Originally intended to serve as a global, decentralized payment system, Bitcoin's public perception has evolved over time.
Due to its slow speed and high costs, it is more often compared to "digital gold" than being seen as a currency for everyday transactions. This perspective is gaining traction even in traditional finance circles, undoubtedly causing frustration for individuals like Peter Schiff.
Bitcoin as an asset, however, is a whole different story.
Even with the ever-expanding number of altcoins constantly flooding the market, Bitcoin continues to reign supreme, with BTC dominance hovering around 50%.
While Bitcoin currently sits at a hefty market capitalization of over $1.3 trillion, most of this liquidity is siloed within the Bitcoin network.
When we look at traditional finance, it's typical to leverage various valuable assets like stocks, real estate, equity, and even gold to secure loans, utilizing the liquidity for further investments.
With the increasing adoption of Bitcoin, especially propelled by recent ETF approvals, alongside the expanding ecosystem of smart-contract chains, it's crucial to make this pristine collateral more accessible in the realm of DeFi while retaining the security and decentralization guarantees.
While Bitcoin's strengths lie in its security and decentralization, the lack of speed and scalability is a major weakness that impedes widespread adoption.
This has led to the development of layer 2 scaling solutions, which aim to enhance Bitcoin's functionality while maintaining its security properties.
BTC L2 ecosystem poised for massive growth
Bitcoin's market capitalization of $1.2 trillion far exceeds Ethereum's $300 billion. Simultaneously, the TVL of Bitcoin sits at a measly $600 million, which is significantly smaller than Ethereum's $50 billion.
Sounds like a huge opportunity, doesn’t it?
Absolutely! Dozens of teams have already implemented or are working on L2 solutions built on the Bitcoin network, intending to position themselves as the primary application layer to attract dormant BTC liquidity.
Given the numerous already operational and upcoming L2 solutions, it's clear that the ecosystem will encounter similar challenges to those already seen in Ethereum, such as liquidity fragmentation and less-than-optimal user experience.
Addressing these issues early on is essential for establishing a unified ecosystem that is user and developer-friendly.
Enter exSat, the docking layer for the Bitcoin ecosystem, aimed at tackling this problem head-on.
What is exSat?
Short for extending Satoshi, exSat is built to alleviate the glaring problems that will inevitably arise in an ecosystem with different general-purpose layer 2 scaling solutions.
Take Ethereum, for example. Although it’s premature to say that scaling a network with numerous execution layers is inherently a bad design choice, we are already seeing the roadblocks that the ecosystem is facing, i.e., fragmented liquidity, sub-par UX, different trust assumptions, lack of decentralization, and the list goes on.
With the benefit of hindsight, exSat aims to tackle the aforementioned problems while the BTC L2 ecosystem is still in its early days.
Addressing the challenges of scaling Bitcoin is just the beginning; exSat also aims to tackle a more significant issue: the Bitcoin network's security.
Falling miner profits
While degens celebrated the Bitcoin halving in April this year, the people who maintain the network found themselves in a less-than-ideal situation.
Following the reduction of block rewards from 6.25 BTC to 3.125 BTC, numerous mining firms incurred heavy losses in 2024. For example, top Bitcoin miners MARA and RIOT reported losses of $199 million and $84 million, respectively, in Q2.
https://bitinfocharts.com/comparison/bitcoin-mining_profitability.html
To reduce losses, a handful of mining companies have begun exploring the emerging DePIN sector to generate additional revenue.
With the capability to facilitate AI model training, 3D rendering, and various other services, DePIN projects demand substantial computing power and are continuously seeking additional infrastructure partners to meet their demands.
In light of Bitcoin mining's diminishing profitability, appealing incentive programs, and significant token emissions linked to DePIN projects, miners are gladly stepping in to meet this need and generate additional cash flow.
ExSat, however, proposes a different solution to miners' declining profits.
Instead of dedicating their software to a separate infrastructure and "plugging out" of the Bitcoin network, with exSat, BTC miners can submit raw Bitcoin data to the network and earn rewards through token emissions.
So, in the process of trying to solve the problems plaguing the BTC L2 ecosystem, exSat has found a way to help Bitcoin miners become profitable again.
To make that possible, exSat is introducing several notable technical novelties that will streamline the development of new L2s and provide existing ones with the necessary tooling to create a more cohesive ecosystem.
Combining the powers of PoW and PoS
At the heart of exSat lies a hybrid consensus mechanism that merges the unmatched security of the Bitcoin network with the efficient exSat PoS consensus. This combination supports the essential smart contract capabilities required to establish a thriving DeFi ecosystem on top of Bitcoin.
From the PoW side, the exSat network employs BTC miners and turns them into synchronizers.
The mechanism works such that qualifying miners submit full 4MB block data onto the exSat platform, duplicating the Bitcoin network. This is achieved thanks to using RAM, a decentralized storage database that will store more than 108GB of Bitcoin's UTXO data.
Once the Bitcoin data has been retrieved, the PoS consensus, fueled by Antelope, a high-performing open-source framework utilized by chains such as EOS, Telos, UX Network, and WAX, takes over.
This consensus engine is tasked with verifying the accuracy of the data provided by synchronizers, constructing blocks, and managing intricate smart contract operations. The top 21 validators carry out these responsibilities by transparently achieving on-chain consensus.
The result is a scalable layer 1.5 between Bitcoin and its L2 ecosystem that supports the growing design space associated with smart contracts, DeFi, and NFTs while maintaining the high-security level that Bitcoin is known and loved for.
Smart contracts with EVM compatibility
Although not perfect by any stretch of the imagination, the EVM has solidified itself as the most widely adopted framework for smart contract development.
The abundance of developers, tooling, and users familiar with the EVM ecosystem cannot be understated. Utilizing the EVM framework to develop smart contracts on top of Bitcoin effectively aligns two of the most prominent crypto communities.
The extensive library of tooling that comes with EVM not only accelerates the deployment of standard DeFi primitives such as DEXes, NFT marketplaces, and perp trading venues but also dramatically enhances the speed at which developers can build out novel protocols.
For users, this means not having to install the 36th wallet extension in their browser.
Instead, they can enjoy interacting with wallets they’re already accustomed to. The most popular being Metamask, renowned for its sleek and industry-leading UX (lol).
On the topic of wallets, a key talking point for years has been the implementation of account abstraction.
In practice, we’ve only seen isolated instances of separate protocols or layer 2s like Starknet implement them within the confines of their garden. A sign of progression, no doubt, but in a multi-chain environment, the benefits of installing a separate wallet that supports account abstraction features only for a particular chain quickly disappear.
Thanks to exSat's unique position within the Bitcoin L2 ecosystem (connecting the Bitcoin network and its L2s), creating an ecosystem that can be used through a single wallet while simultaneously supporting a universal gas token becomes much more feasible.
But wait, there is more.
Data availability and settlement layer
The exSat network functions as a smart contract environment that enables developers to launch apps and smart wallets directly on exSat.
More importantly, it addresses Bitcoin’s scalability and interoperability by fusing three core infrastructure protocols:
Data Consensus Extension Protocol utilizes the hybrid consensus mechanism to ensure high integrity and trustworthiness of data;
Decentralized State Data Index leverages the RAM database to retain BTC asset information, such as UTXOs and indices of other protocols.
Decentralized Asset Custody uses a multi-signature approach based on Multi-Party Computation (MPC) to provide secure asset management for partnering L2 networks.
Any existing or upcoming BTC L2 can opt-in to use exSat for settlement or data availability, reducing their infrastructure bloat and costs while creating a more cohesive ecosystem with a unified and trustworthy source for critical data points.
This creates a vast design space for developers to leverage exSat as a reference point for an array of assets, such as BTC, Ordinals, Runes, BRC20, BRC-721, and ARC20, without relying on third-party oracles.
Alright, enough with the technical gibberish. When and how will we be able to ape into this project?
Tokenomics
In approximately September 2024, exSat is set to launch $XSAT, which will serve as a utility, reward, and governance token.
Like Bitcoin, the total supply of $XSAT is 21 million, and the protocol follows a halving cycle that occurs every 210,000 blocks, ensuring a fair distribution and sustainable economic model.
The distribution of XSAT tokens, starting with 50 XSAT per block, will occur in sync with the mining of new BTC blocks and is paid out to synchronizers and validators in varying proportions based on several scenarios.
First, qualified BTC miners submit data to exSat and, in doing so, become synchronizer nodes.
Synchronizers are entitled to receive 10% of the block's token rewards for submitting BTC block data. If the same synchronizer successfully mines theBTC block in the meantime, this reward increases to 50%.
The actions of synchronizers influence the rewards for validators. Suppose the synchronizer produces the data yet fails to mine a BTC block. In that case, 90% of the total XSAT block rewards will be divided among the validator nodes.
However, suppose the synchronizer does mine the block. In that case, all participating validators will share 50% of the total XSAT generated, guaranteeing that all parties are incentivized to contribute to the network regardless of the outcome.
$XSAT staking is expected to commence in March 2025, and until that point, the only requirement for validators of exSat is to meet the 100 BTC threshold.
Once the product and token are live, you might wonder about the benefits they will offer to you, anon.
Benefits and value accrual
When reading the text, one might think that exSat mainly offers advantages to developers. However, the infrastructure unlocks just as much functionality for users as it does for developers.
An overarching goal of exSat is to facilitate intent-centric omnichain dApps. By holding $XSAT in your exSat wallet, you can access a range of applications built on the network and also utilize other Bitcoin layer 2 networks from the same wallet without the need for bridging, signing multiple transactions, and handling several gas tokens. Simply choose the application and action You wish to perform, and let exSat do the work for You.
It is evident that increased activity on exSat and its partner L2 networks will lead to greater buying pressure on $XSAT. However, there is another value-accrual mechanism that we have not addressed yet.
Remember the Decentralized State Data Index, which utilizes RAM to store Bitcoin’s block data? The catch with RAM is that every project using the Index layer and other network components will need it. This is because projects utilizing these services will essentially be leasing storage from a decentralized database. As RAM is a limited resource, its scarcity increases as more projects use it.
If you recognize the benefits and unique value proposition of exSat, investing in RAM is an excellent method to gain exposure and bet on the success of this project.
Road to mainnet
The launch of exSat is divided into three phases- initialization, network launch, and the commencement of staking XSAT.
Initialization: exSat will sync historical data of the first 840,000 blocks without incentives to kickstart network operations.
Network Launch: Afterward, the exSat network will start real-time synchronization of raw BTC block data. The mining reward mechanism will also begin during this phase.
Staking for XSAT will start approximately six months after the halving event, and only the top 21 XSAT stakers will be eligible to receive block rewards.
During the recent Bitcoin 2024 conference in Nashville, the team initiated a testnet with the assistance of a small group of initial validators to improve systems and squash pesky bugs.
Since then, exSat has onboarded several new partnering validators, including household names such as:
BitGet, a prominent company in the crypto exchange and wallet services sector;
SpiderPool, a top-ranking global mining pool;
Everstake, a major player in the blockchain industry, with support for nearly 80 networks;
HashKey Cloud, a premier global provider of Web3 infrastructure services.
More Validators are joining the exSat network every week stay tuned.
Final thoughts
The Bitcoin network's conservative approach has become a beacon for a decentralized and autonomous digital economy. This stance is entirely justified, as the number of hacks and scams in the altcoin sector is borderline insane.
But it’s not all bad.
Amidst the memecoin mania, attention-grabbing superlatives, and points programs lies genuine innovation in cryptography, smart contracts, and overall infrastructure.
Yes, stuff breaks all the time, but this allows the space to move forward faster than any other industry. So, the logical way to improve Bitcoin’s usability is not to alter the network itself but to create secure and scalable extensions in the form of L2s.
While other L2 solutions operate as separate islands, solely focused on their specific use case, exSat aims to promote a more collaborative approach by developing crucial infrastructure such as the Consensus Extension Protocol, Data Index, and Decentralized Asset Custody. With exSat, we are advancing towards a more integrated, user-friendly, and, most importantly, scalable Bitcoin ecosystem that can support the newest advancements in cryptographic tomfoolery.
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