The Bitcoin ecosystem remains a battleground for competition.

According to a Galaxy research report, one of the most concentrated bets by crypto venture capitalists in Q1 2024 was on projects investing in Bitcoin Layer 2 (L2) solutions.

Yesterday, the developers of a new BTC L2 solution called Spiderchain announced that they had completed a $11.5 million financing round, with participation from Polychain Capital, Placeholder Capital, Valor Equity Partners, ABCDE, and others.

Official information indicates that the Spiderchain network offers functionality comparable to the Ethereum Virtual Machine (EVM) and aims to combine the usability of EVM with the security of Bitcoin.

In today’s crowded Bitcoin L2 space, where the market is increasingly questioning whether so many projects can truly be considered L2, does Spiderchain, backed by a multitude of VC investments, really have unique advantages in its design?

We have read Spiderchain’s whitepaper and provided a quick interpretation of it.

Purpose of Spiderchain

There are countless BTC Layer 2 solutions, but the narratives behind solving the problem all essentially point to two core issues: scalability improvement and support for smart contracts.

The implicit story behind the former is that Bitcoin’s transaction processing capacity is limited, so we need to enhance performance. The latter indicates that Bitcoin’s architecture itself does not support complex smart contracts, so we believe it should be capable of doing more and supporting more DApps.

Botanix believes that the current BTC Layer 2 solutions all have certain problems:

1. State channels (such as the Lightning Network): State channels allow for almost instant payments but are mainly used for simple payments and do not support complex smart contracts.
2. Federated sidechains (such as the Liquid Network): These sidechains, implemented through a multi-sig mechanism, improve transaction speed and composability but rely on the trust of federation members, making them somewhat centralized.
3. Batch verification (such as Optimistic Rollup and ZK-Rollup): Although these technologies provide scalable transaction processing, they require changes on the Bitcoin main chain (via Bitcoin Improvement Proposals), which are often difficult to implement.

Therefore, Botanix has proposed a new Layer 2 framework built on top of Bitcoin, aiming to address these issues by introducing an EVM-compatible smart contract environment while maintaining decentralization.

The expected outcome is to allow for Ethereum-like composability and application ecosystems on Bitcoin without sacrificing its core advantages as a decentralized digital currency.

Spider’s tentacles, a side chain composed of multi-signature wallets

The need to maintain the security of Bitcoin itself while enabling the Bitcoin network to support smart contracts and other applications in some way has led to a “both-and” situation. This decision determined that Botanix needed to adopt some form of sidechain approach to independently handle smart contracts and applications.

Thus, the so-called Spiderchain came into play.

Setting aside technical details, we can use the following analogy to quickly understand Botanix’s Spiderchain:

1. You are using a super-secure safe to store BTC, which is the Bitcoin network - very secure but with limited functionality.
2. You want BTC to support more features, so you can send it to a place called Spiderchain, which is a large chain composed of multiple small safes (multisig wallets) connected in series. Each small safe requires multiple keys (signatures) to open, and no single person or institution can control the entire chain.
3. If every small safe is opened, you can then use your BTC to do many other things (i.e., support Dapps and smart contracts).

So, the solution that Spiderchain came up with is to provide a “sidechain” that is independent of the Bitcoin network, absorbing assets corresponding to BTC, and then providing an EVM environment behind this chain to execute various smart contracts. BTC can be used in various scenarios specified by the contracts to participate in various DeFi activities, and so on.

Now, let’s dive a bit deeper into the technical side. This whole process, as described in the whitepaper, is called the Botanix Protocol, which consists of several key technical components:

1. Spiderchain: As the crucial technology in the Botanix Protocol, it is a continuous chain of multisig wallets controlled by operators known as “Orchestrator nodes.” These nodes are responsible for running Bitcoin Core nodes, Spiderchain, and EVM to ensure the decentralization and security of the network.
2. Orchestrator nodes: Vital components of the network, these nodes not only run the entire protocol but also provide liquidity and are responsible for creating new blocks and verifying transactions. They participate in consensus by staking Bitcoin and may be penalized (i.e., “slashed”) for malicious behavior, similar to a POS mechanism.
3. Synthetic BTC: It is the token used on the Botanix chain, pegged 1:1 with Bitcoin. Each synthetic BTC represents a Bitcoin locked in Spiderchain.
4. Two-way peg: This mechanism allows Bitcoin to be transferred between the Botanix chain and the Bitcoin chain. Users can transfer Bitcoin to the Botanix chain through a process called “peg-in” and transfer it back through the “peg-out” process.

From the explanation above, we can speculate why it’s called Spiderchain:

In this system, multisig wallets act as nodes on the spider web, and transactions or operations require signatures from multiple Orchestrator nodes. This resembles the multi-point support structure of a spider web, where each node contributes to the stability and security of the entire network.

The edge node in the figure is a multi-signature wallet. By extending multiple Orchestrator nodes inward, the node multi-signature wallet can be unlocked. Only when multiple wallets are unlocked together can the BTC mapped to the chain be used.

Separation of Bitcoin Assets and Chain

The existence of Spiderchain allows BTC to be separated from the original chain and used for more operations on the Spiderchain.

We can use a simple example to understand the process of BTC asset entry, exit, and usage.

• Peg-in process: User Alice wants to transfer Bitcoin to the Botanix chain.

1. Alice sends the Bitcoin to a new multi-signature address generated by the current Orchestrator node.
2. After the transaction is confirmed, the Orchestrator node mints the same amount of synthetic BTC for Alice on the Botanix chain.
3. Alice can now use these synthetic BTC on the Botanix chain to conduct transactions and execute smart contracts.

• Apply (Running smart contracts): Alice uses her synthetic BTC to interact with smart contracts, such as participating in decentralized finance (DeFi) platforms.

1. Alice initiates a transaction and calls the function of the smart contract.
2. The transaction is verified by the Orchestrator node and packaged into a new block on the Botanix chain.

• Out (Peg-out process): Alice decides to exchange her synthetic BTC back for Bitcoin.

1. Alice sends her synthetic BTC to an Orchestrator node.
2. The Orchestrator node burns the corresponding amount of synthetic BTC and triggers a process of sending the same amount of Bitcoin from the multi-signature wallet to Alice’s Bitcoin address.

Through this design, Botanix achieves decentralization through multi signature and random selection of Orchestrator nodes, while supporting EVM, allowing any DApps that can run on Ethereum to operate on Botanix while maintaining the security and decentralization features of Bitcoin.

As for the security of Spiderchain itself, the whitepaper addresses it from the perspectives of system architecture design, consensus mechanism, and how to ensure the overall security and resistance to attacks through various methods:

For example, in terms of node design, Orchestrator nodes need to stake Bitcoin to participate in the consensus process, which provides both economic incentives for running nodes and increases the cost of malicious behaviour;

From a holistic perspective, Spiderchain has designed a mechanism to enhance its forward security, ensuring that even if a node becomes compromised in the future, it will not compromise the past records of the entire system. This is achieved by continuously updating the group of nodes participating in consensus, ensuring that no single node or small group can control the network in the long term.

In terms of resistance to Sybil attacks, requiring nodes to stake Bitcoin before participating in consensus and punishing malicious behavior can significantly increase the cost of attacks.

Finally, Botanix also plans for phased development to prevent uncontrollable risk growth due to overly ambitious steps, transitioning gradually from a small-scale network controlled by the founding team and trusted partners to a fully decentralized and community-driven network.

It is important to note that the token of Spiderchain is Bitcoin. The project aims to use BTC as the underlying settlement layer to build the future programmability of Bitcoin. All fees collected and paid on the Spiderchain EVM are settled in Bitcoin (BTC).

At the same time, the Spiderchain EVM utilizes Bitcoin’s main chain upgrade for Layer 2 design, without the need for any additional BIPs (Bitcoin Improvement Proposals), which lowers the barrier to adoption for the project.

The testnet of Spiderchain has already been launched, and interested players can click here to participate in various operations such as faucet, cross-chain transactions, swaps, etc. With investments from top VCs in Europe and the United States, the project still has certain reward expectations, so early participation while awaiting blessings could be a good choice.

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