?
Smart contracts can be written using solidity for Rootstock (sidechain) and simplicity for Liquid (sidechain)
Is there is possibility that the 'DeFi' space eventually transitions to simply being a 2nd layer solution on the BTC network instead of on ETH?
Not sure if we should use the term "DeFi" for financial applications on top of a chain that is not decentralized, projects involving few people, governance tokens with most of the supply with VCs and devs.
Also any transition depends on market and people involved in Bitcoin projects. Honestly, lot of Bitcoin developers don't get the appreciation they deserve for working on some of the projects. Example: Confidential transactions for Elements based sidechains, Oracles using discreet log contracts, Bisq, Joinmarket, Rootstock etc.
Lot of things are being done on Lightning Network. Its difficult to keep a track of everything happening in this space but recently saw this video for a project which provides a market place to incentivize people to seed torrents by paying with sats over the Lightning Network.