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- 🟣 Merge mining: Rootstock’s edge
🟣 Merge mining: Rootstock’s edge
Plus, Starknet staking and ZKSync’s governance moves
Macauley Peterson & Donovan Choy
September 13, 2024
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Bitcoin merge mining
Chart: cbBTC
Governance: ZK L2s governance
CT: Circle and Sky both migrating
Bitcoin L2 week, day 5.
As Jerry Seinfeld might say, “What’s the deal with merge mining? You’re telling me you can mine one blockchain and get coins on another one too? Why can’t real life work like this? You’re brushing your teeth and suddenly your hair is combed!”
When talking about scaling solutions, chains claiming to be “secured by Bitcoin” often refer to the option for miners to mine their chain in parallel to Bitcoin. This is true for some of the newer chains, but also the original sidechain, Rootstock.
At its peak, prior to the Chinese crackdown on miners, Rootstock enjoyed merged mining across 80% of Bitcoin miners, according to Rootstock Labs co-founder Sergio Demian Lerner.
Merged mining allows a miner to use the same computational effort to submit proof-of-work that is valid for both networks — essentially, allowing the smaller blockchain’s security to piggyback off the larger one’s.
Opinions differ on what role this might play in a Bitcoin rollup world.
Breez CEO Roy Sheinfeld is skeptical. “I don't think the concept of merge mining in general adds a lot of security,” Sheinfeld told Blockworks. “I don't want to pass judgment on other sidechains, but I don't think it means much.”
That’s especially true for the newer chains, in his view. “People want to build Bitcoin rollups because — among some other commercial reasons — they don't have the necessary merge mining hash rate to secure them. If you already have the hash rate, then why would you want to downgrade to a rollup?”
Lerner sees Rootstock’s long-standing hashing power as a clear advantage, as he explained in the BitVMX Devs telegram group recently.
“Rootstock should not migrate to a rollup. A standard rollup on Bitcoin would make Rootstock transactions much more expensive (on average), unless it uses another chain for data availability, in which case it would become ‘almost’ like a sidechain,” Lerner wrote.
He noted that Rootstock has a 30-second transaction confirmation, with prospects to reduce that to five seconds under consideration. A Bitcoin rollup could be beholden to the base chain’s 10 minute block times, or else will require some kind of stake-based fast finality mechanism, which could add both complexity and centralization. “This would also be going backwards,” Lerner concluded.
“If Rootstock reaches >80% of Bitcoin merge mining hash rate (currently at 60%), it reaches almost the same security as Bitcoin, then clearly it would be superior to any Bitcoin rollup,” Lerner wrote.
So, if Rootstock is so secure, might it serve as a DA layer for a rollup? Lerner thinks that could be a good idea, in fact. “The concept of turning a blockchain into a data availability layer originated in [R]ootstock back in 2016. But at that time very few people saw the big picture.”
The idea resurfaced in 2021.
Research into Bitcoin rollup DA layers is ongoing, and no one really knows what will work best. For example, Ben Fish and other researchers recently released a paper about how one could do Ethereum-like blob channels on Bitcoin with some additional trust assumptions, Alexei Zamyatin, co-founder of BOB, told me.
Big governance moves in zk ecosystems today.
Starknet passed a proposal today on the new onchain Snapshot X platform by an overwhelming 98.94% majority. The move supports a landmark proposal to enable staking and value accrual to the STRK token. To date, only two other major L2s are doing the same for their native tokens: Arbitrum and Metis. The staking mechanism is slated to go live in Q4 2024, and only holders with at least 20,000 STRK ($8k) can participate.
The proposal will set the annual inflation rate of STRK initially at 1.6%, and the Starknet Foundation will have the authority to adjust it between a range of 1-4%. STRK rewards to stakers will increase or decrease on a dynamic adjustment curve depending on the staking rate.
Meanwhile, ZKSync’s governance system just went live. The system is governed by three bodies to keep each other in check: the Token Assembly (ZK token holders), a technocratic Security Council and a group of eight Guardians comprised of ZKSync co-founder Alex Gluchowski, Anoma founder Awa Sun Yin, L2Beat co-founder Bartek Kiepuszewski, Eric Wall and a few others.
The first governance proposal on the ZKSync docket is already seeing Treasure DAO — one of Arbitrum’s biggest gaming ecosystems — departing Arbitrum to spin up its own L2 on the ZKsync Elastic Chain. That move is somewhat surprising considering Arbitrum’s commitment to support its gaming ecosystem with a $215 million grant back in May. The switch has already drawn criticisms of “grant-hopping.”
Contingent on the successful L2’s launch is also a bilateral agreement to exchange 16,800,000 ZK ($1.9 million) for 5,264,879 MAGIC ($1.87 million).
— Donovan Choy (X: @donovanchoy | Farcaster: @donovan)
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Coinbase’s cbBTC early usage:
About 1,720 of Coinbase’s tokenized bitcoin — cbBTC — has been minted after its hyped launch yesterday. At bitcoin’s current prices, the value of all cbBTC is about $100 million, still a small fraction of BitGo’s WBTC total $8.9 billion market cap. Slightly more than half of cbBTC is minted on Ethereum mainnet, though the number of individual token holders of cbBTC is much higher on Base (492) compared to Ethereum (72), suggesting that early users of cbBTC may be institutions or whales with deep pockets.
— Donovan Choy
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The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.