Bitcoin fractal: a deceptive affinity

Fractal Bitcoin is a recently launched project that bills itself as “the only native scaling solution that is completely and instantly compatible with Bitcoin.” At its core, it’s a merged mining system that presents itself as a second-layer sidechain for Bitcoin, where multiple levels of “sidechains” can be stacked on top of each other. So think of a sidechain of the main chain, a sidechain of the sidechain, a sidechain of the sidechain of the sidechain, etc. It’s not.

Shitcoins are not second layers

First, the entire system is built around a new native token, Fractal Bitcoin, which is issued completely independently of Bitcoin. It even comes with a massive 50% pre-mine of the supply that is split between an “ecosystem treasury,” a pre-sale, advisors, community grants, and developers. This is essentially the equivalent of the entire first Bitcoin halving period, when the block subsidy was 50 BTC per block. From here, the network jumps to 25 Fractal Bitcoin (FB) per block.

Secondly, there is There is no pegging mechanism to move actual bitcoins to the “sidechain.” Yes, you read that right. They are presenting themselves as a sidechain/layer two, but there is no real mechanism to move your bitcoins back and forth between the main chain and the Fractal Bitcoin “sidechain.” It is a completely separate system with no real ability to move funds back and forth. One of the core aspects of a sidechain is the ability to link or “lock” your bitcoins from the main chain and move them to a sidechain system so you can use them there, and eventually move those funds back to the main chain.

Fractal Bitcoin has no such mechanism, and not only that, the discussion on the topic in their “whitepaper” is completely incoherent. They talk about Discrete Ledger Contracts (DLC) as a mechanism to “bridge” between different levels of Fractal sidechains. DLCs are not a suitable mechanism for a peg at all. DLCs work by predefining where coins will be sent based on a signature from an oracle or set of oracles expected at a given time. They are used for gambling, financial products such as derivatives, etc. between two parties. DLCs are not designed to allow funds to be sent to any arbitrary location based on the outcome of the contract, but rather are designed to allocate funds to one of the two participants, or proportionally to each participant, based on the outcome of some contract or event that an oracle approves.

This is not suitable for a sidechain or other pegging system, which is ideally designed to allow any current owner of coins on the sidechain or second-layer system to freely send coins to any destination they choose, as long as they have valid control over them in the other system. Therefore, not only is there no functional pegging mechanism for the live system, but your claims about possible designs for one in your literary article are completely incoherent.

The entire “design” is a clown show designed to pump up purses for the previous mine holders.

Cadence Mining

Another problematic aspect of the system is its variant of merge mining, Cadence mining. The network uses SHA256 as its hashing algorithm and supports conventional Namecoin-style merge mining. But there’s a catch. Only one-third of the blocks produced on the network can be produced by Bitcoin miners participating in merge mining. The other two-thirds must be mined conventionally by miners who switch their hash rate entirely to Fractal Bitcoin.

This is a poisonous incentive structure. It basically attempts to partner with the Bitcoin network and call itself a “merged mining system,” when in reality two-thirds of block production forces hash rate to be diverted away from protecting the Bitcoin network and dedicated solely to protecting Fractal Bitcoin. Most of the reward is uncapturable by miners who continue to mine Bitcoin, and the higher the value of FB, the greater the incentive for Bitcoin miners to defect and start mining it instead of Bitcoin in order to increase the share of the FB reward they capture.

It basically works as an incentive distortion for Bitcoin miners proportional to the value of the overall system. It also offers no advantage in terms of security. By forcing this choice, it ensures that the majority of the network difficulty must remain low enough that any small portion of miners who find it profitable to defect from Bitcoin to FB can mine blocks in the target 30-second block interval. Conventional merge mining would allow the entire mining network to contribute to security without having to deal with the opportunity cost of not mining Bitcoin.

What is the point of this?

The ostensible goal of the network is to facilitate things like DeFi and Ordinals, which consume large amounts of block space, by giving them a system to use on top of the main chain. The problem with this logic is that the reason those systems are built on the main chain in the first place is because people value immutability and the security it provides. Nothing in Fractal Bitcoin’s architecture provides the same security guarantees.

Even if they did, There is no functional fixation mechanism to facilitate these assets being interoperable between the main chain and the Fractal Bitcoin chain. The entire system is a series of gestures that gloss over important technical details in order to release something to the market that allows insiders to benefit from the pre-mine involved in the launch.

There is no bonding mechanism, an incoherent “merged mining” scheme that not only creates a poisonous incentive distortion if it continues to increase in value but actually guarantees a lower level of proof-of-work security, and a bunch of buzzwords. You have active CAT, but so do existing testnets. So even the argument as a testing ground for things built with CAT is just incoherent and a half-baked rationalization for an increase in pre-mined tokens.

Calling this a sidechain or a Bitcoin layer is beyond ridiculous. It’s a token scheme, plain and simple.

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