What is the impact of BTC Halving? Experts discuss the prospects of the Staking market and ecological layout.

The Bitcoin Halving is approaching, and the BTC ecosystem is thriving with projects like Layer2 and (Re)Staking continuously emerging. What is the significance of BTC staking? What new opportunities will arise after the Halving? What is the market size of BTC staking? Is it a long-term opportunity or a short-term hotspot?

Recently, a certain platform collaborated with Deep Tide and multiple project parties to hold an online discussion named "The New Economic Script After BTC Halving" on social media, delving deeply into the aforementioned topic.

Guests participating in this event include several players and participants from the BTC ecosystem, including the co-founder and CEO of a certain platform, senior BTC miner Shen Yu; the first decentralized trustless Bitcoin staking protocol CSO Xinshu Dong; the founder and CEO of BTC restaking tokenization and financial derivatives solutions Matt; and core contributor of a certain project Zuki.

As participants in the BTC ecosystem and practitioners of long-termism, the four guests unanimously believe that the BTC ecosystem holds numerous opportunities, both in the short, medium, and long term. They each approached the discussion from their respective backgrounds and products, exploring breakthroughs and opportunities in the BTC entrepreneurial track, and they hold an optimistic view of the future.

The following are the key points of discussion:

• The upcoming Bitcoin Halving is influenced by multiple factors, and there is uncertainty in the future market. The Halving mainly affects the supply side, leading to a significant decline in miners' income, especially for those using older mining machines. Miners will be forced to upgrade their equipment, optimize costs, or relocate to areas with lower electricity costs. However, due to the strong risk resistance capabilities of large mining operators and traditional capital, the overall network hash rate is expected to decline only slightly.

• The mining rewards for Bitcoin will gradually decrease and eventually approach zero. In the future, the real returns from Bitcoin will come from its role as an investment asset, with investments in L2, DeFi, CeFi, and other ecosystem projects, where holders will gain profits from this, which will become an important development direction for the Bitcoin ecosystem.

• Miners' future earnings come from newly issued Bitcoin and transaction fees, which depend on ecosystem activity. More interesting staking projects can promote ecosystem development, bring more on-chain activities and transactions, enhance network security, and increase miners' transaction fee income.

• PoS lacks external economic incentives, and its security is limited by the size of the on-chain economy, which poses a risk of being controlled. Bitcoin staking and restaking protocols introduce large external Bitcoin assets to provide security for the PoS network, addressing its inherent flaws. This is the significance of the existence of Bitcoin (re) staking.

• The co-founder and CEO of a certain platform, Shen Yu, predicts that Bitcoin staking will be a multi-billion dollar market, comparable to the early days of PoW mining, and can meet the future demand for high-performance application chains that require secure infrastructure.

• The CEO of a certain project, Matt, believes that the Bitcoin ecosystem in the future should focus on four key areas: architectural innovation, L2 development path selection, efficient asset circulation, and security assurance.

• For ecosystem builders and entrepreneurs, in the short term, they can focus on solving the BTC network congestion issue and accommodating overflow demand. In the medium term, they can pay attention to the income needs of holders, while in the long term, they should aim at the ecological development prospects after potential script language upgrades. It is worth noting whether more application scenarios around Bitcoin will emerge in the future. Will there be better tools to facilitate Bitcoin usage? And will there be novel programming models to break through its non-Turing completeness?

• As a project within the Bitcoin ecosystem, its solution addresses objective violations, while another project responds to subjective attacks.

The divine fish stated that the Bitcoin Halving mainly affects the supply side, causing different impacts on various participants:

For miners, the sharp decline in income has made it difficult for old mining machines to sustain, prompting upgrades and cost optimization. However, due to the entry of large mining operators and traditional capital, the overall network hash rate has decreased only marginally.

For individual investors, the main impact is on the psychological and emotional level, with expectations that the market may welcome a new trend in the months following the Halving. However, this year there is uncertainty in the trend due to multiple influencing factors.

Xinshu believes that this Halving is relatively smooth, with the market becoming increasingly professional and institutional. People are starting to think about other uses and sustainable returns of Bitcoin, rather than just relying on inflation subsidies. As the industry leader, can Bitcoin further radiate to a broader crypto community?

A certain project establishes a public market to allow idle Bitcoin to participate in staking, providing security for other chains. This creates opportunities for PoS chains to introduce Bitcoin as collateral, which can increase earnings for Bitcoin holders while significantly reducing their own inflation.

In the long run, Bitcoin may gain more use cases and profit scenarios, attracting more participants, not just relying on mining for profit. Ecological projects will bring new application scenarios to Bitcoin, making the entire ecosystem more diverse.

Matt pointed out that Bitcoin Halving is a fixed trend, and mining rewards will gradually decrease. In the future, the true returns from holding Bitcoin will come from investments in L2, DeFi products, etc., expanding the ecological boundaries, and bringing new revenues will become a major trend.

Many holders and project parties are promoting this trend, such as a certain project investing scarce Bitcoin on the demand side to provide security for PoS chains or L2, from which investors can profit. If Bitcoin ultimately becomes an investment asset or currency, it will certainly require an efficient liquidity allocation market and liquidity assetization.

The divine fish believes that from the perspective of miners, staking is beneficial for the development of the Bitcoin ecosystem. Bitcoin itself does not require staking, but holders and miners wish to obtain the benefits brought by staking. As a hard currency, Bitcoin is difficult to obtain native yields in the long term, while staking allows holders to receive token rewards from new projects.

Miners' future earnings come from newly issued Bitcoins and transaction fees, the latter of which depends on the activity level of the network ecosystem. More interesting staking projects can incentivize ecosystem development, bringing more on-chain activities and transactions, and enhancing network security.

Therefore, both miners and holders hope for more staking and restaking protocols to emerge. The more prosperous the ecosystem, the more returns can be obtained.

Shen Yu pointed out that the core issue of PoS lies in the lack of external economic incentives. Its underlying asset security relies on the scale of on-chain native assets, and ultimately, security is limited by the total scale of the on-chain economy. In a bear market, controlling network nodes may lead to the entire chain's assets being controlled.

Bitcoin staking and restaking protocols have introduced large external assets that are chain-agnostic, providing security for PoS networks. As the scale of Bitcoin assets surpasses one trillion dollars, it continuously injects external economic incentives into PoS networks, significantly enhancing security. This innovation addresses the inherent flaw of the lack of externality in PoS, making it eye-catching, and it has already started to take shape, possessing enormous growth potential.

The Divine Fish believes that BTC staking is at least a market worth tens of billions of dollars, comparable to the early days of PoW mining. With the development of modularization, a large number of high-performance application chains that require secure infrastructure will emerge in the future, and Bitcoin staking protocols can meet their needs.

In 2024, he focused on laying out the upstream and downstream related assets and targets of the restaking track. The company also invested a lot of resources at the corporate level to fully embrace this innovative opportunity.

For ecological builders and entrepreneurs, Shen Yu suggests seizing opportunities from three stages:

Short term: In the face of the current network congestion, provide better services and solutions to accommodate the spillover demand.

Medium to long term: Provides stable, low-risk returns for BTC holders, with a focus on applications in CeDeFi and restaking.

Long-term: If the scripting language of the Bitcoin network can be upgraded, it will be possible to develop truly large-scale ecological applications under the premise of trustlessness and permissionlessness.

Matt believes that the Bitcoin ecosystem faces several key challenges:

Architectural Innovation: The Bitcoin architecture may need to be updated to support truly decentralized on-chain settlement, such as promoting improvements like OP Code, to achieve more advanced functionalities.

L2 Development Path: Will there be an all-encompassing L2, or will various interoperable L2s connect through a common protocol standard?

Security: It is crucial to provide higher security at the infrastructure layer and to offer financial security guarantees to investors.

Xinshu states that the original intention of the project was to allow Bitcoin to participate in a broader decentralized ecosystem, providing security for other PoS chains or Layer 2 networks. By staking BTC assets, a reliable and "endless" pool of collateral can be provided for these networks, thereby enhancing their security. This is different from Ethereum's staking/restaking mechanism:

Different purposes: Ethereum focuses on its own chain security, while a certain project provides collateral for other chains/networks.

Different implementation methods: Ethereum aggregates on-chain smart contracts, while Bitcoin has each user independently staking locked in the UTXO script, which is more decentralized.

A certain project utilizes the Bitcoin UTXO model to achieve an innovative decentralized, distributed staking architecture, which fundamentally differs from the Ethereum contract pool staking model. This is a core technological innovation.

Matt stated that a certain project chose to layout the entire track because it is very optimistic about BTC restaking. The total circulation of USD is approximately 2.4 trillion, and the bond market is about 50 trillion; meanwhile, the total market value of Bitcoin is 1.4 trillion, about 60% of the USD circulation. Based on this calculation, the market scale of BTC restaking can theoretically reach 30 trillion USD, offering immense imagination space.

Essentially, BTC restaking is the act of lending out the liquidity of Bitcoin, locking a portion as collateral to provide security, and recovering the principal and interest upon maturity. It is a risk-free lending behavior, similar to purchasing government bonds.

A certain project is addressing the first step problem of securitizing principal and lending behavior. By using two types of asset standards STBTC (principal) and yield tokens (interest), liquidity can be unified, and a richer financial derivatives market can be developed based on yield tokens, such as options, futures, etc. At the same time, lending also releases a large amount of Bitcoin liquidity, which can cooperate with DeFi lending protocols, stablecoins, exchanges, and more. The asset standard can also collaborate with other restaking projects, providing additional collateral through STBTC.

Zuki introduction, a certain project is a 1:1 pegged asset to Bitcoin, playing a bridging role between the native Bitcoin asset pool and DeFi/infrastructure projects in the Bitcoin DeFi ecosystem. As a channel, the project will ensure security, allowing users to autonomously choose services and yield scenarios. Unlike other projects, this project will explore new mechanisms to improve Bitcoin's utilization efficiency, provide ecological incentives, and allow holding and trading to gain multiple returns, expecting to migrate the Ethereum yield model to Bitcoin, nurturing more innovations.

Xinshu explains that the penalty mechanism for staking BTC in a certain project is that if a node issues two different blocks (double signing) at the same block height, the private key of that node will be exposed. Once the private key is exposed, anyone can complete the missing penalty transaction signature, thereby executing the penalty. It should be noted that:

Only expose the node private key, not the staker's private key.

Node private keys are only used for block signing and do not store other assets. Therefore, even if a penalty occurs, it will not affect other assets controlled by that private key.

When a double-sign occurs, not all Bitcoin stakes on the node will be penalized; there is an adjustable local penalty parameter.

The confiscated transaction requires a three-party signature. Usually, two parties pre-sign, and the node party does not sign temporarily. Once the node commits wrongdoing and exposes the private key, anyone who obtains the private key can complete the signature and broadcast the transaction.

The reason for the node double signing exposing the private key is that digital signatures require a different nonce (random number) to be used each time. If the same nonce is used to sign two different messages, it will compromise the confidentiality of the signature. A certain project stipulates that nodes at the same height must use a predetermined nonce for signing, and once a repeat use leads to double signing, it will expose the private key.

Xinshu states that the main problem solved by a certain project is the issuance of two different blocks at the same block height, known as the "double signing" or "equivocation" problem. This is a type of attack behavior that can lead to a fork and is classified as an objective security violation. Double signing must be enforced by nodes, as only nodes hold the private keys. The key issue addressed by the project is this objective security threat, which occurs either in a blockchain with multiple nodes and valuable data.