Let’s talk Bitcoin staking: Babylon’s litepaper

Can Bitcoin help enhance the security of proof-of-stake blockchains? The team behind the Babylon network has published a new paper exploring that question. 

Babylon is built using the Cosmos software development kit (SDK) and was designed by a team of researchers from Stanford University. And as Blockworks has previously reported, the team isn’t new to the idea of using Bitcoin in conjunction with the network.

The team released a paper earlier this year for a Bitcoin timestamping protocol for use by proof-of-stake networks. Yet according to David Tse, the founder of Babylon Chain and a Stanford University professor, the timestamping protocol has limitations. Namely, it’s only useful for long-range security protection. 

“The timestamp takes a long time before it becomes secure on the Bitcoin chain, because Bitcoin is very slow,” Tse said.

The latest paper explores the other end of the spectrum: utilizing Bitcoin for short-range security on such chains. 

How it works 

A problem faced today by many layer-1 proof-of-stake blockchains (outside of Ethereum) is that the capital backing the chain is comparatively insignificant. According to Tse, most proof-of-stake chains rely on their native tokens to back their assets.

“The idea we have is, is it possible to use a non-native asset to secure a chain?” Tse said. 

That’s where Bitcoin comes in. Although using Bitcoin to secure a proof-of-stake chain may sound impossible —  Bitcoin is a distinct, proof-of-work chain — Tse and his team have utilized simple staking logic to make this possible.

“Staking has similarities to lending. When you borrow money to me, you might be worried that I will run away with the money, so you demand collateral — for example my house — this means if I run away, you can take my house,” Tse said. 

To participate in network activities on a proof-of stake-chain, one must provide collateral. In the event a staker proves to be malicious, their stake is subsequently taken from them in a process known as slashing.

“The challenge for our problem then, is how do we slash the Bitcoin asset,” Tse said.

Bridging, in this case, wouldn’t be an option, as Bitcoin bridging is often considered an insecure process, Tse said. Further, Bitcoin does not support smart contracts as far as its scripting language capability is concerned. 

What Babylon’s latest paper proposes is using a particular cryptographic scheme so that once a validator does something wrong, their private key is automatically revealed.

“Slashing functionalities is achieved through a spending condition which is expressible in the Bitcoin scripting language,” Tse said. “There is a type of signature called the extractable one-time signature — which means when you sign something once, it is secure, but when you use the same key to sign something twice, then automatically your key will be revealed.”

Within Babylon’s Bitcoin staking protocol, all slashable offenses then can be reduced to signing something twice — which will cause a private key to be revealed. 

It’s an approach that could prove compelling for participants — but one not devoid of risk.

Bob Summerwill, the executive director of the Ethereum Classic Cooperative, told Blockworks that Babylon’s “sell” is that stakers are getting yield on Bitcoin. “But that also means that you are putting it at risk,” he added.

Looking ahead, the Babylon team is soliciting feedback from the community. It plans to launch a mainnet early next year.

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