on-chainBretton Woods System: How does BeL2 use native BTC to change the global finance?

In the long history of the financial field, few events have had such a profound impact on the global economic landscape as the establishment of the Bretton Woods System. In 1944, with the smoke of World War II not yet cleared, representatives from 44 allied countries gathered in Bretton Woods, New Hampshire, to jointly build a new framework for international economic cooperation. The birth of this system aims to prevent economic instability and competitive devaluation, and to avoid the tragedy of another Great Depression and war.

The core of the Bretton Woods System is to peg major currencies to the US dollar, which is then exchanged for gold at a fixed Exchange Rate. This arrangement made the US dollar the global reserve currency, providing much-needed stability for the global economy and promoting rapid growth. However, over time, especially in the late 1960s, the system began to face challenges. The US international trade deficit continued to rise, and the gold reserves gradually decreased, leading to increasing internal imbalance within the system. On August 15, 1971, President Richard Nixon announced the end of the US dollar's convertibility into gold, effectively declaring the end of the Bretton Woods System and ushering in a new era of fiat currency.

The widespread use of legal tender provides greater flexibility for monetary policy, but also brings unprecedented challenges. Governments can issue currency unrestricted, leading to a series of problems such as Inflation and currency depreciation. In today's highly globalized and financialized world, the world is facing multiple challenges such as a staggering $307 trillion debt, excessive currency issuance, declining bank credit, and economic instability. Under this background, the global financial industry urgently needs a new financial model that combines stability with the technological advancements of the digital age to cope with an increasingly complex financial environment.

BTC: Digital Gold

BTC, as a Decentralization Digital Money, has been hailed as the 'digital gold' since its launch in 2009 by its founder, known as 'Satoshi Nakamoto'. It possesses many characteristics that make it an ideal choice for a global reserve asset: scarcity (with a maximum limit of 21 million coins), durability, portability, and divisibility. The block chain technology of BTC ensures transparency, security, and resistance to censorship in transactions, making it a powerful tool for supporting legal currency and value exchange.

Despite BTC's value exceeding $1 trillion and gaining broad recognition and application, it still faces many challenges in the mainstream finance industry. The most prominent of these are scalability and programmability constraints. BTC's high Decentralization and security guarantee its strong security, but it also leads to slow transaction speeds and excessive resource consumption. Innovative technologies such as Ethereum provide more features for BTC and other Digital Money by introducing Smart Contracts, which have spawned second-layer solutions aimed at unifying technology and enhancing BTC functionality.

Bitcoin Layer

The second-layer solution is a protocol built on top of the blockchain (the first layer) that aims to enhance performance and achieve more complex functionality. For BTC, second-layer technologies such as the Lightning Network and sidechains solve the problems of transaction speed, programmability, and scalability, while bridges facilitate interoperability with other blockchain ecosystems. These solutions enable BTC to interact with other blockchain ecosystems and innovations like Ethereum, enabling previously impossible Smart Contract and Decentralized Application (DApp) implementations. However, these solutions also bring some challenges.

Inherent Issues

The scalability layer involves bridging BTC from its main network to these environments, which poses security risks and undermines its Decentralization spirit. For example, Wrapped Bitcoin (WBTC) is an ERC-20Token that represents BTC on the Ethereum network. Although it brings BTC's Liquidity to more Programmability financial platforms, it has several key issues:

Centralization Risk: WBTC requires users to trust centralized institutions to manage and protect the BTC supporting WBTC. If these institutions act maliciously, users will have nowhere to turn, thus undermining the Decentralization spirit of BTC.

Custodial Risk: Custodians holding actual BTC may be vulnerable to hacker attacks or regulatory pressure, exposing users' assets to risk.

Lack of Transparency: Users must rely on the transparency of the custodian for the actual reserves supporting WBTC, but this may not always be reliable.

Cross-Chain Interaction bridges Hacker attacks (such as the Nomad Bridge vulnerability) have highlighted these vulnerabilities. According to a Chainalysis report, the 13 Cross-Chain Interaction bridge Hacker attacks collectively stole $2 billion, accounting for 69% of the total stolen funds in 2022, with about $1 billion stolen by Hackers associated with North Korea. There are more than 70 Cross-Chain Interaction bridges, locking up funds exceeding $25 billion, with daily volume reaching millions. The popular Cross-Chain Interaction bridge Synapse has a volume exceeding $5 billion. The structure of Cross-Chain Interaction bridges is very fragile, combining custodians, debt issuers, and Oracle Machines, each of which has multiple attack vectors. For example, attacks on Poly Network and Wormhole exposed vulnerabilities in Cross-Chain Interaction communication, resulting in significant losses.

To drop these risks, it is crucial for the development of BTC to connect other innovative layers through information transmission rather than asset transfer, while staking Decentralization on BTC to avoid centralizing assets. This approach maintains the native characteristics, security, and Decentralization of BTC, while achieving a broader range of financial applications in a scalable environment.

BTC native Decentralized Finance, creating a new Bretton Woods System

Native BTC refers to BTC that is used as collateral for Layer 2 Decentralized Finance applications while still remaining on the main network. Through BeL2, BTC can participate in complex financial transactions without the need to transfer from the BTC blockchain, thus maintaining its security and decentralization. This allows BTC to serve as a versatile tool within the Decentralized Finance ecosystem, leveraging its inherent advantages and extending its functionality to smart services such as derivatives, loans, and stablecoin issuance.

stake: BeL2 uses non-custodial native BTC stake in decentralized wallets to provide network security.

Zero-Knowledge Proof (ZKP): It provides private and verifiable proofs for BTCstake transactions.

BTC Oracle: Access BTC proof information to the second layer Smart Contract, enabling BTC Decentralized Finance services without moving assets out of the Mainnet.

Arbitration network: using Decentralization and collateral Node to promote time-based execution and dispute resolution, enhance trustless financial operations.

BeL2 transmits information between chains instead of assets, thus protecting the security and integrity of BTC, while supporting complex financial transactions for Smart Contracts and decentralized applications. This approach eliminates reliance on centralized entities and ensures secure, decentralized financial operations. By maintaining the native nature of BTC, BeL2 ensures that the original blockchain remains the ultimate trust anchor for all transactions, thus upholding the fundamental principles of BTC decentralization.

Native BTC Loan Application Demo

Against the backdrop of BeL2's role in revolutionizing Decentralized Finance (DeFi), the BeL2 lending Dapp Demo demonstrates its potential to enhance the utility of BTC while maintaining security and Decentralization. This demo is the first native BTC lending protocol built on Starkware's Cairo programming language, allowing users to lock their native BTC as Collateral without relying on Wrapped Bitcoin (WBTC) or cross-chain bridges. BTC remains on the BTC Mainnet, ensuring non-custodial and non-liquidatable Collateral.

Users lock their BTC using customized trading scripts, and the loan terms (including the Intrerest Rate and Collateral release conditions) are managed by Smart Contracts on the Ethereum Virtual Machine (EVM). The BeL2 arbitration network acts as an intermediary, facilitating communication between BTC and EVM chains and verifying transaction proofs. If the borrower (such as Alice) fails to repay the loan, the lender Bob can retrieve the BTC. If Bob refuses to cooperate in unlocking the BTC after repayment, Alice can initiate arbitration, and the arbitrator will co-sign to unlock the BTC.

This peer-to-peer system ensures fairness and security through Zero-Knowledge Proof and an arbitration network. The ability to challenge and prevent malicious behavior from arbitrators or relevant parties ensures that cooperation yields the best results. This innovative approach enables BTC holders to obtain Liquidity while maintaining the core principles of BTC Decentralization and security.

Principles of the new local BTC Bretton Woods System:

• Decentralization Global Settlement: Native BTC must act as the global settlement layer, with all transactions being protected on the BTC main network, ensuring that it remains the ultimate trust anchor of the global financial system.

• Financial Innovation and Stability: By combining native BTC with Smart Contracts and DApps, we can support new financial products supported by BTC, such as loans and stablecoins, while providing Liquidity and stability to the global economy at all levels.

• Trustless and Transparent Operation: Information transfer is ensured through Zero-Knowledge Proof and Decentralization arbitration network, ensuring the trustless and transparent financial operation of the BTC native application, dropping counterparty risk and enhancing transaction integrity.

The vision of BeL2 is to become a decisive part of the new BTC native infrastructure in the Bretton Woods System. BeL2 originates from the Elastos SmartWeb vision, which aims to create a decentralized internet where data, applications, and identities are secure, private, and owned by the users. BeL2 is committed to becoming a key component of the BTC native infrastructure, transforming BTC from digital gold into the cornerstone of the new global financial system.

BeL2 uses Elastos' secure infrastructure, using ELA as collateral for arbitrators, to ensure robust and trustless dispute resolution. ELA is an asset secured by over 50% of BTCMiners, adding extra security and a layer of Decentralization to the BeL2 ecosystem, reinforcing both projects' commitment to the future of secure and decentralized finance. Want to learn more? Please visit the BeL2 website and follow Infinity for the latest updates!