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Blockchain/Level V · Layers/5.2 Other layers/Lesson 3

Statechains and Ark

Moving ownership off-chain without leaving the chain

MaterialsBitcoin Optech topic pages for ‘Statechains’ and ‘Ark’Ruben Somsen’s statechains article (2019)The Ark protocol specification by Burak Keceli (2023)

Wonder

  1. How can a UTXO change hands thousands of times while the blockchain only sees one transaction?
  2. What happens if the entity holding a key share refuses to cooperate in a transfer?
  3. What does each design ask its users to trust?

Explore

  1. In standard Bitcoin, every transfer of value requires a new on-chain transaction that consumes an input and creates outputs. This process is secure but slow, limited by the ten-minute block interval and constrained by network fees. Second-layer protocols solve this by moving the state of ownership off-chain while retaining the ability to settle on-chain if disputes arise or users wish to exit.
  2. Statechains, proposed by Ruben Somsen in 2018, utilize a UTXO controlled jointly by an owner and a ‘statechain entity.’ The entity holds one part of a multisig key pair. When ownership transfers, the entity helps hand the owner’s key share to the new recipient and deletes its own old share. This allows instant off-chain transfers while keeping the full value in a single on-chain UTXO.
  3. The security model of statechains relies on a timelocked backup transaction. If the statechain entity fails to cooperate or attempts to steal funds, the current owner can activate this backup transaction after a set period. The owner can therefore exit without the entity’s cooperation. The remaining trust assumption is that the entity really deletes old key material: if it kept it and colluded with a previous owner, the two could take the coins.
  4. Ark, proposed by Burak Keceli in 2023, takes a different approach using ‘virtual UTXOs’ (VTXOs). An Ark Service Provider periodically creates a shared on-chain output that holds funds for many users. Each user’s balance exists as a VTXO within this shared output. Users can transfer these virtual balances off-chain instantly without any pre-funding of inbound liquidity, a common constraint in other second-layer systems.
  5. As with statechains, users can exit unilaterally, here by broadcasting the transactions that claim their VTXO from the shared output. But VTXOs expire, often after a few weeks, after which the provider can sweep them, so users must refresh them in a new round or exit before then. Payments happen by joining the provider’s next round, which settles on-chain as a new shared output, or through faster out-of-round transfers that carry extra trust until the next round.
  6. Statechains have had working implementations since 2021 (CommerceBlock’s Mercury, then Mercury Layer in 2024), though the company behind them closed in 2025; Ark implementations appeared in 2024-2025. Future consensus changes, such as covenant opcodes (for Ark) and ANYPREVOUT (for statechains), would let these designs work with fewer transactions and less interaction between users and providers. Until then, these protocols rely on the current script capabilities of Bitcoin to manage their off-chain states.

Key facts

  • Statechains use a two-party multisig UTXO where a ‘statechain entity’ cooperates in transfers and holds a key share.
  • In statechains, the owner can exit unilaterally via a timelocked backup transaction if the entity fails to cooperate.
  • Ark batches user funds into a single shared on-chain output managed by an Ark Service Provider (ASP).
  • Users hold ‘virtual UTXOs’ (VTXOs) within the shared Ark output, which can be exited unilaterally at any time.
  • Statechains were proposed by Ruben Somsen in 2018; Ark was proposed by Burak Keceli in 2023.
  • Proposed soft forks, covenants for Ark and ANYPREVOUT for statechains, would make them more efficient.

Exercise nine, six, three, one

9CollectList 9 distinct mechanisms or components involved in off-chain settlement (e.g., key shares, timelocks, shared outputs). Note which belong to statechains and which to Ark.
6ClusterGroup the 9 items into 6 categories based on their function: custody, cooperation, exit, state tracking, consensus dependency, or implementation status.
3DistillReduce the 6 groups to 3 core trade-offs between privacy, speed, and trust assumptions in these designs.
1CrystallizeWrite 1 sentence comparing what a statechain user and an Ark user each depend on the operator for.

Fact check

Dates, figures and claims checked against the published sources listed below.

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