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Originally designed as standalone systems, early blockchains operated in isolation, each vying to become the dominant platform. The terms “Bitcoin killer” or “Ethereum killer” became widespread as new projects aimed to surpass each other.
Internet battles were fought bitterly about the pros and cons of different consensus mechanisms, debating trade-offs in security and centralization.
However, the landscape has significantly matured with major projects recognizing the benefits of unifying ecosystems. Major blockchains now focus on becoming increasingly interconnected and sharing infrastructure.
This interconnectivity has given rise to the concept of shared security, where smaller, less secure blockchains can leverage the robustness of more established ones like bitcoin.
Let’s break down blockchain security and explore how bitcoin shared security offers solutions in this new paradigm of collaboration.
The Blockchain Security Challenge
At the heart of blockchain technology lies the principle of decentralization.
Consensus algorithms, such as proof of work and proof of stake, play a crucial role in maintaining this integrity. They ensure that all nodes agree on the state of the ledger and protect the network from fraudulent activities.
In PoW, miners expend computational power to solve complex mathematical puzzles, while in PoS, validators stake their tokens to participate in block creation. Both mechanisms make it extremely uneconomical for malicious actors to gain control of the network.
However, the security of these consensus algorithms is directly proportional to the number of active participants. A blockchain with a limited number of validators is vulnerable to a 51% attack, which involves a single entity gaining control to then manipulate the ledger. Only the largest most established blockchains require prohibitively excessive resources to take them over.
For small or midsized blockchains, building a large enough active community of network participants to secure their network in nearly impossible — especially with well-established blockchains already demanding incredible resources. Further, without enough participants to secure the network, small blockchains struggle to gain the trust of users and investors.
This creates a Catch-22: small blockchains need a strong user base to be secure, but they need to be secure to attract a strong user base.
How Shared Security Can Help
Shared security emerges as a solution to this dilemma.
By leveraging the security infrastructure of larger “blue chip” networks, smaller chains can enhance their own security without needing to build a community from scratch. This relationship is a win-win: the smaller chain gains security, while the larger chain extends its utility.
For instance, bitcoin is renowned for its unparalleled decentralization and security, underpinned by the largest network of miners, nodes, and network participants. Shared security allows these smaller chains to “borrow” bitcoin’s security, effectively making them more decentralized and much harder for attackers to compromise.
Successfully attacking the smaller chain would require compromising the larger, more secure chain — a significantly more daunting and costly endeavor. If secured by bitcoin, such an attack becomes practically impossible.
Approaches To Bitcoin Shared Security
Several methods have been developed to attempt shared security with a variety of native blockchains. The most successful historically have been with Ethereum, but bitcoin has recently emerged with some interesting novel ways to implement shared security.
Merge Mining
Merge mining allows miners to simultaneously mine blocks on multiple blockchains using the same PoW algorithm. This method leverages bitcoin’s mining power to secure smaller networks without additional resource expenditure.
By participating in merge mining, miners can earn rewards from multiple blockchains, incentivizing them to contribute to the security of these networks.
Namecoin was one of the first projects to implement merge mining with bitcoin. By sharing bitcoin’s mining power, Namecoin enhanced its security while providing a decentralized domain name system.
However, merge mining requires compatibility in hashing algorithms, and can be difficult to integrate.
Bitcoin Anchoring
Bitcoin anchoring involves periodically recording a hash of a smaller blockchain’s state onto the bitcoin blockchain.
This process creates a timestamped proof of the smaller blockchain’s state, anchored in bitcoin’s immutable ledger. Any attempt to alter the smaller blockchain would be evident unless the attacker could also alter bitcoin’s blockchain.
This method enhances the security and integrity of the smaller blockchain by leveraging bitcoin’s resistance to tampering. It also provides transparency and verifiability, as anyone can check the anchored hashes on the bitcoin network.
Babylon’s “Merge Staking” Breakthrough
Babylon is a new bitcoin shared security solution inspired by the concept of merge mining. Babylon introduces “bitcoin staking,” a design that allows bitcoin security to ground the PoS blockchain ecosystem. Coining the concept of “merge staking,” Babylon aims to allow bitcoin holders to stake their assets to secure PoS networks.
In Babylon’s model, bitcoin holders can participate in securing PoS blockchains without bridging or swapping processes. They stake their bitcoin through the Babylon Layer 2 and this stake is used to validate blocks on integrated PoS networks.
This not only enhances the security of these PoS networks but also provides bitcoin holders with opportunities to earn staking rewards without bridging to the native PoS itself.
A bitcoin holder initiates the staking process by locking their bitcoin in a self-custody vault. This vault operates under a Babylon “staking contract,” where the bitcoin is locked until the holder requests it back.
Once bitcoin is locked in the staking contract, the staker can begin validating transactions on the PoS chain. If a staker commits a protocol violation (for example, validating two conflicting blocks), the system automatically exposes the staker’s private key, allowing the community to slash their staked bitcoin by sending it to a burn address.
The staking process uses bitcoin timestamping to ensure tight synchronization between the PoS chain and the bitcoin network. It aggregates timestamps from multiple PoS chains, enabling Babylon to interact with many PoS networks simultaneously.
Bitcoin is never moved off the bitcoin network. The bitcoin remains locked in the staking contract on Babylon while validators sign blocks on the PoS chain using their keys.
Key Benefits include:
- Protection: A PoS blockchain is only as secure as the underlying stake validating its network. By staking bitcoin, PoS blockchains become secured by the most secure asset in the world, as opposed to a proprietary token.
- Utility: Bitcoin holders can participate in securing other networks, earning staking rewards without liquidating their bitcoin holdings. This provides additional utility for bitcoin, encouraging long-term holding and engagement within the broader blockchain ecosystem.
- Interconnection: Shared security models promote interoperability between bitcoin and other blockchains.
- Capital efficiency: By utilizing bitcoin’s existing security infrastructure, smaller blockchains can avoid the significant costs associated with building and maintaining their own robust security systems. This allows them to allocate resources toward development and user experience improvements. Moreover, bitcoin which would otherwise sit dormant can earn rewards and spread its security.
Liquid Staking And Beyond
Liquid staking has transformed the way cryptocurrency holders engage with staking by unlocking capital that was previously illiquid. Bitcoin staking is proving to be no different.
Here’s how it works: Users deposit the funds they wish to stake into a liquid staking protocol. The protocol stakes the cryptocurrency on their behalf and, in return, issues liquid staking tokens (LSTs). These LSTs serve as a sort of receipt or voucher, redeemable on a 1:1 basis with the original deposited tokens. Essentially, LSTs mirror the value of the staked tokens and can be traded or used in DeFi applications, just like the underlying asset.
Babylon extends the concept of liquid staking by integrating third-party platforms with its bitcoin staking model, offering a unique solution to enhance the security of PoS blockchains without making any bitcoin illiquid.
Here, users deposit their native tokens into third-party liquid staking platforms that are partnered with Babylon. These platforms then stake the tokens into Babylon instead of the users. The liquid staking platform then issues receipt tokens to the users, representing their staked assets. These receipt tokens retain liquidity, allowing users to trade or use them in DeFi applications while still earning staking rewards from Babylon.
A user can then redeposit these LST tokens into the liquid staking platform and receive the Babylon staking rewards, plus their original bitcoin.
Babylon can even enable restaking, where the staked assets are used to secure additional networks or applications within the blockchain ecosystem. Users receive liquid restaking tokens that are redeemable for the original receipt tokens, plus any additional rewards from restaking.
Between liquid staking and restaking, the the security of bitcoin can not only be spread around PoS consensus mechanisms but also allow DeFi users to extend bitcoin throughout their financial activites
A Still-Growing Movement
The rise of bitcoin shared security marks a pivotal moment in the evolution of blockchain technology. Newer blockchains can now increase their resilience against attacks and foster greater trust among investors.
Projects like Babylon are at the forefront of this movement, unlocking new use cases for bitcoin and integrating it more deeply into the DeFi ecosystem. Through these collaborative efforts, bitcoin is poised to play an increasingly foundational role in securing and connecting the entire blockchain industry.
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