The Proof-of-Stake consensus mechanism is an alternative to Bitcoin’s energy-hungry Proof-of-Work, but the downside is that it’s extremely capital-intensive, with each individual chain requiring millions of dollars worth of staked assets to ensure strong security.
At the same time, the majority of the world’s Bitcoin sits idly in user’s wallets, doing nothing at all. Wouldn’t it be wonderful if there was a way to use that Bitcoin to provide much-needed capital to secure PoS chains?
This is the concept behind Babylon, which has just announced the launch of its Bitcoin Staking Protocol MVP at Cosmoverse 2023. Babylon’s creators have devised a clever, cryptographic technique that paves the way for Bitcoin to be staked on PoS chains in a self-custodial way, so those networks can improve their security and generate passive income for Bitcoin holders.
In its litepaper, Babylon explains that it has implemented a cryptographic technique known as an extract one-time signature (EOTS), which enables the slashing of staked Bitcoin in the event that the staker acts maliciously. This, together with Bitcon’s native time-lock, makes it possible for Bitcoin holders to stake their Bitcoins and participate in the security of any integrated PoS chain. There is no third-party involvement in the process, and the BTC remains secure as long as the staker doesn’t engage in any attacks on the network. Further, Babylon applies the most advanced BTC timestamping protocol to enable the fast unlocking of staked Bitcoin.
The result of this is that PoS chains can now implement Babylon’s protocol to build their security atop of the world’s most secure blockchain, which has more than $547 billion in combined value and the distinction of having never been hacked. It means they’ll no longer have to compete with other PoS chains for a limited pool of staking capital. Moreover, it also brings much needed utility to Bitcoin itself, as the world’s most popular crypto asset now has a native way to earn passive income.
Babylon co-founder David Tse explained that Babylon’s protocol can seamlessly integrate Bitcoin staking within almost any kind of PoS chain in a modular way, so BTC holders can earn rewards from multiple networks at once. The rewards will be paid out in the native token of each PoS chain that’s being secured.
“This not only amplifies economic incentives but paves the way for broader adoption, underscoring Bitcoin's diverse utility beyond its widely-recognized role as a store of value,” Tse promised.
Babylon’s Bitcoin Staking Protocol MVP is being implemented first of all on the Babylon chain itself. It explained that the Babylon chain will serve as a control plane for all other PoS chains that want to take advantage of Bitcoin staking. The MVP has its own blockchain explorer and a simple web application that Bitcoin holders can use to stake their assets on any participating chain.
Babylon believes that its protocol will be an extremely powerful proposition to all PoS chains, but for now it’s mostly focused on the Cosmos “internet of blockchains” ecosystem that has already shown strong interest in Bitcoin staking. The Cosmos community welcomes the addition of much-needed staking capital, and has also shown a lot of interest in Babylon for its ability to reduce the current 21-day unbonding time for staked Cosmos assets. With Babylon, stakers will be able to unlock their staked BTC almost immediately.
Babylon has already closed on one seed funding round led by IDG and Breyer Capital, and is now actively seeking additional investment to advance the concept of Bitcoin staking.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.