Introduction to Bitcoin Scaling Solutions
With the successful listing of Bitcoin spot ETFs, Bitcoin has entered the global financial mainstream market as an alternative asset. Therefore, the Bitcoin ecosystem is the narrative in this bull market. However, with the expansion of Bitcoin's technical solutions and the launch of various Layer 2 solutions, Bitcoin is also developing new narratives beyond being just a store of value, such as Bitcoin yield-generating assets, decentralized finance (DeFi), and various decentralized applications based on the Bitcoin network.
It's clear that Bitcoin's massive trillion-dollar market value has not yet been fully financialized. Bitcoin holders have long only been able to configure their assets in a centralized manner through lending, facing extremely high security risks and a lack of financial flexibility. From a technical perspective, the emergence of various Bitcoin Layer 2 solutions has enabled Bitcoin to participate in DeFi protocols as an underlying asset, while partly solving the trust issues with intermediaries. Below, we will compare various Layer 2 solutions and explain why Chakra is a better infrastructure for Bitcoin staking yields.
Sidechains
Sidechains are currently the main implementation method for BTC L2. They are often connected to the main chain via bi-directional cross-chain bridges, allowing assets to flow between them. Sidechains have their own consensus mechanisms and verification nodes, offering strong flexibility. However, their security fundamentally relies on the design of the bridges, which often requires a third party (such as signature nodes or MPC nodes), with BTC being custodied on a first layer.
Typical Bitcoin sidechain projects like Stacks execute smart contracts written in Clarity on the sidechain and settle transactions on BTC finally. Stacks allows the generation of multiple small blocks on the chain, known as a microblock stream, enabling the miner responsible for confirming the current Stacks block to fully utilize the time interval between the generation of two BTC blocks to process more transactions. When Bitcoin confirms the current block, these microblocks are also finally confirmed, and the next Stacks block will be linked to the current last microblock.
Lightning Network
The Lightning Network is BTC's traditional second-layer expansion protocol, facilitating faster micropayments. It consists of payment channels established by user signatures, forming a network for rapid BTC transfers. The Lightning Network eliminates the need for BTC block confirmations, enabling near-instant transaction confirmations, thus addressing a core pain point in BTC payments. However, it has its drawbacks:
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Fund Lockup: Users need to lock funds in payment channels to use the Lightning Network, limiting the availability of funds.
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Insufficient Transaction Limit Support: The locking design of the Lightning Network makes it difficult to support large transactions, lacking usability.
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Network Centralization: To improve efficiency and reduce costs, large payment hubs may emerge, increasing the risk of network centralization.
RGB
RGB is a smart contract system based on Bitcoin. It uses client-side validation to create and manage various types of assets on the Bitcoin network without sacrificing privacy and security. Compared to traditional blockchain smart contracts, RGB aims to offer higher scalability and flexibility while maintaining the decentralized characteristics of the Bitcoin network. However, RGB also has its shortcomings:
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Complexity and Development Progress: The technology and concepts of RGB are relatively complex, and its development progress is slow.
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Global State Confirmation Difficulty: Although RGB's design of state transition graphs ensures privacy, it cannot achieve global transaction data visibility.
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Adoption and Network Effect: RGB requires significant adoption by users and developers to realize its potential value, which takes time.
Layer 2 Rollups
Rollups, a scaling technology defined by ETH, are also used in BTC. They "compress" multiple transactions into a single transaction, with its proof submitted to the main chain. Ideally, the security and finality of Rollups depend on the main chain. Due to BTC's lack of smart contract functionality, BTC Rollups are not full concept Rollups, as BTC cannot verify their proofs. Similar to sidechains, Rollups require cross-chain bridges for asset transfers between L1 and Rollup.
Typical Rollup Layer2 Bitcoin projects, such as Citrea, use off-chain validation of ZK proofs and on-chain challenges of ZK proofs. The security still relies on fraud proofs, so the security model remains the OP Rollup's 1/N honest assumption.
Why We Need Chakra
In exploring existing solutions, introducing BTC into the ecosystem often encounters security weaknesses in bridges. Following the Satoshi Faith of "Not your keys, not your coins," most BTC holders do not trust any third parties, whether decentralized bridges or MPCs, which directly hinders further development of the BTC ecosystem. Therefore, introducing BTC into the ecosystem through self-custody aligns more with BTC culture, requiring some cryptographic magic.
Self-Custodial Staking and Restaking
Bitcoin enthusiasts trust Bitcoin due to its high decentralization and strong security. Thus, compromising security for staking yields may be a significant concern. Our solution allows Bitcoin holders to participate in staking without transferring assets out of their wallets, achieved through time-lock scripts, ensuring no third-party risk.
Chakra will truly unlock the potential of the BTC ecosystem, marking the first time BTC earns interest without needing to trust an external third party, allowing trillions of dollars worth of BTC to seamlessly flow into the ecosystem. This is akin to what DeFi did for ETH, which will lead to explosive growth in the BTC ecosystem.
Therefore, attempts like Babylon, which fully rely on cryptographic methods for BTC staking in a self-custodial manner to guide L2, offer new possibilities for the BTC ecosystem.
Chakra aggregates signatures from a series of users through the MuSig2 protocol, generating a UTXO with a time lock that can "stake" Bitcoin for a certain period. Users do not need to transfer BTC to any third-party custody address but can achieve self-custody at the L1 layer through a derivative address. There are only two conditions for unlocking the staked BTC UTXO:
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Retrieval is possible after a joint signature with the Chakra network, potentially initiated by a user's request for early unlocking within the Chakra network, offering flexibility.
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Upon reaching the initially set lock-up period, users will automatically regain control of their BTC. Even if the Chakra network ceases operations, users can still timely withdraw their BTC without concern for security risks.
The Chakra network is secured by the re-staking proof of BTC, allowing the staked BTC to be verified in multiple places within the ecosystem. For instance, BTC staked in Chakra can also participate in Babylon's staking; the BTC liquidity tokens generated during the staking process can also participate in the DeFi and smart contract business ecosystem within the network, making Chakra similar to Lido in the Bitcoin ecosystem.
Specifically, after users stake BTC with the Chakra protocol, Chakra will issue stBTC on L2 for the users, and the staked BTC will be used to participate in Babylon's staking to obtain yields. When users withdraw, destroying stBTC on L2 will release BTC and the corresponding Babylon yields.
Use ZKP to verify Bitcoin transactions
In Chakra's solution, using zero-knowledge proofs to verify Bitcoin transactions, the Bitcoin staking event takes place on the mainnet and is subject to a lock-up period, with the trust process being completed through these zero-knowledge proofs. These proofs can be verified off-chain, thus accessing on-chain staking information in a completely trustless verification method that does not require connection to the Bitcoin network nor consensus for security.
Chakra uses STARKs to implement the proof system, providing a zero-knowledge proof solution without the need for a trusted setup, enhancing security compared to SNARKs. The zk light client can synchronize the proof of BTC staking to all L2 networks that require BTC re-staking for security, offering a universal solution.
Bringing Starknet's technological innovations into the Bitcoin ecosystem
Chakra will introduce a customizable sequencer - Madara to the Bitcoin second layer network. Madara utilizes the Cairo language to prove the execution of any program, making the Madara network itself more secure and efficient since anyone can innovate proofs in a decentralized manner.
Additionally, Cairo uses STARK technology to generate efficient zero-knowledge proofs, making it efficient enough to verify large and complex computations while ensuring good scalability. Since it does not rely on a trusted setup, the STARK proofs generated by Cairo have inherent transparency and security. Essentially, CairoVM is a program that takes the bytecode of compiled Cairo smart contracts and outputs an execution trace, a list of all steps taken during the program's execution. With CairoVM, Chakra can not only introduce Starknet's relatively complete ecosystem to Bitcoin but also leverage Cairo's strong developer community to create new applications for the Bitcoin ecosystem.
Learn more about Chakra through the following channels: https://linktr.ee/ChakraChain