Date: October 26, 2023
1. Introduction
This episode discusses a complex overview of the "Bitcoin Staking" leveraging largely idle, capital held in Bitcoin to enhance the security of Proof-of-Stake (PoS) blockchains.
2. Key Problems and Motivation
- PoS Security Needs Capital: PoS chains are secured by staked capital. Attracting sufficient capital can be expensive, particularly for newer or smaller chains. This often results in high inflation rates to incentivize staking, which can hinder long-term growth. The litepaper uses the example of Cosmos ecosystem where inflation rates of 20% - 100% are quite common.
- Bitcoin's Idle Capital: Bitcoin, the largest cryptocurrency, is secured by Proof-of-Work (PoW). The Bitcoin asset itself is not directly used for securing the chain, resulting in a vast amount of idle capital. This capital is less accessible for yield-generating activities due to security concerns around bridging and centralized custodians. "Most of the Bitcoin asset sits idle and is not deployed."
- Security-Utility Tension: High inflation rates in PoS chains create a tension between attracting capital for security and incentivizing application development on the chain. This is illustrated in the example of Akash, where initial inflation is used to secure the network and incentivize providers.
- Bridging Risk: Existing Bitcoin bridges to PoS chains are often centralized or rely on multi-signature arrangements, raising security concerns. "Such bridges and centralized custodians are considered too risky for many bitcoin holders."
3. The Proposed Solution: Bitcoin Staking
The paper proposes a Bitcoin staking protocol that allows Bitcoin holders to earn yield by staking their coins to secure PoS chains. Key features include:
- Two-Sided Marketplace: The protocol creates a marketplace where PoS chains seeking security can pay Bitcoin holders for staking their BTC. "Bitcoin staking is a two-sided market place (Figure 1). On the one side are PoS chains which need security and are willing to pay yields for it. On the other side are bitcoin holders who have the capital and want to earn yield on it."
- Remote Staking: Bitcoin is not bridged to the PoS chain. It remains locked on the Bitcoin blockchain, but is used to provide security assurances to the PoS chain. "lock the staked bitcoins in a contract on the Bitcoin chain and then slash the stake when there is a protocol violation on the consumer PoS chain."
- Full Slashability: The protocol provides a guarantee that if a staker acts maliciously on the PoS chain, a portion of their stake (1/3) will be slashed. "Whenever there is a safety violation, 1/3 of the Bitcoin stake is guaranteed to be slashed."
- Staker Security: Honest stakers are guaranteed to be able to withdraw their funds. "Each Bitcoin staker is guaranteed to be able to withdraw its funds, or unbond, as long as the staker follows the PoS protocol honestly."
- Fast Unbonding: Unbonding of staked bitcoins is designed to be fast and secure without the need for social consensus. "Unbonding of the staked bitcoins is guaranteed to be secure and fast without the need of social consensus."
- Trustless Staking: The stakers have full control over their funds on the Bitcoin network and can always withdraw provided they have not committed safety violations on the PoS chain. "Withdrawal censorship is not possible in our Bitcoin staking protocol. Thus, our protocol provides trustless staking."
