Will Burak’s Ark Solve Bitcoin Scaling?
Within the bitcoin community it is known that bitcoin does not scale to billions of users making trillions of transactions per year on its base layer. Ark proposes to allow (potentially) unlimited users to hold bitcoin in a non-custodial way. Within an Ark pool each user holds their own keys and retains the option to convert their Ark bitcoin to base layer bitcoin unilaterally at any time by paying on chain transaction fees. The Ark Service Provider (ASP) can not steal or rehypothecate user funds. On layer 1 users hold their coins in a set of Unspent Transaction Outputs (UTXOs). In Ark, users hold Virtual Unspent Transaction Outputs (VTXOs) which they can move within the Ark pool at the cost of liquidity fees, similar to the Lightning Network, but without paying on chain fees to miners.
Officially announced on the Open Source Stage at BTC Miami 2023, Ark is a new layer 2 protocol built on bitcoin. Created by Burak Keceli, Ark promises a different set of trade-offs compared to other solutions for scaling bitcoin to a global audience.
To enable Ark, bitcoin will need a soft fork upgrade, adding either OP_CHECKTEMPLATVERIFY (BIP-119) or OP_TXHASH and OP_CHECKSIGFROMSTACK. Bitcoin’s Lightning Network has already enabled users to make nearly unlimited bitcoin payments. Like Ark, Lightning required changes to the bitcoin protocol to work, notably Segregated Witness and OP_CHECKLOCKTIMEVERIFY (BIP-65). A combination of scaling techniques including layers, side chains, federations, and possibly others will be required for bitcoin to be widely adopted.
Let’s compare and contrast Ark with the Lightning Network, and Chaumian ecash.
Lightning
Bitcoin’s Lightning Network provides a way to make many bitcoin payments in a non-custodial way without waiting for separate confirmations for each payment. Users of the Lightning Network establish reusable payment channels that can (in theory) be used to make unlimited payments routed across other Lightning Network users’ channels. Creating a lightning network channel requires an on-chain transaction and the establishment of a shared UTXO between the members of the channel. Sending or receiving payments on the Lightning Network requires the user to be online, and the user needs to monitor the blockchain for channel breaches to ensure against the loss of funds (this chain monitoring can be outsourced to a “watchtower”). Lightning Network provides superior privacy to on-chain payments, and dramatically reduces fees especially for small payments, by amortizing on-chain fees across many payments. Moving funds on the Lightning Network requires sufficient liquidity to be locked up by the network participants to facilitate the movement (i.e. all channels involved in the route must be large enough to shift the payment amount from one side to the other).
Chaumian Ecash
An ecash mint can be viewed as a custodial subnet on the Lightning Network. There are working Chaumian ecash mint solutions, such as Cashu, today.
Ecash is an old proposal that has recently been connected to bitcoin. An ecash mint exchanges something of value (bitcoin) for tokens with the mint, similar to a casino exchanging USD for chips. Within a mint, users can exchange these tokens freely (with the slight caveat that the recipient in this case takes received tokens back to the mint to exchange for fresh tokens). Ecash mints can also connect to the Lightning Network to enable users of the mint to send or receive lightning payments facilitated by the mint. The mint is fully custodial, and nothing cryptographically prevents them from walking away with all of the users’ bitcoin, or issuing more tokens than the bitcoin in their wallet. It remains to be seen how ecash mints will manage the risks associated with custody. Depositing into or withdrawing from an ecash mint requires an on-chain or lightning transaction with corresponding fees; movements within the ecash mint may require a token exchange fee on the recipient, or may be free. Within the mint there are no liquidity management concerns, but lightning interactions will be limited by the capacity of the mint’s channels. Ecash tokens are valid for as long as the mint survives. Ecash provides excellent privacy for users against external observers, and the mint itself.
Ark
An Ark pool, managed by an ASP can be viewed as a non-custodial subnet on the Lightning Network. There are no implementations of Ark yet.
An ASP exchanges on-chain UTXOs for off-chain VTXOs. Within an ASP users can exchange these VTXOs freely with no direct on-chain fees. Similar to an ecash mint, users can also interact via the ASP with the Lightning Network. Unlike ecash, the ASP is cryptographically prevented from rehypothecating or taking control of users’ funds. The ASP is required to supply their own liquidity for movements within the pool, so will likely charge liquidity fees on movements of funds within their pool. Ark VTXOs need to be refreshed periodically (default every 2 weeks) or they revert to their sender, or eventually to the ASP. ASPs are required to make regular on-chain transactions to “anchor” the movements of funds within the pool, and update the withdrawal paths for all users within the pool. Ark provides users excellent privacy against external observers and good privacy against the ASP.
Comparison
Summary
Ark provides a different set of trade-offs from other bitcoin scaling solutions. At first glance Chaumian Ecash looks like an ideal scaling solution, but it goes against the bitcoin ethos of “not your keys, not your coins”, requiring that the mint hold custody of the bitcoins in exchange for tokens. Both Ark and Lightning have challenges around liquidity and data management, but Ark moves much of that complexity to the service provider, making the user experience similar to base chain bitcoin. As the Ark specification matures and implementation progresses, BitGo will continue to monitor the technology progress, and participate in the development as appropriate to provide the best services to our clients. BitGo remains dedicated to providing our clients with access to the latest features and upgrades enabled by the bitcoin community.
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