Why We Invested in Nubit
Bitcoin-native Data Availability Layer
At L2IV, we are constantly seeking out groundbreaking innovations that have the potential to revolutionize the blockchain landscape, especially when it comes to modularity. After extensive research and thorough due diligence, we are thrilled to announce our investment in Nubit, a Bitcoin-native data availability layer that aims to address the scalability and data storage challenges.
Nubit: Addressing Bitcoin's Scalability Challenges
The rapid growth and popularity of Bitcoin inscriptions, NFTs, and other Bitcoin-native applications have led to a significant increase in the amount of data stored directly on the blockchain. This surge in data has resulted in network congestion, rising transaction fees, and scalability concerns. The Bitcoin community has been concerned about these “non-payment transactions” taking up Bitcoin’s network resources that lead to an enormous amount of transactions unsettled in the mempool. Nubit tackles these challenges head-on by offloading the storage burden from the Bitcoin blockchain while leveraging its security and consensus mechanisms.
It happens that such a storage layer is sufficient to address many of the challenges that Bitcoin is encountering today and tomorrow.
Bitcoin inscriptions and NFTs require nothing but storage. These transactions currently use the Bitcoin script opcode OP_RETURN and the increased storage allowance after the Taproot upgrade in order to store data on Bitcoin and require Bitcoin to do no computation over such data. This can all be delegated to a Bitcoin-native storage layer.
BitVM, Bitcoin optimistic and ZK layer-2 all require data availability for security. Bitcoin itself can store data but it does not currently satisfy the requirements for such data availability, as it needs to be slashable. A more functional, scalable layer for data availability is needed.
Very importantly, what sets Nubit apart is its Bitcoin-native design, seamlessly integrating with Bitcoin's existing infrastructure and security model. This distinguishes it from the existing standalone or Ethereum-native data availability layers such as Celestia. By being native to the Bitcoin ecosystem, Nubit inherits Bitcoin's robust security properties, such as immutability, censorship resistance, and decentralization. Currently, Bitcoin still provides the best crypto economics security—its market cap is 3x the market cap of Ethereum.
How does Nubit achieve Bitcoin nativeness? One of the key innovations of Nubit is the concept of "Nubit tags," which are small cryptographic commitments stored on the Bitcoin blockchain. These tags serve as references to the actual data stored off-chain on the Nubit network. By utilizing Nubit tags, the system significantly reduces the data size on the Bitcoin blockchain, typically from an average of 300 bytes per inscription to just 30 bytes. Nubit tags can represent up to 8MB of data, which is partitioned into smaller tranches or blocks for storage and aggregation. One transaction can include multiple Nubit tags. This optimization enables more efficient use of Bitcoin's limited block space, allowing for higher transaction throughput and improved scalability.
Nubit's Architecture: Combining Consensus, Data Availability Sampling, and Trustless Bridging
Nubit's architecture is designed to combine Bitcoin-native consensus mechanisms, data availability sampling techniques, and a Bitcoin-native bridge to create a scalable, secure, and efficient blockchain platform that inherits Bitcoin's security properties.
Consensus mechanisms. The consensus mechanisms of Nubit are built to inherit Bitcoin's economic security, tamper resistance, and censorship resistance through two key techniques: Bitcoin Staking and Bitcoin Timestamping.
Bitcoin Staking allows Bitcoin owners to directly participate as validators using extractable one-time signatures (EOTS). EOTS ensures accountability by revealing the validator's secret key if they attempt to double-sign blocks at the same height so the validator’s security deposit on the Bitcoin network can be slashed. This mechanism aligns the incentives of validators with the network's security, as they risk losing their staked Bitcoin if they engage in malicious behavior.
Bitcoin Timestamping creates checkpoints on the Nubit blockchain and records them on the Bitcoin blockchain. This protects against long-range attacks and significantly reduces the unbonding period for staked assets from weeks to less than four hours. By leveraging Bitcoin's immutability and security, Nubit establishes a robust and trustworthy consensus layer. (For more on timestamping, please read: Timestamping)
Bitcoin may have more than one million miners. To support a large validator set and achieve high censorship resistance, Nubit employs a PBFT-based consensus algorithm with SNARK-based signature aggregation. In a network with a large number of validators (e.g., 200,000), passing over signatures between all validators in the P2P network is impractical. Nubit addresses this issue by using SNARK-based signature aggregation, which merges multiple signatures into a single one, similar to what Ethereum beacon chain has used since the Shanghai upgrade. In this approach, validators combine signatures from neighboring validators into a single SNARK proof. By doing so, Nubit reduces the communication complexity to nearly constant, making it feasible for a large number of validators to participate in the consensus. This high level of decentralization and consensus resistance are in alignment with Bitcoin’s vision.
Data availability sampling. Data Availability Sampling (DAS) is integrated into Nubit to scale the network with full storage nodes as well as light clients. As the validator set and block size grow, downloading entire blocks to ensure data availability is infeasible. Nubit adopts the modern DAS techniques deployed in production to address this issue.
There are a few technical highlights of their techniques. First, Nubit uses Reed-Solomon (RS) codes to encode data, which allows efficient proof of storage. A KZG commitment of the data is also generated to verify the encoded data for integrity. Second, Nubit uses block dispersion to scale the system further. Now, the leader node of the Nubit network distributes coded chunks to different validator groups, each responsible for storing and managing specific chunks.
Nubit uses two protocols for DAS:
Sampling Protocol, executed between a verifier and a data source, involves the verifier requesting random block chunks and verifying them against the KZG commitment in the block header.
Decoding Protocol, carried out by a decoder working with the validator group, involves requesting block chunks from validators, verifying their correctness, and reconstructing the full block using RS decoding once a sufficient percentage of chunks is collected.
There will be three types of nodes in the Nubit network that participates in the DAS protocols.
Validators, who run the sampling protocol within the validator set and only sign the block header if it can verify that the data is indeed stored;
Full Storage Nodes, which store the entire block and respond to chunk requests from light clients; and
Light Clients, which obtain block headers from validators, perform the sampling protocol with full storage nodes, and consider the block available if the protocol succeeds after sufficient sampling.
Bitcoin-native bridge. Nubit implements a trustless bridge using a Payment Channel Network (PCN) based on the Lightning Network. This approach reduces communication overhead, simplifies deployment, enhances security, and provides an emergency withdrawal mechanism for users. The trustless bridge utilizes a hashed-timelock-contract (HTLC)-based protocol using Verifiable Delay Functions (VDFs).
This bridge involves two main components:
Fee Payment, where users probe a payment path, assemble time-lock contracts with VDF challenges, and update channel states once the VDF evaluation result is revealed, and
Distributing Validator Rewards, where the validator (payee) performs the routing and sends the time-lock contract for the channel connecting the base address and its adjacent node to the consensus nodes for collaborative verification and signing.
The Need for Data Availability Solutions is Real
The growing adoption of data availability (DA) layers can be attributed to the pressing need for scalability solutions in the overall growing on-chain ecosystem. As the adoption of decentralized applications (dApps) and the demand for blockchain-based solutions continue to grow, the need for efficient and scalable DA layers has become increasingly apparent. Also, as Ethereum continues to experience high transaction costs and limited throughput, developers are seeking alternatives that can alleviate these pain points without compromising security or decentralization. Layer 2 scaling solutions, such as rollups and sidechains, have emerged as popular approaches to address Ethereum's scalability issues. However, these solutions often rely on separate consensus mechanisms and require additional trust assumptions.
In this context, Nubit differentiates itself from other data availability solutions in several key aspects.
In the data availability layer space, Celestia and Avail have gained significant traction. Celestia provides a modular data availability layer for various blockchains and layer 2 solutions, utilizing PoS consensus and DAS. Avail, on the other hand, leverages KZG commitments and polynomial commitments to enable efficient verification and reduce storage burden on nodes. (Read more here: DA Layers)
Nubit’s unique competitive strength lies in its Bitcoin nativeness. This is why it does not use the consensus protocol that Celestia, EigenDA, Avail, and NearDA uses, but it adopts a solution that can scale to a large number of nodes. This is, in essence, closer to Ethereum, which tries to support at least hundreds of thousands of validator nodes. However, even this posed a challenge to Ethereum beacon chain, as verifying a large number of signatures for the entire network would lead to slower finality. This is why one of our portfolio companies, Polyhedra, has been working on single-slot finality for Ethereum using SNARK. We think Nubit is likely going to front-run Polyhedra on this, through their SNARK-based signature aggregation solution.
This choice of consensus mechanism is crucial for Bitcoin alignment for trust minimization and the need for fast finality, which solves the problem of slower finality (10 minutes) of the Bitcoin network for Bitcoin inscriptions, BRC-20, and similar applications whose primary goal is data storage.
Our Conviction
An important reason that drives our decision to invest in Nubit is the team's track record, expertise, and background. The co-founders, Yu Feng, Hanzhi Liu, and Hongbo Wen, bring a wealth of knowledge and experience in computer science, program verification, and blockchain security.
Yu Feng, the co-founder of Nubit, is an Assistant Professor of Computer Science at UCSB. He holds a Ph.D. in Computer Science from UT Austin. Importantly, he was a co-founder of Veridise, a highly reputable crypto security company in the blockchain industry. His research focuses on developing automated programming techniques to enhance software usability, reliability, and security. Veridise was a good track record for Yu Feng and his other students.
Hanzhi Liu, the CEO and co-founder, is a Ph.D. student at UCSB advised by Yu Feng. His research focuses on program verification, language semantics, and compiler optimizations. He has authored a significant paper on certifying ZK circuits and has played a key role in large inscription projects on blockchain, the experience of which is directly related to Nubit.
Hongbo Wen, the CTO and co-founder, is also a Ph.D. student in Professor Yu Feng's Lab at UCSB. He holds a B.S. in Architecture from Tsinghua University and has worked in startups in both AI and Blockchain security.
The academic achievements, industry track record, and deep understanding of the Bitcoin ecosystem exhibited by the Nubit team give us confidence in their ability to execute the vision of Nubit.
We believe that Nubit has the potential to revolutionize the way data is stored and accessed within the Bitcoin ecosystem. By providing a scalable, secure, and efficient data availability layer, Nubit can unlock new possibilities for Bitcoin-based applications and foster the growth of the Bitcoin ecosystem as a whole.
Our investment in Nubit reflects our confidence in the team, the technology, and the market opportunity. We are excited to support Nubit in its mission to address Bitcoin's scalability challenges and pave the way for a more scalable and accessible Bitcoin network.
As always, we remain committed to backing transformative technologies and exceptional teams that have the potential to drive innovation and shape the future of the decentralized ecosystem. We look forward to working closely with the Nubit team and witnessing the impact they will make in the Bitcoin ecosystem and beyond.
Disclaimer: This content is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisors as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services.