Fractal Bitcoin is a recently launched project that bills itself as “the only native scaling solution fully and directly compatible with Bitcoin.” At its core, it’s a merge-mined system that bills itself as a second-tier sidechain for Bitcoin, where multiple levels of “sidechains” can be stacked on top of each other. So think sidechain of the mainchain, sidechain of the sidechain, sidechain of the sidechain of the sidechain, etc. It’s not.
Shitcoins 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-mine of 50% of the supply that is distributed across an “ecosystem treasury”, a pre-sale, advisors, community grants, and developers. This is essentially the equivalent of Bitcoin’s entire first halving when the block grant was 50 BTC per block. From here, the network jumps to 25 Fractal Bitcoin (FB) per block.
Secondly, there is no peg mechanism to move actual bitcoins to the “sidechain”. Yes, you read that right. They market themselves as a sidechain/layer two, but there is no actual mechanism to move your bitcoin back and forth between the mainchain and “the sidechain” Fractal Bitcoin. It is a completely independent system with no actual ability to move funds back and forth. One of the core aspects of a sidechain is the ability to lock, or “lock,” your bitcoin from the mainchain and move it to a sidechain system so you can leverage it there and eventually move those funds back to the mainchain.
Fractal Bitcoin has no such mechanism, and not only that, the discussion on the topic in their “technical litepaper” is completely incoherent. They discuss Discrete Log Contracts (DLCs) as a mechanism for “bridging” between different levels of Fractal sidechains. DLCs are not a suitable mechanism for a peg at all. DLCs function by predefine where coins are sent based on a signature from an oracle or a set of oracles expected at a certain time. They are used for gambling, financial products such as derivatives, etc. between two parties. DLCs are not designed to send funds to a random place based on the outcome of the contract, they are designed to allocate funds to one of the two participants, or proportionally to each participant, based on the outcome of a contract or event that an oracle signs.
This is not suitable for a sidechain or other system peg, which ideally is designed so that any current owner of coins in the sidechain or tier 2 system can freely send coins to any destination they want as long as they have valid control over them on the other system. So not only is there no functional peg mechanism for the live system, but their hand-waving about possible peg designs in their litepaper is just completely incoherent.
The whole ‘design’ is a clown show designed to pump up pockets for pre-mine holders.
“Cadence” mining
Another troubling aspect of the system is its variation on merge mining, Cadence mining. The network uses SHA256 as its hashing algorithm, and it supports conventional Namecoin-style merge mining. But there’s a catch. Only a third of the blocks produced on the network can be produced by Bitcoin miners engaging in merge mining. The remaining two-thirds must be mined conventionally by miners who switch their hashrate entirely to Fractal Bitcoin.
This is a toxic incentive structure. It is essentially trying to associate itself with the Bitcoin network and calls itself a “merge mined system”, when in reality two-thirds of block production requires hashrate to be taken away from securing the Bitcoin network and spent solely on securing Fractal Bitcoin. The majority of the reward is not captureable by miners who continue to mine Bitcoin, and the greater the value of FB, the greater the incentive for Bitcoin miners to switch and mine it instead of Bitcoin to increase the share of the FB reward they capture.
It essentially acts as an incentive distortion for Bitcoin miners that is proportional to the value of the overall system. It also provides no security benefit at all. By enforcing this choice, it guarantees that the majority of the network difficulty must remain low enough that any small fraction of miners who find it profitable to switch from Bitcoin to FB can mine blocks at the target 30-second block interval. Conventional merge mining would allow the entire mining network to contribute to security without incurring the opportunity cost of not mining Bitcoin.
What is the use of this?
The ostensible purpose of the network is to facilitate things like DeFi and Ordinals, which consume large amounts of blockspace, by giving them a system to use outside of the mainchain. The problem with this logic is that the reason those systems are built on the mainchain 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 pen mechanism at all to ensure that these assets are not interoperable between the mainchain and the Fractal Bitcoin chain. The whole system is a series of hand movements past important technical details to bring something to market that allows insiders to profit from the pre-mine involved in the launch.
No peg mechanism, a rambling merge mining scheme that not only creates a toxic incentive distortion if it continues to appreciate in value but also effectively guarantees a lower level of proof of work security, and a bunch of buzzwords. It does have CAT running, but so do existing testnets. So even the argument for it as a testing ground for things built with CAT is just rambling and a half-hearted rationalization for a pre-mined token pump.
Calling this a sidechain or a layer of Bitcoin is beyond ridiculous. It is a token scheme, pure and simple.