Bitcoin
Bitcoin (BTC) fees can be hedged with ETH-based protocol
Blockchain Protocol Alkimiya launched, introducing a tool that allows users to hedge against Bitcoin volatility (BTC) transaction fees.
The hardest part may be getting hard-line bitcoiners — sometimes known as “maximalists” or “maxis” — to use the new protocol, since it is built on top of Ethereum Blockchain. Target users of the platform, described as a “blockspace markets protocol,” could include traders, mining pools and foundations.
“While we recognize that Bitcoin maxis may initially be hesitant to use an Ethereum-based solution, our primary focus is to create the most robust and efficient marketplace for trading Bitcoin transaction fees,” Alkimiya founder and CEO Leo Zhang told CoinDesk in an email interview.
There can be little doubt about the usefulness of a solution like Alkimiya’s: In April, when Casey Rodarmor’s Runes protocol for minting fungible tokens on top of Bitcoin went live, Bitcoin’s network fee soared from $4.80 to $125 per transaction.
“Bitcoin mining companies, facing high operating costs, are increasingly looking to hedging instruments to protect themselves against rate volatility,” Alkimiya said in its press release.
The company was founded in 2021 and is backed by investors including Dragonfly, Castle Island Ventures, 1KX, GMR, Coinbase Ventures, Circle Ventures, Tribe Capital and Robot Ventures, according to the release. The project raised US$7.2 million financing in January 2023 and went into operation in a testnet in april.
Designed as a peer-to-peer payments network, Bitcoin has been around since 2009 and many of its users are notoriously loyal and skeptical of solutions that aren’t built “natively” or that use a secure framework directly on top of the older, original blockchain.
Notably, however, Bitcoin lacks the programmability of Ethereum, which emerged in 2015, founded primarily by developers including Vitalik Buterin, who had previously worked on Bitcoin.
And like many of the decentralized applications and protocols on Ethereum, Alkimiya’s design requires some programming.
Here’s how Alkimiya works, according to the project’s documentation: “Alkimiya users can enter Buy and Sell positions for any pool. These Buy and Sell positions are represented by NFTs (ERC-1155) called Long and Short shares. Long shares from the same pool have the same tokenId and are fungible, while Long shares from different pools have different tokenIds and are non-fungible. The same rule applies to Short shares.”
One ERC-1155 is a standard for a “smart contract interface that can represent and control any number of fungible and non-fungible token types,” according to the definition on the Ethereum Foundation website.
Founder Zhang told CoinDesk that the project is “actively monitoring” the development of Ethereum-compatible layer-2 solutions on top of the Bitcoin blockchain, as well as “UTXO-based approaches.”
A UTXO – short for “unspent transaction output” – represents a key element of Bitcoin’s architecture, radically different from Ethereum’s accounting approach.
The reality is that many Bitcoin layer 2 solutions are still in the works, especially those with Ethereum compatibility.
“Considering that we currently cannot develop on Bitcoin, developing on Ethereum is the most decentralized approach available, which aligns with our commitment to decentralization and avoiding a centralized approach,” according to Zhang.
The goal is to eventually create “seamless integration paths that make it easy for Bitcoin users to access and use our platform without having to manage multiple wallets or interfaces,” Zhang said.