What is Mintlayer?

What is Mintlayer?

Mintlayer is a sidechain for Bitcoin that aims to allow Bitcoin holders to access DeFi, stablecoins, NFTs, and other tokenized assets, while fully inheriting the entire security (i.e., ledger immutability) of Bitcoin’s proof-of-work. As such, Mintlayer is another approach within the growing multi-layered Bitcoin ecosystem that has the goal of bringing more expressivity to Bitcoin.

As the project’s name suggests, it wants to be a new layer to mint all sorts of assets: stocks, bonds, stablecoins, asset-backed tokens, and more. Importantly though, these securities should not just be issued on any random foundation but on the Bitcoin layer specifically. This is why Mintlayer ultimately builds on Bitcoin, as it envisions a financial order forming around and on a Bitcoin standard.

Who is Behind Mintlayer?

Mintlayer is developed by a diverse team of experts. The development is coordinated by RBB SRL, a company based in San Marino. The idea for Mintlayer came about in 2019. The project was formally started in 2020 and is since led by Enrico Rubboli, who used to be a senior engineer at the famous cryptocurrency exchange Bitfinex.

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How Does Mintlayer Work?

The Mintlayer testnet version went live on Nov. 10. Mintlayer’s mainnet launch is scheduled to go live in the first quarter of 2022 and it plans to bring many technical improvements (elaborated on below)  vis-à-vis other blockchains that are optimized for tokenization and DeFi applications.

As a sidechain (with its own blockchain), Mintlayer stays close to Bitcoin’s design philosophy and only deviates from it where it is absolutely necessary to deliver advanced functionalities. One such change is an alternative consensus mechanism. While Bitcoin is based on Proof-of-Work (PoW), Mintlayer is a Proof-of-Stake (PoS)-like protocol. Mintlayer’s consensus mechanism is new and is called Dynamic Slot Allotment (DSA) consensus. Mintlayer is the first blockchain to use this mechanism that shares similarities with PoS. DSA uses Bitcoin hashes as a source of randomization to elect block signers. These are the entities that validate chain activity, thereby earning network fees as compensation.

Source: https://docs.mintlayer.org/whitepaper/1-blockchain-architecture

Every period of 1,008 Bitcoin blocks constitutes a Mintlayer round of block creation, where block signers — also called block creators — fulfill their task of creating new blocks. By acting as the maintainer and establisher of Mintlayer’s consensus, block signers also establish a chronological transaction history (thereby keeping track of time). Most importantly, anyone on the Mintlayer system is able to record a checkpoint on the Bitcoin blockchain. Only block signers can “lock” them in though, which means that you have to run a full node to enforce them. Mintlayer relies on these checkpoints as an essential way to prevent long-range attacks on its blockchain. By having a built-in checkpointing system that anchors Mintlayer transactions and blocks to the Bitcoin mainchain, Mintlayer distinguishes itself from other PoS blockchains that may suffer from such attacks.

What's Unique About Mintlayer's Approach?

On the technical front, Mintlayer uses a UTXO ledger (same as Bitcoin) model as well as BLS signatures. The latter helps with signature aggregation, reduces block size, and speeds up transactions. This ultimately creates a much better user experience. The Mintlayer protocol also integrates with the Bitcoin Lightning network — a second-layer scalability solution for Bitcoin — to enable something called Lightning swaps that can be used for decentralized exchange (DEX) swaps providing further scalability. Mintlayer coins and tokens will be usable within Lightning, which also allows for truly trustless atomic swaps between Bitcoin and Mintlayer. Also, Mintlayer has its own native decentralized exchange (DEX). Because Mintlayer DEX is connected to Lightning, so-called Lightning swaps are possible, making the DEX very scalable. There are no on-chain order books in the form of smart contracts. Instead, trades are communicated through a distributed hash table (DHT) that is separate from the blockchain.

In a DHT, orders broadcasted are stored by the nodes in a decentralized manner. Every full node can activate the DHT-DEX functionality as it likes: nodes are free to sync the full DHT, prune it, partially sync only when they are online (starting from the most recent orders), or not sync at all. Each node only stores orders that are filtered based on interest. For example, if a node is interested only in the pair BTC-USDT it only synchs that. This saves hardware requirements on the part of full nodes and makes the Mintlayer network faster.

A very unique feature is Mintlayer’s open currency environment. As such, Mintlayer provides an openly accessible free market for gas, meaning that any token on Mintlayer can be used to pay for transactions happening on the Mintlayer blockchain. This stands in stark contrast to other smart contract platforms, where only the blockchain’s native coin can be used to pay for transaction fees. So, with Mintlayer, any token can potentially be used as gas as long as block signers accept it as block reward.

The Mintlayer project has a limited block size. Node requirements for running a Mintlayer full node have been set purposely low. This is the case because:

  • Space used in Mintlayer’s blockchain is more efficient thanks to batching and more
  • Mintlayer can be used off-chain via the Lightning network (Lightning swaps)
  • Trading of assets is done via atomic swaps through a DEX instead of an AMM
  • Mostly Bitcoin Script smart contracts are used, which are more efficient (require less space)
  • The checkpoint system that has been described above drastically lowers the storage space necessary to run a Mintlayer node.

By designing Mintlayer this way, this Bitcoin sidechain tries to stay as close to the Bitcoin design philosophy as possible.

Non-Turing complete smart contracts

Mintlayer uses smart contracts that are based on Bitcoin’s native scripting language called Script. In contrast to Bitcoin itself though, Mintlayer makes it possible to outsource some of its functionality to Web Assembly (Turing-complete smart contracts). Thus, Mintlayer allows users to switch from UTXO to an account base with programmable pools, whose smart contracts might have Turing complete functionalities.

Concretely this means that Mintlayers offers a sandboxed space that can be accessed. This is done by burning Mintlayer’s coin and re-creating it in a Turing-complete environment. Once operations, for which Turing-completeness was needed, have been carried out, the coins in the programmable pool are burnt again, re-creating them on Mintlayer’s blockchain. This sandboxed Turing-incomplete environment has a limited space to avoid exploitation of too much space. Nevertheless, such an environment is enabled by Mintlayer because there are actually a few functionalities that require less space in a Turing-complete environment compared to a non-Turing-complete one, which might make it worthwhile to switch to the programmable pools.

By default though, Mintlayer’s smart contracts functionality is non-Turing-complete. Nevertheless, the smart contract functionality it plans to bring to Bitcoin should be just as diverse and powerful as that of Ethereum, the world’s largest smart contract platform. Non-Turing-complete smart contracts are chosen for their increased outcome predictability and reduced contract failure risk. Thus, unintended failures leading to unintentional losses of funds are less probable with Mintlayer.

Bitcoin’s prime layer for asset tokenization

Asset tokenization is one of Mintlayer’s prime use cases it hopes to deliver on. This is really where Mintlayer’s name comes to complete fruition. To enable the most granular approach to asset tokenization on Bitcoin, the Mintlayer protocol provides for three different tokenization standards:

  • MLS 01: This is Mintlayer’s basic tokenization standard. As such it is comparable to the ERC-20 token standard known from Ethereum, not in its design but in the functionalities it provides. Compared to ERC-20 though, MLS 01 offers much better privacy. This tokenization standard also has the option for ACL (access-control list) features, which means that white- or blacklists can be programmed. This is useful for parties that want to issue tokens with full regulatory compliance built into them — for example, a fully compliant stock-token issuance that accepts only whitelisted accredited investors.

Source: https://docs.mintlayer.org/whitepaper/4-decentralized-finance-defi#4.5.-programmable-pools-dividends-taxation

  • MLS 02: This token format makes transactions heavier with higher transaction fees but brings the benefit of full confidentiality. Compared to account-based systems (like Ethereum), this token standard allows for more privacy and more robust confidentiality. As such, it is possible to issue pegged confidential versions of other cryptocurrencies on Mintlayer’s blockchain.
  • MLS 03: The third tokenization standard is Mintlayer’s version of non-fungible tokens (NFTs).

To make Mintlayer the go-to source for asset tokenization, the founding company behind Mintlayer (RBB SRL) is already working with the regulator and government of San Marino. A regulatory-compliant framework for all EU companies has existed since 2019. Mintlayer wants to make use of it in order to provide the option to issue tokens on Mintlayer in a fully compliant way.

Specs about Mintlayer’s coin (MLT)

As its own blockchain, Mintlayer has its own coin called MLT. 400,000,000 MLT are pre-mined (created at mainnet launch) and are either distributed in the market or locked. For the next 10 years, with each Mintlayer block, there will be a reward created that goes to the block producers. This will finally come to an end, once Mintlayer’s total supply reaches its predefined hard cap of 600,000,000 MLT.

Basically, MLT serves a utility function within the Mintlayer network. Whoever wants to become a block signer needs to stack MLT. The more MLT are staked, the higher the probability for the staker to be chosen as a block creator. Also, MLT must be burned in order to issue any token, according to the 3 tokenization standards explained above. The same goes for access-control lists (implemented through MLS 01) that need to be updated due to changing conditions in the real world.

Final Words

With Mintlayer another, very innovative sidechain is emerging, pursuing the goal of enhancing Bitcoin’s functionalities. The Mintlayer blockchain may be an important piece (DYOR), adding to Bitcoin’s multi-layered financial stack. As there are more and more sidechains and other layer-1 blockchains building on Bitcoin, the Bitcoin user might – if all goes well – be the ultimate beneficiary of this because they get more options and are provided more opportunities to choose from.

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