Bitcoin Stake: How Babylon Integrates PoW and PoS Security

The Babylon project aims to provide additional security and yield for BTC holders without leaving the Bitcoin network, supporting other PoS blockchains. This solution leverages the economic security of Bitcoin and Cosmos IBC cross-chain communication technology, offering a security supplement for PoS chains through a unique stake mechanism.

Core Mechanism

1. Remote stake: BTC is retained on the Bitcoin mainnet for staking.

2. Customized stake contracts: Create special transaction types to achieve stake lock-up through Bitcoin scripts and restrictive clauses.

3. IBC Cross-Chain Communication: Transmitting messages and data between Bitcoin and other blockchains.

4. Additional security layer: Record the hash value of key data from the PoS chain on the Bitcoin blockchain, establishing "checkpoints".

Architecture Composition

• Bitcoin Mainnet
• Babylon Aggregation Layer
• IBC communication protocol
• Target PoS blockchain

Babylon, as an aggregation layer, connects Bitcoin and PoS chains. Users lock BTC on Bitcoin, and Babylon aggregates PoS chain data and regularly sends it to Bitcoin to establish checkpoints, allowing users to earn PoS chain rewards.

Customized Stake Contract

Since Bitcoin does not support complex smart contracts, Babylon achieves staking functionality through customized UTXO operations. It creates specific contract logic using Bitcoin scripts and constraints, allowing users to lock BTC for a period of time and redeem it with a private key upon expiration.

Data Submission and Verification Process

1. PoS chain nodes generate important data hashes
2. Babylon aggregates hashes and sends them to Bitcoin via IBC
3. Data recorded on the Bitcoin blockchain receives a timestamp, forming a "checkpoint".
4. PoS chains use timestamps to verify data accuracy and timeliness.

Security and Penalty Mechanism

Using Schnorr signatures and EOTS( can extract one-time signature ) guarantee mechanism operation:

• Schnorr signatures: Efficiently handling Bitcoin stake signatures
• EOTS: Automatically extracts private keys and penalizes during double spending attacks.

If the staker signs two different blocks at the same time, their private key will be exposed, and anyone can send a transaction to burn their staked BTC.

Market Space Analysis

Currently, the yield rate for Bitcoin single coins generally ranges between 0.01% and 1.5%, with high yield opportunities being limited. A large amount of BTC is idle, and holders have a demand for returns but are concerned about low yields and risks. If Babylon can offer close to 8% returns, it may attract a scale of 3 billion USD and even impact the 10 billion market.

Problems Solved by Babylon

1. Achieve native staking of BTC on the Bitcoin network, providing higher returns.
2. Reduce the security budget and token emission requirements of the PoS chain
3. Provide PoW security supplements for PoS chains to mitigate long-range attacks.
4. Increase the activity attack threshold of PoS chain

Comparison and Analysis with Eigenlayer

Limit:

• Lack of smart contracts, unable to support complex logic
• Limited to the IBC ecosystem

Advantages:

• Targeting the idle BTC market, the potential is vast.
• Can effectively alleviate long-range attacks and shorten the stake locking period.

Similarities:

• Provide economic security support for small-scale PoS chains

Differences:

• Babylon focuses on specific needs such as shortening the stake period.
• Eigenlayer relies on the Ethereum ecosystem, with broader application scenarios.