The inherent flaws of Fractal Bitcoin’s architecture
The incentive structure of Fractal Bitcoin is not simply flawed; it is actively detrimental to both the Bitcoin network and the integrity of its own system. By establishing a scenario in which miners are encouraged to defect from Bitcoin, the project undermines the foundational principles of the Bitcoin ecosystem. This does not represent a scaling solution; it is a token scheme aimed at benefiting pre-mine holders at the detriment of the wider Bitcoin community.
Source: bitcoinmagazine.com
Beyond distorting the incentives for miners, this system also jeopardizes the security of Fractal Bitcoin itself. By compelling miners to choose between mining Bitcoin or Fractal Bitcoin, the project ensures that its network difficulty remains sufficiently low for a limited group of miners to profitably produce blocks. This implies that the overall security of the network is weakened, as it relies on a significantly smaller pool of miners than would be the case in a traditional merge mining model. In contrast, a well-structured merge-mined system would permit the entire Bitcoin mining network to enhance the security of the sidechain without incurring any opportunity cost.
Deceptive assertions and skewed incentives
The assertions made by Fractal Bitcoin are not only misleading; they also significantly distort the incentives for both miners and users. The project promotes itself as a merge-mined framework, but the truth is far more complex. Although it facilitates Namecoin-style merge mining, only a third of the blocks can genuinely be mined by Bitcoin miners engaged in merge mining. The remaining two-thirds necessitate that miners completely shift their hashrate to Fractal Bitcoin. This represents a notable deviation from the conventional merge mining paradigm, where miners can reinforce the security of both networks at once without forgoing their Bitcoin mining capabilities.
Lacking a viable peg, Fractal Bitcoin does not qualify as a sidechain whatsoever. It stands as a completely distinct system, devoid of interoperability with Bitcoin. The endeavor to market itself as a second-layer solution is merely a tactic to gain traction. The absence of a functional peg mechanism, coupled with the disjointed descriptions in their litepaper, unveils a project more concerned with inflating the worth of its pre-mined token than actually delivering any genuine utility to the Bitcoin ecosystem.
This configuration cultivates a detrimental incentive structure for miners. As the value of Fractal Bitcoin (FB) rises, miners are prompted to abandon Bitcoin and channel their hashrate exclusively to Fractal Bitcoin to secure a larger portion of the FB block rewards. This poses a dangerous distortion of incentives, prompting miners to redirect resources away from safeguarding the Bitcoin network, thereby jeopardizing its overall security. The increased valuation of FB leads to a stronger incentive for miners to forsake Bitcoin in favor of Fractal Bitcoin, thus intensifying the issue.
The underlying framework of Fractal Bitcoin is critically flawed, primarily due to its dependence on a novel native token, Fractal Bitcoin (FB), which operates completely independently from Bitcoin. The initiative presents itself as a second-layer sidechain for Bitcoin, but this assertion is deceptive. A legitimate sidechain should enable users to shift their bitcoin between the mainchain and the sidechain via a peg mechanism. Unfortunately, Fractal Bitcoin offers no such mechanism, making it impossible to integrate actual bitcoin into the platform. This represents a significant shortcoming, as the capability to peg bitcoin is a fundamental characteristic of any credible sidechain.
Rather than having an effective peg, the technical litepaper of Fractal Bitcoin elaborates on Discreet Log Contracts (DLCs) as a potential linkage method across its various sidechain levels. However, DLCs were not intended for this function. They are generally employed for financial agreements, like derivatives or betting, where an oracle decides the outcome. DLCs distribute funds between two parties based on the outcome of a specified event, yet they do not facilitate the unimpeded transfer of funds across systems, which is crucial for a sidechain peg. This renders the idea of utilizing DLCs for a peg mechanism not only inappropriate but also illogical.
