Bitcoin, as the first cryptocurrency, is carrying its legacy with pride. It is one of the few remaining blockchains using Proof of Work for consensus, and its community wouldn’t have it any other way. It doesn’t support smart contracts, which have been implemented many years after Bitcoin was created, and there are no plans to do so right now.
Bitcoin is sturdy, reliable and predictable. But because of this, over the years it morphed primarily into a status of “reserve currency of crypto,” with payments and active usage being less prominent. Now, Fisher Yu, Co-Founder and CEO of Babylon, is aiming to enhance this strength even further by letting people use Bitcoin to stake in other protocols. We’ve spoken to him to learn more about how this might work in the future.
Hey Fisher, nice to have you here. Let’s start with some introductions. What were you doing before crypto and how did you decide to work in this field?
FY: My journey to crypto is progressive. I studied network information theory in my Ph.D., and invented a decentralized multimedia delivery system that I later sold to Dolby Laboratories. This was my first encounter with decentralization. I then joined the University of Southern California as a postdoc to systematically research on security and scalability of decentralized systems.
Afterwards, I rejoined Dolby Laboratories and led the development, standardization, and production of decentralized multimedia delivery systems. At the same time, I helped a few famous ICO blockchain projects with their debugging, upgrading, and maintenance, as well as the launch of new chains.
Gradually I realized the tremendous power of decentralization and crypto in reshaping society, especially in improving collaboration in productive processes. To secure and help this field grow, I decided to devote all my time to it, and co-founded Babylon.
How do you see Bitcoin today? Some see it as technologically antiquated, and the community at large seems to be ok with it as it adds resilience. Do you agree with this idea?
FY: Bitcoin’s primary value proposition is its security and decentralized nature. While some may see it as technologically antiquated compared to newer chains, its resilience and trustworthiness has been proven over the years. I view it as a foundational layer in the decentralized ecosystem and economy, and through our work at Babylon, we aim to harness its security strengths to benefit other PoS chains and dApps.
What is Babylon? Do you see it as a solution for building Bitcoin-centric solutions, or to help secure existing chains such as Ethereum, Cosmos etc?
FY: Babylon’s Bitcoin Staking protocol is designed to scale Bitcoin to secure the decentralized economy. Our goal is to harness the idle bitcoins to bolster the economic security of Proof-of-Stake chains and dApps. For example, our BTC staking protocol creates a two-sided marketplace, where Bitcoin holders offer their BTC as the staking asset, and PoS chains use this staking asset to enhance their security and pay rewards. Thus, it’s not Bitcoin-centric per se. Rather, it unites the two separate worlds.
Our mission is to build a Bitcoin-driven decentralized world by evolving Bitcoin into a trusted security backbone for PoS chains; essentially we envision a future where Bitcoin and PoS chains don’t just coexist but thrive together.
What do you think of the security budget discussion for Bitcoin? When mining rewards run out, the protocol must be able to sustain itself with fees. How do you see this happening?
FY: The security budget is an essential consideration for Bitcoin’s long-term sustainability; as block rewards diminish, transaction fees will play a more significant role in incentivizing miners. I believe that as the adoption and utility of Bitcoin continue to grow, the volume of transactions will increase, and with proper scaling solutions, fees can help sustain the network’s security.
With Babylon’s BTC staking protocol, we want to offer miners a new income stream. Bitcoin miners can stake their bitcoins to earn yield that covers their operational costs. Finally, there is also the possibility of an “end-game” where the Bitcoin asset is eventually used to secure the Bitcoin network when mining becomes unsustainable.
Can you explain in ELI5 terms how Babylon manages to use Bitcoin as a staking asset? Why were other teams previously unable to do it?
FY: Absolutely! Imagine you have many toys (Bitcoin) in your toybox. You want to share them with your best friend (PoS chains). But you two do not live in the same city, so you can’t send them yourself. You have to ask some other kids to help you pass them along. Anything can happen in transit (toys get damaged or lost, your best friend gets hurt), so you’d rather not share your toys.
Babylon manages to build an interdimensional portal between you and your best friend. Your best friend can come to your house anytime to play with you. So your toys never need to leave your house. And whatever happens, you know who/what to blame.
Because the Bitcoin network doesn’t support smart contract functionality like other blockchains, users often move bitcoins to third-party custodians (such as lenders or bridges), so that they can get synthetic BTC tokens in a smart-contract-enabled chain. The Bitcoin holders will have to trust this third-party to get their BTC back in the future. This is too risky, so most holders prefer to let their bitcoins sit there idle.
Babylon’s BTC staking protocol makes trustless bitcoin utility possible for an extremely powerful use case: PoS staking. Proof-of-stake is the security mechanism of many current blockchains: Token holders lock their tokens to become the maintainer of the chain (propose, vote, validate blocks). If they behave well, they earn rewards. If they misbehave, their locked tokens are subject to slashing.
For Bitcoin to become a staking asset, it should be slashable. But the Bitcoin network is not smart, it cannot understand any misbehavior. So it is unable to execute slashing on the Bitcoin network. Therefore, no team has been able to turn bitcoin into a staking asset without the help of third parties.
Babylon’s BTC staking protocol solves this problem by using cryptographic techniques to turn misbehavior on PoS chains into an exposure of BTC secret keys. The exposed secret key can be used to send the staked Bitcoin to a burn address. This way, misbehavior will cause stake to get slashed, and Bitcoin becomes a legitimate staking asset.
When is Babylon going to launch? Is it going to be backed by a Cosmos Chain?
FY: We aim for a mainnet launch in Summer of 2024. Babylon itself is a Tendermint/Cosmos-SDK chain. It will secure PoS chains across multiple ecosystems, including Cosmos.
Do you have partners already signed up for staking with Babylon?
FY: We’re in active discussions with several potential partners interested in leveraging Babylon’s capabilities such as Akash Network, Osmosis and many others.
