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What is Bitcoin Staking?

Published · Updated

Kamil Jakub Natil

Introducing Babylon

1. The Problem

Bitcoin is the most prominent and valuable cryptocurrency in the world. However, it lacks mechanisms for holders to earn passive income, similar to PoS networks such as Ethereum, leading to millions of idle Bitcoins. The evolving blockchain landscape, especially Proof-of-Stake chains, demands consistent security and liquidity contributions, a role Bitcoin has yet to play significantly.

Current yield-generating solutions for Bitcoin involve moving assets to centralized platforms, which must be wrapped or stored in custodial wallets. This introduces risks such as hacks and regulatory issues, undermining the blockchain's decentralization and security principles.

Babylon addresses these issues by offering a decentralized alternative that not only opens up new opportunities for Bitcoin holders to generate yields but also enhances the security and functionality of the broader blockchain infrastructure.


2. Babylon's Solution

Babylon is a PoS protocol designed to enable Bitcoin holders to stake their BTC in a secure and non-custodial manner, allowing them to earn rewards in tokens of chains they support.

The protocol includes two protocols:

  • Bitcoin timestamping: This protocol sends succinct and verifiable timestamps of any data (such as PoS blockchains) to Bitcoin
  • Bitcoin staking: This protocol allows Bitcoin, the asset, to provide economic security to any decentralized systems through trustless (and self-custodian) staking.

At its core, Babylon allows Bitcoin users to directly stake their BTC, supporting Proof-of-Stake chains while simultaneously earning yields in tokens of chains they support. This capability transforms idle Bitcoin into active, yield-generating assets without requiring holders to relinquish control or security.

The key features of Babylon include:

  1. Yield Generation: Users can earn rewards by staking their BTC directly on the platform.
  2. Fast Unbonding: A quick unbonding process allows users to withdraw their staked Bitcoin promptly.
  3. Non-Custodial Staking: Users maintain complete control over their BTC without transferring them to a third party.
  4. EOTS Signature for Security: This ensures security by ensuring the staked Bitcoin is locked and accounted for.
  5. Cross-Chain Interoperability: Facilitates interactions between different blockchain networks, enhancing the utility and reach of staked assets.
  6. Slashing Mechanism: Implements measures to penalize bad actors, thus safeguarding the network's integrity and user assets.

Babylon presents an innovative and secure solution to the problems faced by Bitcoin holders and the broader blockchain ecosystem. 

3. How does it generally work

A user with BTC can secure the Babylon chain or other Cosmos PoS chains while receiving yields in their tokens. To do this, the user must lock their BTC coins on Bitcoin. Because Bitcoin doesn't support smart contracts, the user should initiate the staking process using a UTXO transaction that creates a time lock for the BTC coins. This UTXO transaction has three main outputs: the time lock can expire, allowing withdrawal; the user can unbond their transaction before expiration; the transaction can be slashed if a validator acts maliciously.

After signing the transaction, the user delegates their BTC tokens to a finality provider, who can validate the transaction. This allows the user to receive yield if the provider secures blocks correctly. However, if the finality provider acts maliciously, it can be slashed.

The cornerstone of the entire model is the pre-signed slashing transaction and EOTS keys. When staking, the user pre-signs a slashing transaction that can be broadcast to the network if the finality provider acts maliciously. If the provider double-signs a block, its EOTS keys are revealed, and the covenant committee can sign the pre-approved transaction using the finality provider’s private key.

  1. Detection of malicious activity: Finality providers detect malicious activity, such as another finality provider signing a block twice.
  2. Exposure of private key: If malicious activity is detected, the malicious finality provider’s private key is leaked.
  3. Notification and slashing: The finality providers notify the covenant committee, which signs the pre-signed slashing transaction using the exposed private key and broadcasts it to the network.
  4. Slashing transaction: A predetermined amount of Bitcoins is sent to a burn address as a penalty for the malicious activity.

The process results in securing PoS chains and receiving yields for BTC tokens, which depend on the chains the user secures. Initially, the Babylon chain will start on the mainnet by ensuring only the Babylon chain itself. Still, stakers can secure other Cosmos chains and receive yields in their tokens.

4. Investors and Market Confidence

Babylon has successfully secured substantial funding across several rounds, showcasing strong market trust and investor interest in its innovative approach to Bitcoin staking.

Seed Round: Babylon initiated its funding journey by raising $8.8 million in a seed round led by IDG and Breyer Capital, emphasizing early support from established investors in transformative technologies.

Series A Funding: The momentum continued with a Series A round that raised $16 million. This round was co-led by Polychain Capital and Hack VC and saw additional participation from Framework Ventures, Polygon Ventures, Castle Island Ventures, OKX Ventures, Finality Capital, Breyer Capital, Symbolic Capital, and IOSG Ventures. The diverse investor base in this round highlights a robust endorsement of Babylon’s technology and strategic direction.

Last Round: Binance Labs made the most recent investment, reflecting significant strategic backing. This partnership provides financial resources and enhances Babylon’s capabilities in technology development and global market positioning.

These investment milestones fund Babylon's growth and affirm its potential as a significant player in the evolving landscape of blockchain technology and cryptocurrency.

5. How to Participate

If you're interested in participating in the launch of Babylon, we recommend two main directions for involvement:

  1. Testnet Participation: Engage with the Babylon testnet by staking your SignetBTC directly on Babylon’s official website. This allows you to familiarize yourself with the platform’s features and functionalities without risking real assets.
  2. Support for Large Bitcoin Holders: If you hold a significant amount of Bitcoin, don't hesitate to contact our team. We can provide tailored validator solutions that will be optimal for you when the mainnet launches.

The Babylon is currently in the testnet phase, with the mainnet launch anticipated by the end of the first half of the year. The new testnet (bbn-test-4) will focus on the security of staked Bitcoins by testing user interactions with the BTC Signet test network. The Babylon team plans to launch this new testnet towards the end of May 2024. The team is closely monitoring updates and feedback from the community to ensure the robustness and security of the network before the mainnet launch.

About P2P Validator

P2P Validator is a world-leading non-custodial staking provider, securing over $7 billion from over 10,000 delegators/nominators across 40+ high-class networks.

Do not hesitate to ask questions in our Telegram chat or contact our team directly on X or LinkedIn. We are always open to communication.

Web: https://p2p.org

Twitter: @p2pvalidator

Telegram: https://t.me/P2Pstaking



Kamil Jakub Natil

Read all articles by Kamil Jakub Natil