by Joven Wu, Principal of Investment at Ryze Labs
summary:
Fractal Bitcoin, launched on September 9, 2024, may represent another blind spot between the Eastern and Western crypto markets. Although it has captured a significant portion of Bitcoin’s hashrate within days of its launch, Fractal is still relatively unknown to many in the global crypto community. This study aims to shed light on this innovative project that is rapidly gaining traction in the Bitcoin ecosystem.
Key points:
Innovative Mining Approach: Fractal introduces a hybrid mining model that combines merged mining and permissionless mining. This model provides a new perspective on PoW, proving that PoW is still a robust approach to network security even as the industry moves towards PoS.
Bitcoin’s pilot network: Due to its compatibility with the Bitcoin mainnet, Fractal provides developers with a real-world testing environment, providing valuable user data and activity insights. The activation of OP_CAT on Fractal marks the beginning of numerous anticipated experiments, solidifying Fractal’s role as a testing ground for potential Bitcoin upgrades and innovations.
Strong user base from day one: Through its partnerships with OKX and UniSat, Fractal has been able to attract Bitcoin’s most active users from the start. This early adoption helps Fractal avoid the “cold start” problem common with new platforms.
Grassroots and community-oriented: Fractal maintains a pragmatic, community-driven strategy that avoids excessive hype and institutional influence. This strategy of focusing on organic growth and engagement is at its core.
Ecosystem Integration: Fractal’s successful integration with key players in the Bitcoin ecosystem, including BRC-20, Ordinals, and Runes communities, puts Fractal ahead of current Bitcoin trends.
1. Introduction
Fractal Bitcoin is the only Bitcoin scaling solution that uses the Bitcoin Core code itself to recursively scale to unlimited levels, built on the world’s most secure and widely held blockchain.
To fully understand Fractal’s innovation, it’s important to understand the historical context of Bitcoin’s scaling discussions. In 2017, the Segregated Witness (SegWit) soft fork aimed to increase Bitcoin’s block capacity, followed by the controversial Bitcoin Cash hard fork as an alternative scaling approach. From 2018 onwards, more and more attention has turned to second-layer solutions such as the Lightning Network. In this ongoing quest for Bitcoin’s scalability and functionality enhancements, Fractal stands out as a new approach that offers a unique perspective on these long-standing challenges.
As an important milestone, Fractal’s mainnet was officially launched at 00:00 UTC on September 9, 2024.
The launch was a remarkable success, demonstrating the project’s strong appeal and technical robustness. In just 24 hours since the mainnet went live, Fractal’s federated mining has accounted for more than 40% of Bitcoin’s total hashing power, while free mining on Fractal has accounted for 2% of Bitcoin’s hashing power. To put this data into perspective, Fractal’s free mining hashrate exceeds three times Bitcoin Cash’s (BCH) total hashrate. This rapid adoption by miners shows a high level of confidence in Fractal’s technology and its potential.
(snapshot taken at 10pm HKT on Sep 10, 2024)
The project has attracted participation from major players in the mining sector. Large mining pools such as F2Pool, Antpool, and Spiderpool have already joined Fractal’s mining ecosystem. In addition, there are other well-known mining pools ready to participate, which shows that the interest in the Fractal mining network is increasing and has the potential to expand further.
2. Core concepts and technologies
2.1 Native Bitcoin Extensions
As a native extension of Bitcoin, Fractal's approach distinguishes it from other extension solutions. By leveraging Bitcoin's existing codebase and modifying block production parameters, Fractal maintains full compatibility with the Bitcoin mainnet, ensuring seamless integration with existing infrastructure. This approach achieves functional enhancements without affecting Bitcoin's core security model, striking a balance between innovation and maintaining Bitcoin's fundamental principles.
2.2 Technical specifications
Fractal introduces several key technical innovations:
Block times: Fractal achieved block times of 30 seconds, a significant improvement over Bitcoin’s 10-minute block time. This faster block time can confirm transactions more quickly, greatly improving the user experience. Additionally, it significantly increases the overall throughput of the network, potentially supporting a wider range of complex applications requiring high transaction volumes.
Mining Mechanism: Fractal uses a unique hybrid mining approach. Two out of every three blocks are permissionless mining, and the other is merged mining with Bitcoin. This innovative mechanism encourages decentralization by allowing individual miners to freely participate in two-thirds of block production. At the same time, it enhances security by leveraging Bitcoin's strong computing power through merged mining of every third block. This balanced approach aims to maintain network security and decentralization, and incentivize existing Bitcoin miners to support the Fractal network.
Scalability: Fractal's architecture theoretically supports unlimited layers of improvements. Each Fractal layer provides a 20x capacity improvement relative to the Bitcoin mainnet. This means that the base layer provides 20x the capacity of Bitcoin, while the second layer will provide 400x the capacity. This exponential scalability model allows Fractal to address Bitcoin's throughput limitations while maintaining the security properties of the base layer.
Smart Contract Capabilities: By implementing the OP_CAT opcode, Fractal enables Turing-complete smart contracts on a Bitcoin-based platform. OP_CAT is a simple connect operation that, combined with other opcodes, enables complex smart contract logic. This capability opens up the possibility for advanced DeFi protocols, complex NFT mechanisms, and other decentralized applications that were previously limited to the Ethereum platform.
Parallel execution: Fractal’s architecture allows different applications to run their own instances, so that specific optimizations do not affect the entire network. For example, a gaming platform can run on a specially optimized Fractal layer for high-frequency, low-value transactions, while a DeFi protocol can utilize a separate layer with optimized parameters for financial operations.
Compatibility: Fractal maintains 100% compatibility with Bitcoin standards such as BRC-20 and Ordinals. This ensures that existing Bitcoin tokens and NFTs work seamlessly. In addition, users can use the same address between the Bitcoin mainnet and Fractal, simplifying the user experience and reducing the risk of errors in address management.
Lorenzo, founder of UniSat and core contributor to Fractal, outlined his vision while answering questions from the community.
2.3 Unique User Experience
Unlike other Bitcoin Layer 2 solutions, wallet addresses on Fractal are exactly the same as mainnet addresses. This design provides Ethereum-like convenience, where users can access different layers simply by switching networks in UniSat or OKX wallets. And unlike other Bitcoin Layer 2 solutions that require separate EVM wallet addresses, Fractal allows users to continue using Bitcoin mainnet addresses for Layer 2 activities. As of now, major wallets such as OKX Wallet and UniSat Wallet, which serve most active Bitcoin DeFi and collectibles users, fully support Fractal Bitcoin.
3. Fractal’s position in the Bitcoin ecosystem
3.1 Comparison with other Bitcoin solutions
Fractal enters a competitive market for Bitcoin scaling solutions. Here’s how it compares to some of the main alternatives:
EVM-compatible Layer 2: Several projects have attempted to create EVM-based second-layer solutions for Bitcoin. While these solutions are relatively easy to implement and launch, they face significant challenges in terms of acceptance within the Bitcoin community. The Bitcoin ecosystem, especially its core users and developers, tend to view these EVM-compatible solutions as “stitched together.” In contrast, Fractal takes a Bitcoin-native approach that aims to extend Bitcoin capabilities without introducing external architecture. This approach may be more in line with the philosophy of Bitcoin purists and may lead to better integration and adoption within the existing Bitcoin ecosystem.
Bitcoin Cash (BCH): Bitcoin Cash emerged as a hard fork of Bitcoin, aiming to improve scalability through a larger block size. This approach led to divisions within the Bitcoin community and forced users to choose between two competing visions of Bitcoin. The BCH fork sparked many political debates that often overshadowed the technical discussions. In contrast, Fractal takes a fundamentally different approach. Instead of creating a separate chain or forcing users to make a choice, it embraces Bitcoin as the mainnet and seeks to natively scale it. Fractal's architecture allows for the creation of multiple instances that scale together, potentially providing unlimited scalability without sacrificing security or decentralization at the base layer.
Lightning Network: Lightning Network excels in fast, low-cost payments and high privacy, but its smart contract functionality is limited and it faces channel liquidity issues. In contrast, Fractal provides comprehensive smart contract support, does not require channel management, and provides a simpler user experience.
3.2 Marketing Strategy and Built-in User Base
Fractal has differentiated itself in the competitive Layer 2 space not only through technological innovation, but also through a strategic market approach and a strong built-in user base. Supported by UniSat, a leading Bitcoin wallet with approximately 1 million weekly active users, Fractal is able to reach an already engaged audience.
Many UniSat users already hold assets such as BRC20 tokens and Runes in their wallets. These users naturally want a cheaper, faster, and more feature-rich trading environment. Fractal directly addresses this need, providing an improved trading experience while maintaining familiarity and compatibility with the Bitcoin ecosystem these users are accustomed to.
This built-in user base gives Fractal a significant advantage over other Layer 2 solutions and new blockchain platforms. These new projects often face the "cold start" problem of attracting an initial user base and building a network from scratch. Effect challenges. By leveraging UniSat's existing user base, Fractal may be able to bypass early adoption barriers.
In addition, Fractal's strategy on growth metrics also distinguishes it from many other blockchain projects. While many Layer 2 solutions and new blockchains consider total locked value (TVL) as a core metric, Fractal plans to use the number of transactions as its North Star metric. This strategy fits in with its own user base, which is likely to naturally generate a large number of transactions when interacting with existing assets on a more efficient platform.
By focusing on transaction volume rather than TVL, Fractal is able to demonstrate real usage and adoption, which may be more attractive to users and investors in the long run. This strategy also makes Fractal stand out from the crowd of projects that compete on TVL numbers.
4. Ecosystem Construction
Fractal's ecosystem development strategy is committed to decentralization and community-driven growth. This section outlines Fractal's strategy for building a strong and diverse ecosystem.
4.1 Decentralization Concept
At the core of the Fractal ecosystem is a firm commitment to decentralization. This philosophy is reflected in several key aspects:
Diverse cross-chain bridge solutions: Unlike some Layer 2 solutions that rely on a single official bridge, Fractal encourages multiple cross-chain bridge methods between the mainnet and its network. This approach reduces the risk of single point of failure and promotes innovation in cross-chain interactions.
Open development environment: Fractal does not mandate a specific development framework or methodology, allowing developers to innovate freely within the ecosystem.
Community-driven governance: The direction of the ecosystem is primarily determined by community input and initiatives, rather than unilaterally by a central authority.
Distributed Infrastructure: Fractal promotes distributed infrastructure development and encourages multi-party participation in the construction of key components of the ecosystem.
4.2 Enabling users and developers
Fractal implemented a series of strategic initiatives to initiate user and developer engagement:
User Reward Program: After the mainnet launch, Fractal distributed 1 million FB tokens to more than 100,000 eligible addresses from OKX wallets and Unisat wallets, which established a broad FB token holder base and laid the foundation for increased participation in Fractal activities.
OKX Wallet Partnership: The successful partnership with OKX Wallet demonstrates Fractal’s ability to partner with major players in the cryptocurrency space, significantly expanding its potential user base.
Developer Incentives: Through various funding programs and developer resources, Fractal incentivizes developers to contribute to the growth of the ecosystem.
4.3 Funding Plan and Project Evaluation
Fractal’s grant program aims to support and incentivize projects that contribute to the growth of the ecosystem and align with the philosophy of decentralization:
Retrospective Model: Fractal uses a retrospective funding approach, rewarding projects based on their actual impact rather than speculative commitments. This model encourages high-quality work and substantive results.
Evaluation Criteria: Projects will be evaluated on their contribution to the ecosystem, technological innovation, alignment with Fractal’s decentralization principles, and potential for long-term impact.
Diverse project types: The funding program supports a wide range of projects from core infrastructure development to application layer innovation, ensuring a well-rounded ecosystem.
4.4 Outstanding Funding Projects
Through Fractal’s grant program, several key projects have been supported:
sCrypt: Enhances Fractal’s scripting capabilities to implement complex smart contracts on the Bitcoin network.
F2Pool: Serves as the primary mining pool, contributing to Fractal’s security and providing critical feedback on mining functionality.
Nubit: Developing a Data Availability (DA) layer to support scalable applications, including Ordinals and Layer 2 solutions.
DeTrading: Supports cross-chain atomic swaps without the need for a central authority or collateral, simplifying trustless trading on Fractal.
UniWorlds: Creating immersive environments on Fractal and developing a community and gaming toolkit for building interoperable virtual worlds.
FractalEcosystem.io: A community-driven directory showcasing Fractal projects, enhancing transparency and discoverability of the ecosystem.
4.5 Future Prospects
Looking ahead, Fractal is poised to enable continued growth and innovation in the ecosystem:
Expanded Grant Program: The upcoming first quarter of the ex-post grant program (September 9 to October 9, 2024) will accelerate ecosystem development.
Community Engagement: The planned launch of community rewards and the establishment of a community committee in the fourth quarter of 2024 will deepen the direction of community engagement in the ecosystem.
Potential Use Cases: Fractal’s architecture supports a wide range of future applications, including advanced DeFi protocols, enhanced NFT capabilities, enterprise solutions, and decentralized identity systems.
Scalable Infrastructure: As the ecosystem grows, Fractal will continue to support the development of scalable infrastructure to accommodate growing network activity.
Cross-chain interoperability: Future development may focus on enhancing interoperability with other blockchain ecosystems, expanding Fractal’s impact and use.
5. Token Economics and Economic Model
Fractal has designed a comprehensive token economic model that aims to ensure long-term sustainability while maximizing value for the community and investors. The model incentivizes all participants in the ecosystem, from miners to developers, to work together to promote network growth and success.
5.1 Token Details
Name: FB (Fractal Bitcoin)
Maximum supply: 210 million
Total supply: 105,153,225.00000000 (data source)
Circulating supply: 1,213,225.00061300 (data source)
Primary use: Transaction fees (within the Fractal ecosystem)
Secondary uses: Voting, apps
5.2 Token Allocation
Fractal's token distribution strategy is designed to promote network security, incentivize growth, and reward key contributors throughout the ecosystem. The specific distribution is as follows:
Proof of Work Mining (50%): 50% of the total supply is allocated to Proof of Work (PoW) mining. This significant allocation aligns Fractal closely with Bitcoin’s security model, ensuring network security and reliable block production.
Ecosystem Reserve (15%): This portion is used to invest in the Fractal ecosystem, to support and fund projects that improve the ecosystem, and to fund continued core improvements to Fractal. Up to 10% of this pool may be used annually over 10 years.
Community Rewards (10%): Used to build partnerships and liquidity programs. These community-led initiatives are designed to increase network participation over time. Similar to the Ecosystem Reserve, this pool can be used up to 10% per year for 10 years.
Pre-sale (5%): This portion is allocated to early investors to cover initial development and operating costs, as well as to conduct security audits. These tokens have a seven-month lockup period, after which they will be released linearly until the end of the twelve months.
Advisor Pool (5%): Reserved for current and future advisors who will provide strategic advice and support for Fractal’s continued growth. Maximum of 20% per year for 5 years.
Core Contributors (15%): allocated to those who build and maintain Fractal’s core software. These tokens follow the same lock-up and release schedule as the pre-sale tokens.
5.3 Release and Lock-up Period
To ensure long-term commitment and alignment of interests:
Presale and Core Contributor tokens have a seven month lockup period, after which they are released linearly until the end of the twelve month period.
The maximum annual release rate of ecosystem reserve and community reward tokens is 10% over 10 years.
The maximum annual release rate of advisor tokens is 20% over 5 years.
5.4 Transparency and OP_CAT Governance Voting Mechanism
For full transparency, Fractal has published the official addresses for each token allocation category, which can be tracked when the mainnet goes live. This transparency allows the community to monitor the distribution and usage of tokens.
In addition, Fractal encourages all users to participate in the ongoing governance process and contribute to the development of the project. Proposals may include protocol upgrades, parameter adjustments, and allocation decisions for ecosystem reserves or community reward funds. This participatory approach is designed to ensure that Fractal responds to community needs and adapts to changing market conditions.
The Fractal team plans to adopt a governance voting mechanism based on OP_CAT. This innovative approach will be the first application in the Bitcoin space. By enabling OP_CAT, Fractal token holders will vote on proposals directly within the Fractal ecosystem.
6. Team and partners
6.1 Core Contributors
Fractal Bitcoin is built by an experienced team in the Bitcoin ecosystem:
UniSat: As a leading Bitcoin wallet with over 900,000 weekly active users, UniSat has extensive experience in cryptocurrency application interface design, implementation and support of Bitcoin standards such as BRC-20 and Ordinals, and secure management of high-value digital assets. Their participation adds credibility to the project and provides a large potential user base for early adoption.
Block Space Force: The co-founders have successfully built and scaled world-class projects such as Coinbase, CoinMarketCap, and Cobo. Their decades of experience in USD A9 exits and 100x investment projects and developing the world's most used blockchain applications demonstrates their expertise in scaling blockchain projects from concept to mass adoption, navigating regulatory challenges in the cryptocurrency space, and managing investor relations.
6.2 Developer Platform Partnership
Fractal is backed by the Scrypt team, which is building a smart contract meta-protocol on Bitcoin using OP_CAT. This partnership could bring important synergies, including joint development of advanced smart contract standards, shared security audits, best practices, cross-platform promotion, and ecosystem building.
7. Challenges and risks
While Fractal presents an innovative approach to extending Bitcoin’s functionality, it also faces challenges that potential investors and users need to consider:
Programmability is the main challenge facing Fractal. Since it is 100% compatible with the Bitcoin mainnet, Fractal is programmed using Bitcoin Script, which may hinder the growth of the ecosystem. To better understand this issue, according to Electric Capital's developer report, Bitcoin has 1,071 monthly active developers, while Ethereum has 7,864 monthly active developers.
Bitcoin Script is not as well-known as popular languages like Rust or Solidity, making it more challenging to use, which may lead to a low number of developers. Fractal's high coding threshold, coupled with the fact that its functionality may not be as good as other blockchains, may slow down the expansion of the ecosystem. In addition, the development tools, libraries, and frameworks for Bitcoin Script are relatively immature compared to other blockchain environments, which may further hinder application development and deployment on Fractal.
Technology risks also pose significant challenges. Modifying Bitcoin’s core parameters and implementing new features such as OP_CAT inherently carries the risk of introducing vulnerabilities or unintended consequences. Managing recursive expansion and multiple levels of complexity adds to the technical challenges.
Adoption risk is another significant challenge. Fractal could face resistance from Bitcoin maximalists who believe any modifications or extensions to Bitcoin are unnecessary or potentially harmful. Convincing users and developers to switch to Fractal from established layer 2 solutions or other blockchain platforms can be difficult, especially given the network effects of these existing options. Additionally, while Fractal is compatible, the Runes, Ordinals, and BRC-20 communities may be reluctant to adopt the same standard. These communities have established their own ecosystems and may feel there is not enough incentive to migrate or expand to a new platform, even if it offers better performance. Fractal needs to clearly articulate its value proposition and potentially offer significant incentives to drive initial adoption among these user groups. The challenge is not only to provide a technical advantage, but also to overcome the inertia of the established community and its existing investment in the current platform.
To address these challenges, especially the issue of programmability, Fractal will likely need to invest significantly in developer education, create robust development tooling, and possibly explore ways to make the development process easier to use without compromising its integration with Bitcoin Core.
8. Conclusion
Fractal Bitcoin represents a groundbreaking approach to scaling Bitcoin functionality. As the only Bitcoin scaling solution that leverages the Bitcoin Core code itself to recursively scale to unlimited layers, Fractal offers a unique value proposition in the competitive market for Layer 2 solutions.
Fractal's key benefits include:
Native Bitcoin Integration: Fractal maintains full compatibility with the Bitcoin mainnet, enabling seamless integration with existing infrastructure while enhancing its functionality.
Technological Innovation: With 30-second block times, hybrid mining methods, and support for OP_CAT, Fractal significantly increases transaction speeds and enables complex smart contracts on a Bitcoin-based platform.
Built-in user base: Fractal has significant advantages in overcoming the "cold start" problem. Powered by the UniSat wallet, Fractal has a solid base of over 1 million weekly active users, and with the Fractal mainnet launch plan, 100,000 active addresses hold FB tokens, which are among the largest in the Bitcoin ecosystem. Engaged users. Additionally, full integration with the OKX wallet further expands Fractal’s potential user base within the OKX ecosystem.
Strong mining and network security: Get 30-40% of Bitcoin’s hashrate through merged mining and 1-2% of Bitcoin’s hashrate through free mining.
Ecosystem Development: Through strategic grant programs and community initiatives, Fractal is actively fostering a diverse ecosystem spanning DeFi, gaming, and core infrastructure development.
Unique user experience: Fractal’s approach allows users to use the same address between Bitcoin mainnet and Fractal, providing an Ethereum-like network switching experience.
A team with a long-term vision: Fractal’s core contributors have been building in the Bitcoin and crypto industry since 2013, which helps the team adopt a longer-term industry perspective to bring Fractal to a wider audience.
However, Fractal also faces some major challenges:
Programmability: Bitcoin Script may pose a barrier to developers more familiar with Solidity or Rust.
Technical Risks: There are inherent risks in modifying Bitcoin’s core parameters and implementing new features such as OP_CAT.
Adoption barriers: Convincing users and developers to switch from established solutions to Fractal can be challenging.
Despite the challenges, Fractal’s innovative approach, strong support, and early mining adoption show great potential. The project’s success in attracting major mining pools and rapidly growing hashrate after launch are particularly encouraging signs.
As the ecosystem continues to grow, Fractal is positioning itself as a platform for innovative Bitcoin applications in a variety of fields, potentially reshaping Bitcoin's utility and adoption. The planned implementation of an OP_CAT-based governance voting mechanism further demonstrates Fractal's commitment to innovation within the Bitcoin ecosystem.
While the road ahead is filled with opportunities and challenges, Fractal Bitcoin represents a bold step forward in Bitcoin's scaling journey. Its success could profoundly impact the future of Bitcoin and the blockchain ecosystem. As with any emerging technology, potential investors and users should carefully weigh the project's potential against its risks and closely monitor its technological development, ecosystem growth, and market adoption.
