Have you heard of the "BTC write-in issue"? Not too professional, ultimately it's because BTC has limited programmability. That's why we haven't seen other types of Decentralized Finance applications on-chain with BTC. However, to make the Decentralized Finance economy work normally, users need to be able to exchange, borrow, and earn income from their holdings.

This limited programmability has led to the emergence of blockchains like Ethereum, which offer more web3 functionality and hosted 'wrapped BTC' tokens to reflect the value of BTC. However, compromises to security and reliance on centralized entities have resulted in countless hacker attacks, bankruptcies, and billions of dollars in losses.

We need a solution to go beyond the base layer to leverage BTC. In this article, we'll explain why Web3 needs BTC and introduce sBTC: a non-custodial mechanism that hooks into BTC and will become a cornerstone of DeFi.

Why Choose BTC Web3?

BTC blockchain has never encountered any vulnerabilities or hacker attacks in its 15 years of use, and maintains a network value of over $1.2 trillion, four times that of Ethereum. Web3 requires the decentralization, security, and durability that only BTC can provide.

Decentralization

The governance of Bitcoin is in the hands of its holders, miners, node operators, and other network participants, with its rules encoded in its protocol. When the BTC community resists modifications to the protocol, this decentralization is manifested.

In contrast, the governance structure of Ethereum is more centralized, with a charismatic co-founder and influential entities who can make changes to the Ethereum blockchain and monetary policy. This includes the rollback and settlement of transactions. This flexibility allows for experimentation but also undermines the security and durability of the blockchain, which is essential for building trust in a public economic system.

Security

Ethereum has transitioned from the Proof of Work (PoW) Consensus Mechanism to the Proof of Stake (PoS) mechanism to improve scalability. However, PoS has several fundamental issues that threaten security.

For example, the person holding Token is also the validator of the chain. This leads to decision-making power and financial rewards being concentrated in the hands of the wealthiest currency holder, and depends on wealth measurement standards determined by the system internally rather than externally. Because the largest holder will make decisions that benefit themselves, this may lead to further centralization - the long-term impact of this situation is not yet clear.

In contrast, BTC's Proof of Work mechanism relies on external resources to validate blocks and reward honest validators. It provides a secure, tamper-resistant, and decentralized settlement layer that is valuable for a range of applications.

Durability

Bitcoin has a long and stable history, making it reliable and resistant to change. The experimental spirit and frequent rule changes of Ethereum make it less reliable. The interdependence of Settlement and Smart Contract functions in Ethereum poses a challenge to ensuring system security. In contrast, the smallest and most pure Settlement layer of BTC is considered sacred and inviolable, which helps to ensure system stability.

The original intention of BTC's design was to become the underlying layer for high-value Settlement. Now it is time to introduce more powerful and expressive Smart Contracts required for Decentralized Finance applications by adding layers.

Stacks Bitcoin layer

"Layer" can provide scalable web3 solutions.

We have seen that the ETH layer has brought the entire Decentralization application ecosystem and attracted more capital and market value. Introducing layers for BTC will also bring innovation and sustained rise.

Currently, the top project of BTC Web3 is Stacks BTC Layer, which was launched in January 2021. Stacks extends the functionality of BTC by leveraging its security as an anchor layer without making any changes to BTC itself, to provide Smart Contract functionality, thus supporting the development of Decentralized Finance (DeFi) and other Web3 applications driven by BTC.

Proof of Transfer (PoX)

Using a unique Consensus Mechanism called Proof of Transfer (PoX), Stacks can read the state of the BTC chain and anchor its own Blocks to BTC's Proof of Work (PoW). When BTC forks, the Stacks layer will also fork and has a built-in BTC price Oracle Machine: Stacks Miners spend BTC to mine STX, which serves as an excellent on-chain proxy for the BTC to STX price.

Now, advanced Smart Contracts that leverage the security, capital, and network capabilities of BTC have become possible without any changes to BTC itself.

Clear language

Stacks uses the Clarity Smart Contract language, which is declarative and easy to read for humans. Unlike Ethereum's Turing Complete language, Clarity provides developers with a secure way to build complex Smart Contracts on Bitcoin. Ethereum's Turing Complete language cannot be formally verified and may result in more undiscovered vulnerabilities.

Speed

Once Nakamoto upgrades are complete, Stacks will receive a speed upgrade (with confirmation times of up to 5 seconds per Block) to help scale BTC. One potential unlock is lightning-fast payments on the Stacks layer, benefiting from the finality of BTC. An additional layer built on top, called "subnet," can further enhance speed and scalability, enabling lightning-fast payments with the finality of BTC.

sBTC: The Web3 Holy Grail of BTC

Despite significant progress, Stacks still cannot fully trustlessly transfer BTC in and out of Smart Contract. This has been the "holy grail" problem that BTC has struggled to overcome for nearly a decade.

sBTC is a form of non-custodial wrapped BTC with 100% BTC finality. sBTC will soon appear on the Stacks BTC layer, enabling Smart Contracts on BTC. Prepare for Decentralized Finance, Non-fungible Tokens, and DAOs to operate fully on BTC, using Stacks as an invisible Smart Contract layer.

How does sBTC work?

sBTC works by using a synthetic asset model on Stacks. To obtain sBTC, users must exchange their BTC for sBTC using a Smart Contract on the Stacks network, without relying on centralized entities.

This is achieved through the PoX Consensus Mechanism, which uses a novel trustless peg design that connects to BTC and facilitates sBTC. Additionally, as sBTC is an asset backed 1:1 by BTC, sBTC holders can represent their BTC holdings on the Stacks network as sBTC.

This derivative allows users to participate in Decentralized Finance activities, such as lending or trading, while still retaining ownership and profits of their underlying Bitcoin. In addition, users do not need to pay any fees when converting between BTC and sBTC, apart from BTC transaction fees.

If you need full programmability, sBTC is the closest currency to native BTC. It has all the advantages of Wrapped Bitcoin (wBTC) without any of the drawbacks of wBTC. You no longer need to trust custodians to support wrapped Token and real BTC in a 1:1 ratio as with using wBTC.

Below is a quick breakdown of the design of the hooking mechanism, which is rooted in security, decentralization, and usability:

Deposit Hooked

First, users convert native BTC to sBTC on Stacks by sending BTC to the native BTC Wallet. This Wallet is controlled by a decentralized open membership group called 'stackers', who lock STX Tokens in Stacks' PoX Consensus Mechanism. Through BTC rewards, stackers are economically incentivized to handle peg-ins/peg-outs with the capital they have locked in staking and the rewards they receive.

These rewards provide them with powerful economic incentives to participate in anchoring/exit without introducing additional anchoring costs. Then mint sBTC on the Stacks layer, still protected by BTC (because Stacks follows the finality of BTC).

Source: sBTC White Paper

Outgoing Hook

To peg and redeem native BTC, users need to send requests to stakers, which is processed the same way as BTC transactions.

Then, more than 70% of the stakers must collectively sign to burn sBTC, and programmatically send the corresponding native BTC back to the user's BTC Address. This process may take up to 24 hours at most.

Source: sBTC White Paper

sBTC inherits the spirit of Bitcoin

The spirit of BTC has always been about advocating self-custody.

"BTC is a purely peer-to-peer electronic cash system, allowing online payments to be sent directly from one party to another without going through Financial Institution." - Satoshi Nakamoto, 2008.

The sBTC White Paper was written by the sBTC working group, which is open to the public and involves computer scientists from Princeton University, developers from the Stacks layer, and anonymous contributors.

In 2022, the failures of centralized entities such as FTX, Genesis, and Voyager resulted in losses of over $2 trillion for users. These failures have demonstrated the importance of reaffirming the spirit of Bitcoin: to create a truly decentralized and transparent system.

Based on these fundamental principles, sBTC solves the 'BTC writing problem' and opens a new era of BTC applications, accelerating the BTC economy.

The design goal of SBTC is to be both Decentralization and secure, especially when transferring BTC to another layer that supports Smart Contract and Decentralized application (dApps).

The digital asset enables BTC holders to maintain ownership of their BTC holdings and benefit from the security of BTC, while also gaining access to the constantly evolving BTC Decentralized Finance ecosystem.

Will the staking pool exhibit erroneous behavior?

SBTC is trust-minimized and incentive-compatible: these properties are the same level of security as BTC itself. Stakers will receive BTC rewards for processing sBTC transactions.

In addition, the Wallet is based on a 70% threshold. This means that more than 70% of the stakers must collude in an economically unreasonable way to attempt an attack. If at least 30% of the stakers are honest, then malicious hooking will not occur.

In addition, there is another recovery mode in which the BTC reward will be used to fulfill the pegging request. Therefore, the native BTC will not be "stuck". In addition, the process is completely transparent, so anyone can see how much BTC is in the Wallet on-chain, as well as how much sBTC has been minted.

To ensure the system maintains incentive compatibility, the maximum 'active' ratio of circulating sBTC to locked total STX is 50%. If the maximum ratio is reached, no pegging service will be provided until the ratio is restored. This means that even if the price of STX falls significantly relative to BTC, incentive compatibility will still be preserved.

What is Stacks Nakamoto Upgrade?

The upgrade of Stacks is a Hard Fork of Stacks BTC layer, aiming to unleash the full potential of BTC by improving Block creation speed, Maximum Extractable Value (MEV) vulnerabilities, and the transaction finality of Stacks.

• Faster block time: The Nakamoto upgrade separates Stacks block production from BTC block arrival time, allowing Stacks blocks to be produced every 5 seconds now.

• Finality: The Stacks network anchors its chain history to the BTC chain history to ensure transactions are irreversible. In addition, stackers monitor Miner behavior on the network and ultimately decide whether to include Blocks in the chain.

• MEV Protection: Upgrades can ensure fair reward distribution and prevent manipulation of Maximum Extractable Value (MEV). MEV refers to profits obtained by reordering unconfirmed transaction sequences.

Through updates, Stacks will become a more efficient and scalable layer for Decentralized Finance and Web3 on BTC.

How does Satoshi Nakamoto's upgrade pave the way for sBTC

Satoshi Nakamoto's upgrade to Stacks introduces some functionality, allowing BTC to be transferred to sBTC on Stacks without trust through a hook/hook mechanism managed by a group of Decentralization participants and sBTC signers, paving the way for the launch of sBTC.

sBTC signers are stackers, they lock the BTC sent by users in the Multi-signature Wallet, and then mint sBTC on Stacks and send it to users.

The Nakamoto upgrade also improves the transaction speed on the Stacks network, reducing Settlement time from minutes to seconds. This allows sBTC to be deployed faster and more efficiently in the Decentralized Finance protocol on Stacks.

In addition, this upgrade introduces an improved PoX Consensus model, linking the history of Stack to the history of BTC. In this way, the state of the Stack network will also be recorded in every new BTC Block, making it impossible to change the network's history without changing the history of BTC.

In addition, stackers can also monitor the behavior of Miners and decide whether to add Blocks to the chain, thereby enhancing the security of the Stacks network.

By providing fast and more universal infrastructure, Nakamoto upgrades to provide sBTC with all the necessary Stacks, thereby supporting Decentralized Finance and Web3 on the popular Bitcoin layer.

What is the next step for sBTC?

The introduction of sBTC will emphasize that BTC is not just a store of value. sBTC is built as a decentralized and secure digital asset that will expand the functionality of BTC.

In addition to being launched on Stacks, sBTC will also land on Aptos Network and Solana, to further enhance the role of BTC in the evolving Cross-Chain Interaction Decentralized Finance ecosystem.

With sBTC, builders can fully unleash the potential of BTC as a fully programmable asset, paving the way for the creation of BTC-backed Decentralized Finance, non-fungible Tokens (NFTs), and more.

Original Link