I will discuss an interesting blockchain protocol — or consensus mechanism — in which blocks are constructed on one blockchain by transferring assets on an entirely separate one. This is used by Stacks, where bitcoin needs to be spent in order to add blocks to the Stacks chain. Benefits include recycling the considerable proof-of-work of Bitcoin to secure additional chains, and can extend its functionality by introducing features such as smart contracts closely linked with Bitcoin.
As described in previous posts, decentralized cryptocurrencies such as Bitcoin require a protocol in order to regulate construction of the blockchain and to ensure immutability. Blocks of transactions are appended, one by one, to the end of the chain. The protocol helps decide who gets to assemble each block and receive the associated reward, as well as ensure immutability so that confirmed blocks remain unchanged in the chain for perpetuity. The focus of this post will be on the consensus mechanism itself, rather than any additional features of the blockchain in question such as support of smart contracts.
Most well-known is the proof-of-work (PoW) protocol used by Bitcoin as well as by many other leading cryptocurrencies. This requires miners to compete by expending computational power in order to gain the chance to create a block. Currently, the main competitor to proof-of-work is proof-of-stake (PoS), which requires validators to lock up units of the underlying chain asset in order to be selected to create blocks. Examples include Cardano and Solana. Both kinds of consensus mechanism function by requiring the prospective block-builders to spend some resource in order to win the chance of building a block, and receiving a block reward paid on-chain. These approaches gain their security from the idea that an attacker would need to gain control of more than half of the global resource in order to be able to control the network, known as a 51% attack.
For proof-of-work, the resource in question is hash rate or computational work, which boils down to using sufficient energy. This is external to the blockchain since the energy exists independently of the blockchain. For proof-of-stake, the resource is the blockchain asset itself or, more precisely, its opportunity cost because it is only required to lock up the asset for a period of time. This is internal to the blockchain. Since the resource used for security itself depends on the security of the network, it can introduce some circularities or difficulties when trying to analyse properties of the blockchain such as immutability and possible attack vectors.
There is a third kind of protocol, which is the focus of this post. Specifically, a blockchain can be secured by requiring validators to spend a resource existing on a separate blockchain. Since this approach gains its security from a ‘base’ blockchain to which it refers, it makes sense to use what is considered the most secure and decentralized chain. Namely, Bitcoin. The idea is quite general, and other chains such as Ethereum could be used be used in exactly the same way. As of writing this article, there is one blockchain using such a consensus mechansim. This is Stacks, which gains its security by validators spending bitcoin in order to build Stacks blocks. As such, I will use this as the canonical example demonstrating the approach. The name ‘proof-of-transfer’ (PoX) is used by the Stacks team. This makes sense, since validators are effectively transferring bitcoin in exchange for native Stacks coins when constructing blocks. The important point, though, is that they are spending a resource on the Bitcoin blockchain in order to build blocks on the Stacks one.