Hello everyone, today we will talk about Babylon.
The name 'Babylon' is quite interesting; in English, it translates to 'Babylon', the lost ancient civilization. However, as a Chinese person, the first time I see this name, I interpret it as: baby | lon, baby dragon. The official image indeed resembles a little dragon.
But after reading the white paper and papers, I feel that Babylon, although currently just a little dragon, has the potential to grow into the 'Longmen Escort Bureau'.
What does Babylon do?
The official Chinese slogan is: Unlock 21 million Bitcoins, protect the decentralized economy.
To put it simply, the BTC network has been proven secure over the past decade or so (the logic here is: as BTC's value increases, it must be targeted by many hackers, yet there have been no significant security breaches, proving that hacker attacks fail and passively demonstrating network security). Other consensus mechanisms, particularly PoS blockchains, have relatively weaker security, so BTC's outstanding security can be used to protect other blockchains. The protected PoS chains pay a protection fee, and BTCers willing to provide services receive some rewards.
Isn't this logic very familiar? This is the escort logic. Babylon is the escort team, and the security of PoS chains is the protected target; it's just that what is being escorted is an electronic escort.
So this little dragon does not come from the ancient Babylonian kingdom; it is the dragon of the Longmen Escort Bureau, an electronic escort dragon.
Let's elaborate on why there is a demand for escorting and what efforts Babylon has made to enable electronic escorting.
Where does the demand for escorting come from—why do PoS chains need extra protection?
To answer this question, we need to first understand how the security issues of PoS are solved.
Using Ethereum as an example, it is a typical case of transitioning from PoW to PoS.
The security of PoS is protected by validators in the network. They verify transactions and randomly select a node to package transaction information onto the chain, with nodes communicating with each other to reach consensus. Validators strive to maintain network security, and the ETH network also pays approximately 3-7% of tokens as rewards.
In this process, everyone trusts that the others are good people, jointly maintaining network security. However, it is not merely about being soft and kind; if wrongdoing occurs, there is also a penalty mechanism.
To become a validating node in the network, one must stake a certain amount of tokens; if wrongdoing occurs, the tokens will be penalized. This is akin to paying a deposit to work; if you work well, you will be paid, but if you create trouble, your deposit will be confiscated.
Thus, network security is maintained by the stakers.
However, this also creates new problems: the upper limit of security is determined by the TVL within the chain. This is reflected in three aspects.
1. The security of inactive networks is more fragile.
If the network is not active enough and there are not enough stakers participating in maintaining security, with a low staking ratio, the cost of controlling most of the staked tokens decreases. This means the network is relatively fragile, and a blockchain with security risks is more difficult to attract new users. Once it falls into this predicament, it is hard to break free relying solely on the chain's own strength.
2. The 'rich get richer' cyclical effect.
Validators holding more tokens receive more block rewards, which in turn enhances their influence in the network. In this process, power is more likely to concentrate in the hands of a few validators, threatening decentralization.
3. Unable to withstand external economic pressures.
The security of PoS is highly dependent on the economic value of the tokens. If the token price drops due to external events, stakers may lose motivation to participate in consensus. Once the number of stakers decreases, the cost of attack significantly drops, and the security of the chain is greatly reduced.
PoS seems to be in a dilemma: relying solely on its own chain's capabilities poses potential security risks. If it could leverage the safest BTC network, the demand for additional security protection for PoS chains has already emerged.
What difficulties does escorting face—leveraging BTC to maintain PoS security challenges?
The current common solution is to have willing nodes assist in verification and stake BTC; if they commit wrongdoing, their staked BTC will be penalized. This introduces external forces to maintain PoS security.
However, a new question arises: how to implement penalty reduction?
The BTC network is not Turing complete and cannot execute complex smart contracts, which means it is difficult to accomplish: recording evidence of wrongdoing, sending it over the network, and penalizing the corresponding node's 'deposit'.
There are two ideas.
One option is to send BTC to the protected PoS chain. The advantage of this approach is that the PoS chain inherently possesses penalty reduction logic, making it easy to complete penalty actions. However, the downside is very clear: allowing BTC to cross-chain to the PoS chain presents a security bottleneck. This means that trust in a third-party bridging platform is required. (We will explore cross-chain related issues when we have the opportunity.)
Another option is to keep BTC on the BTC chain and complete penalty reduction remotely.
The advantage of this approach is that it does not require additional trust, but the downside is very obvious; the BTC network is not Turing complete and cannot perform complex smart contracts, which means it is difficult to complete: recording evidence of wrongdoing, sending it over the network, and penalizing the corresponding node's 'deposit'.
How does the Longmen Escort Bureau overcome difficulties?
Babylon chose the second option, requiring no trust in third-party bridging institutions, and directly completing the penalty reduction remotely.
Three core issues need to be resolved: 1- How to complete staking, 2- How to implement penalty reduction, 3- How to quickly exit staking.
-- How to complete staking?
What I understand is that a 'time lock' is applied to the tokens to be staked, and after the time lock expires, the corresponding UTXO can be spent (which can be roughly understood as balance).
-- How to implement penalty reduction?
Given that BTC cannot execute complex smart contracts, how should the punishment for wrongdoing be executed?
The core idea is: if a node commits wrongdoing, expose its private key; once the private key is exposed, others can access its assets, effectively completing the penalty reduction.
Bad people will ultimately face divine retribution.
The technology to expose private keys is extractable one-time signatures; if the signer uses the same set of private keys to sign two messages, the private key can be extracted from these two signatures, leading to its exposure.
This technology can effectively address the 'double spending' problem (exploiting loopholes to spend the same money twice), but not all wrongdoing is caused by double spending. What about other malicious behaviors?
Other issues are resolved by the finality gadget.
We bypass this issue by not changing the signature scheme for the basic consensus protocol itself, but instead adding an extra signing round after the base consensus protocol has finalized a block, signed using extractable one-time signatures. A block is considered truly finalized if it is both finalized by the base protocol and receives EOTS signed by more than 2/3 of the stake. One can interpret this extra round of signing as a type of finality gadget.
Bitcoin Staking: Unlocking 21M Bitcoins to Secure the Proof-of-Stake Economy
The finality gadget simply means voting one more time.
If a PoS chain encounters the problem of 'integrity being compromised', it means that a fork has occurred and consensus cannot be reached. The prerequisite for the emergence of new blocks is that more than 2/3 of the nodes must vote to approve. This means that there must be at least two sets of 2/3 consensus in the entire network.
Two 2/3 votes obviously exceed 1, indicating that some nodes voted twice. The retrievable one-time signature technology stipulates that if someone votes more than twice, their private key will be exposed. Thus, the existence of the 'finality gadget' maintains the integrity of PoS, allowing it to resolve deadlocks faster when forks occur.
When I saw this, I actually had a question. Why do bad actors have to sign twice? If they only vote for the bad fork, they won't be targeted by one-time signature defenses.
ChatGPT said that malicious nodes voting twice is for show. If an attacker completely abandons voting for the real longest chain and only votes for the false chain, this attack becomes very obvious and easy for nodes to detect and prevent. By simultaneously voting for both the real chain and the false chain, the attacker can hide their malicious behavior, avoiding detection by other nodes, which can more effectively push for the expansion of the forked chain. When the forked chain is sufficiently competitive, it forces the network to accept the attacker's forked chain, thus achieving the goal of undermining network consensus.
The malicious nodes are quite clever in their deceptive tactics.
Through retrievable one-time signatures and finality gadgets, Babylon achieves automatic penalty reduction for staked Bitcoins.
-- How to quickly exit staking?
This is actually an optimization in user experience.
In PoS chains, the time to exit staking is usually very long, as they are easily susceptible to 'remote attacks'.
The premise of PoS security is the existence of a 'deposit' deduction mechanism, so nodes dare not commit wrongdoing. Bad actors are also clever; if they withdraw the 'deposit', they can do bad things at zero cost. Remote attacks roughly mean that after nodes in the network withdraw their deposits, they can no longer participate in consensus voting, but because they participated in staking in the past, they can obtain historical block information more quickly. At the same time, other nodes in the network will prioritize accepting their forks, making it easier to build a longer fork chain to replace the current longest chain.
To avoid such costless attacks, PoS always locks the amount for a period after unstaking, ensuring that nodes have no opportunity to commit wrongdoing.
However, from a user experience perspective, the time to unlock staking is very long, even measured in weeks.
PoW has a natural advantage in quickly unstaking.
Zero-cost remote attacks do not exist in PoW because the basis for consensus in PoW is not staking but proof of work; constructing a longer fork chain means investing massive computational costs to compete with benevolent nodes in the network.
Providing time-stamping services based on BTC for PoS, synchronized with BTC, can shorten the time for unstaking to hours.
What is the expected return from 'escorting'?
The staking yield structure on ETH mainly consists of three parts:
Native staking rewards + LTS token rewards + re-staking returns.
Among them, 1) ETH staking yields are 3-7%, 2) LTS token rewards are not fixed, and 3) re-staking rewards involve additional operations and carry certain risks.
We can use this classification logic to examine the expected returns from BTC staking.
It can be predicted that there will be no native staking rewards in BTC, but since it provides security services for PoS, it is reasonable for PoS chains to offer their tokens as protection fees; this part can likely align with ETH's native staking rewards.
After the LTS project team issues tokens, there may be rewards, and this uncertainty is almost consistent with the current PoS chain rewards' uncertainty.
The rewards for re-staking will likely be comparable to the current ETH staking rewards.
From a structural perspective, the expected yield from staking BTC is comparable to that of ETH staking.
Currently, there are no rewards for staking in Babylon, and a fee of 0.00032 BTC is required. However, there will be some rewards, which are essentially marketing expenses, to encourage everyone to participate in the testing operation.
Hold or stake?
This is a question I ask myself: After Babylon completes testing and officially launches, will I be willing to stake my BTC for returns?
Hold or stake, the underlying issue is actually the balance of risk and returns.
1) Holding
For ETH, the number of holders is actually not large; the main reason is that ETH's price remains stable around 3000, similar to A-shares, which relates to its original design concept—not for value storage, but more like 'currency'. Therefore, while holding ETH poses very low risk, the returns are similarly low.
For BTC, the appreciation in fiat currency valuation is astounding. As a representative of digital gold, those who have held BTC in the past, although doing nothing, have not seen low returns. For holders, holding poses low risk but high returns.
2) Staking
For ETH, even with native staking, there are risks involved; entrusting a third party to hold it entails the risk of them committing wrongdoing and being penalized for malicious voting. Directly staking requires high-intensity maintenance of node stability, and there are penalties for disconnects, so risks always exist, but the returns are also considerable.
For BTC, it faces the same risks as ETH staking, and due to the absence of a native staking mechanism, the risks are even somewhat greater. However, correspondingly, the expected returns may also be higher.
The positions of these two types of tokens that I understand are roughly as follows.
For users, the returns from staking and holding can actually be obtained simultaneously, as LTS providers ensure that the tokens during the staking period remain liquid; furthermore, BTC is just locked on-chain and does not disappear into thin air.
My attitude towards sending BTC out to work as an escort is cautiously optimistic.
The little dragon of the Longmen Escort Bureau is growing up, with a huge market and infinite imagination.
