Fractal Bitcoin is a recently launched project that describes itself as “the only native solution for scaling that is fully and instantly compatible with Bitcoin.” Essentially, it’s a built-in mining system that portrays itself as a second-layer sidechain for Bitcoin, where multiple levels of “sidechains” can be stacked on top of each other. So think of a sidechain to the main chain, a sidechain to the sidechain, a sidechain to the sidechain, etc. It’s not.
Cryptocurrencies are not second layers.
First, the entire system is built around a new native token, Fractal Bitcoin, which is issued completely independently of Bitcoin. It even comes with a massive pre-mining of 50% of the supply that is split between the “ecosystem treasury,” the presale, advisors, community grants, and developers. This is essentially the equivalent of the entire first Bitcoin halving period when the block subsidy was 50 BTC per block. From here, the network jumps to 25 Fractal Bitcoin (FB) per block.
Secondly, there is There is no linking mechanism to transfer actual Bitcoin to the “sidechain”. Yes, you read that right. They portray themselves as a sidechain/layer two, but there is no actual mechanism to move your Bitcoin back and forth between the main chain and the Fractal Bitcoin “sidechain.” It is a completely independent system and has no actual ability to move funds back and forth. One of the core aspects of a sidechain is the ability to link or “lock” your Bitcoin from the main chain and move it to a sidechain system so you can make use of it there, and ultimately move those funds back to the main chain.
Fractal Bitcoin has no such mechanism, and not only that, the discussion of this in their “technical paper” is completely incoherent. They discuss separate ledger contracts (DLCs) as a mechanism to “connect” different levels of Fractal sidechains. DLCs are not a suitable mechanism for connecting at all. DLCs work by predetermine Where coins are sent based on a signature from an oracle or a set of oracles predicted at a certain time. They are used for gambling and financial products such as derivatives etc. between two parties. DLCs are not designed to allow funds to be sent to any arbitrary location based on the outcome of a contract, they are designed to allocate funds to one participant, or proportionally to each participant, based on the outcome of some contract or event that the oracle signs.
This is not appropriate for a sidechain or other peg system, which is ideally designed to allow any current owner of coins in the sidechain or layer 2 system to freely send coins to any destination they choose as long as they have valid control over them on the other system. So not only is there no functional peg mechanism for the direct system, but waving their hands about possible designs for one in their light paper is completely incoherent.
The entire “design” is a clown show designed to pump up the bags of pre-mine holders.
Mining “Cadence”
Another worrying aspect of the system is the diversity of merge mining, mining using Cadence. The network uses SHA256 as its hashing algorithm, and supports traditional merge mining similar to Namecoin. But there is one problem. Only a third of the blocks produced on the network can be produced by Bitcoin miners participating in merge mining. The other two-thirds must be mined traditionally by miners who convert their entire hash rate to Fractal Bitcoin.
This is a toxic incentive structure. It essentially tries to tie itself to the Bitcoin network by calling itself a “merged mining system,” when in reality, two-thirds of block production requires diverting hashrate away from securing the Bitcoin network and allocating it exclusively to securing Fractal Bitcoin. Miners who continue to mine Bitcoin cannot claim most of the rewards, and the more FB is worth, the more incentive Bitcoin miners have to fork over and start mining it instead of Bitcoin to increase their share of the FB reward.
This option essentially acts as an incentive for Bitcoin miners to be proportional to the value of the overall system. It also offers no security benefit at all. By forcing this choice, it ensures that most of the network difficulty remains low enough that any small fraction of miners who find it profitable to defect from Bitcoin to Facebook can mine blocks at the target block interval of 30 seconds. Traditional merged mining would allow the entire mining network to contribute to security without having to deal with the opportunity cost of not mining Bitcoin.
What is the purpose of this?
The obvious goal of the network is to facilitate things like DeFi and Ordinals, which consume large amounts of block space, by giving them a system to use other than the main chain. The problem with this logic is that the reason these systems are built on the main chain in the first place is because people value the immutability and security it provides. Nothing in Fractal Bitcoin’s architecture offers the same security guarantees.
Even if they did, There is no functional binding mechanism at all. To facilitate the interoperability of these assets between the main chain and the Fractal Bitcoin chain. The entire system is a series of ripples that go beyond important technical details to speed something up to market allowing insiders to benefit from pre-mining involved in the launch.
There is no pegging mechanism, an incoherent “merge mining” scheme that not only creates a toxic incentive distortion if it continues to rise in value, but actually guarantees a lower level of proof-of-work security, and a bunch of buzzwords. It has an active CAT, but there are also testnets in place. So even the argument of it being a testing ground for things built using CAT is just an incoherent, half-baked justification for a pre-mined token pump.
Calling this a sidechain or a layer of Bitcoin is ridiculous. It’s simply a token scheme.