Fractal Bitcoin is a newly introduced initiative that claims to be “the only native scaling solution that is fully and instantly compatible with Bitcoin.” Essentially, it presents itself as a merge-mined structure that serves as a second layer sidechain for Bitcoin, capable of stacking multiple levels of “sidechains.” Imagine a mainchain sidechain, a sidechain of that sidechain, a sidechain of the sidechain of the sidechain, and so forth. However, it does not function as such.
Shitcoins Are Not Second Layers
To start, the entire framework relies on a new native token, Fractal Bitcoin, which is completely distinct from Bitcoin. There is even a substantial pre-mine, with 50% of the total supply allocated among an “ecosystem treasury,” a pre-sale, advisors, community grants, and developers. This mirrors the total rewards distributed during the initial halving of Bitcoin when each block generated 50 BTC. Following this, the network transitions to a reward of 25 Fractal Bitcoin (FB) per block.
Moreover, there exists no peg mechanism for transferring actual bitcoin into the “sidechain.” This is correct; they present themselves as a sidechain/layer two setup but lack a real mechanism to transfer your bitcoin back and forth between the mainchain and the Fractal Bitcoin “sidechain.” It is a completely stand-alone system without true capabilities for transferring funds. A critical feature of a sidechain is the ability to peg, or “lock,” your bitcoin from the mainchain and engage with it in a sidechain capacity, eventually allowing those funds to return to the mainchain.
Fractal Bitcoin does not possess such a mechanism, and to compound matters, the conversation surrounding this issue in their “technical litepaper” is utterly confusing. They mention Discreet Log Contracts (DLCs) as an option for “bridging” between the varying levels of Fractal sidechains. However, DLCs are not viable for pegging at all. DLCs operate by pre-defining the destination for coins based on signatures from an oracle or set of oracles anticipated at a specific time. These are designed for gambling, derivatives, and similar financial products between two parties. DLCs don’t facilitate sending funds to arbitrary locations based on contract outcomes; they allocate funds to one of the two parties, or distribute them proportionally based on the results of some oracle-confirmed contract or event.
This makes them unsuitable for a sidechain or any peg system, which ought to be structured to give any current coin holder in the sidechain or second layer the freedom to send coins to any desired location, provided they have valid control in the other system. Therefore, not only is there an absence of an effective peg mechanism in the current system, but the speculative plans discussed in their litepaper are entirely unfounded.
The entire “design” appears to be a farcical scheme aimed at benefiting pre-mine holders.
“Cadence” Mining
Another concerning element of the system is its adaptation of merge mining, known as Cadence mining. The network employs SHA256 as the hashing algorithm and supports traditional Namecoin-style merge mining. However, there’s a catch. Only a third of the blocks produced on the network can come from Bitcoin miners participating in merge mining. The remaining two-thirds must be mined in a conventional manner by miners who entirely dedicate their hashrate to Fractal Bitcoin.
This creates a detrimental incentive structure. It attempts to associate itself with the Bitcoin network by claiming to be a “merge mined system,” when in reality, two-thirds of block production necessitates redirecting hashrate away from supporting Bitcoin and strictly focusing it on Fractal Bitcoin. Most rewards cannot be captured by miners continuing to mine Bitcoin, and as the value of FB rises, the incentive for Bitcoin miners to switch and mine it instead of Bitcoin increases to capture a larger share of the FB reward.
This effectively generates an incentive distortion for Bitcoin miners related to the overall system value, without offering any security benefits. By enforcing this choice, it ensures that the majority of network difficulty must remain low enough for the small fraction of miners that find it profitable to transition from Bitcoin to FB can successfully mine blocks within the intended 30-second block interval. Traditional merge mining would allow the entire mining network to enhance security without incurring the opportunity cost of not mining Bitcoin.
What’s The Point of This?
The supposed purpose of the network is to accommodate applications like DeFi and Ordinals that require significant blockspace by providing an alternative to the mainchain. However, the flaw in this reasoning lies in the fact that these systems are built on the mainchain specifically because users value the immutability and security it offers. The architecture of Fractal Bitcoin, on the other hand, fails to deliver comparable security assurances.
Even if it did, there is no working pegging mechanism to facilitate the interoperability of these assets between the mainchain and the Fractal Bitcoin chain. The entire structure consists of vague allusions to critical technical aspects crafted to hastily introduce a product that allows insiders to profit from the pre-mine associated with its launch.
No peg mechanism, an incoherent “merge mining” approach that not only results in a harmful incentive distortion with increasing valuation but also ensures diminished proof of work security levels, along with an array of buzzwords. While it does have CAT active, so do existing testnets. Thus, even the argument for using this as a testing ground for instances built using CAT is illogical and merely a half-hearted justification for a pre-mined token pump.
Labeling this a sidechain or a layer of Bitcoin is absurd. It’s simply a token scheme.
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