Mintlayer: A Blockchain for Financial Markets. Built on Bitcoin.

Introduction

Mintlayer is a new, smart contract platform built as a sidechain on the Bitcoin network. It’s set up to maintain the security of Bitcoin while having the advantages of smart contracts, decentralized exchanges, facilitating Stablecoins and security tokens. Mintlayer is its own unique chain, but utilizes Bitcoin blocks for security purposes and connects to the Bitcoin blockchain for interoperability and other useful features.

The Problems

Mintlayer attempts to solve several problems that other smart contracts struggle with, including:

• Potential security holes in smart contract platforms.
• Lack of scalability.
• Needed features for security tokens.
• High barrier of entry for running a node.
• Long range attacks for proof of stake platforms.

The most popular smart contract system for decentralized finance is Ethereum, but it has several issues.

• The Ethereum network is too large for home computers to run full nodes which inhibits decentralization.
• Ethereum has severe scaling problems and high network fees.
• Ethereum’s Turing-completeness causes users and investors to experience more risks while interacting with smart contracts.

Mintlayer’s Features

Mintlayer attempts to solve these security problems while giving new features for blockchain users. Security, scalability, decentralization, Bitcoin interoperability, security token support, decentralized finance and decentralized exchanges are the essential features of Mintlayer.

Security

Mintlayer has an excellent Whitepaper that explains in technical language how their blockchain will function. For greater detail, I highly recommend reading their whitepaper. The purpose of this article is to provide a helpful overview not a complete technical summary.

Mintlayer is unique because it utilizes Bitcoin as a source of security alongside its proof of stake model. Here is the process that Mintlayer uses to secure its blockchain:

• Users set up a full Mintlayer node and stake at least 0.01% of the total MLT supply is eligible for staking rewards. The more tokens staked, the more likely users are to win. This will be approximately 40,000 MLT tokens at launch.
• To be eligible for rewards MLT tokens must be staked for at least 3 weeks.
• Staking winners are chosen by hash’s on Bitcoin blocks to maintain fairness.
• Stakers will not only win MLT tokens but also gain fees from the various tokens being sent over the Mintlayer blockchain.

Scalability

Mintlayer is not directly built on the Bitcoin network, so it’s not impacted by Bitcoin’s slow transaction speed. Blocks are produced in a range of 1-2 minutes, if the blockchain is congested block creators are encouraged to keep the frequency up to its maximum one block per minute. Users will have the choice to use MLT tokens when paying fees but will also have the option to pay in any MLS-01 or MLS-02 token (these tokens are the equivalent of ERC20 tokens for the Mintlayer blockchain).

MLT will also utilize several other ways to increase scalability including:

• Utilize the Lightning Network.
• Batch transactions together to save data, time and fees (this can save up to 70% of space on a block).
• Wrap tokens like Ether onto the Mintlayer network.

Decentralization

Mintlayer has taken several steps to maintain decentralization. Its most important step is to make sure that Mintlayer full nodes are easily ran on a home computer. This is done by making sure every Mintlayer block is kept down to 1 MB or less. Mintlayer will also utilize Utreexo, which compacts UTXO sets down to 1 KB each; this way, pruned nodes should never take up more than 3 Gigabytes.

Bitcoin Interoperability

Mintlayer will allow users to swap Bitcoin with other tokenized assets like MLT, security tokens and Stablecoins. Mintlayer allows users to directly exchange Bitcoin for various tokens in a Mintlayer DEX or the Lightning Network. Because Mintlayer is a Bitcoin sidechain, it interacts well with the Lightning Network and will also provide submarine swaps.

Security Tokens

One of the most exciting developments in the blockchain space is security tokens. Security tokens represent company shares, money, or other assets and then are placed on the blockchain. These assets must be centralized because a company or institution is usually creating it. While these assets come from a centralized source blockchain technology is a great way to send, receive and store these assets in a safe, secure and decentralized manner.

Mintlayer has created an access control list (ACL) feature, particularly for security tokens. Stocks, bonds and many other assets are under government regulations that stipulate who can own these assets, KYC and AML laws, and how these assets can be traded. ACL is created to act as a filter for who can send and receive a particular token, which makes compliance possible for company policies or government regulation. The ACL feature will help security token creators to stay within regulations.

ACL features include:

• Whitelisting and blacklisting addresses
• Put limits on minimal and maximal token transfer amounts
• Time locks
• Updates to ACL rules

Decentralized Finance

Mintlayer has four unique features for decentralized finance:

• Turing incomplete script based smart contracts
• Security tokens with ACL rules
• Decentralized identify and Oracles
• Programmable pools

The advantage of using Turing incomplete smart contract systems is that its less resource-intensive and less likely to produce broken smart contracts. It does sacrifice some versatility that blockchains like Ethereum, EOS and Polkadot have but is more efficient. However, this style of smart contract has versatility by utilizing multi signature accounts and time locks, developers can make versatile smart contracts.

Mintlayer creates tools for digital identities (DID) represented by public and private keys. These keys can be used to:

• Encrypt and decrypt
• Sign and verify messages
• Verifying decentralized identity

Decentralized identities allow users to log into oracles that provide offchain data. These oracles may help with:

• AML/KYC verification
• Atomic swaps
• Book aggregators for various DEXs

Sometimes script-based transactions cause network pollution, like moving small amounts of crypto that aren’t consolidated on a single account. To fix this, Mintlayer allows developers to switch from UTXO to account base with Programmable pools. Programmable pools can be used for:

• Paying out dividends for token holders.
• Collecting “taxes” on transactions.
• Programmable pools also work with the ACL Filter.

Decentralized Exchanges

Decentralized exchanges on the Ethereum network mostly rely on smart contracts and protocols like 0x for messaging. This leaves Ethereum DEXs open to two types of attacks:

1. Vector attacks to the matching engine.
2. Messaging systems that rely on centralized access points that are easily attacked.

Mintlayer avoids these security holes by providing several different alternatives for decentralized exchanges. These alternatives range from full decentralization in messaging and trading to more centralized systems that provide more trading opportunities. Mintlayer exchange solutions include:

1. Atomic swaps- Peer to peer token swaps that require no middleman.
2. Lightning Network DEX- Atomic swaps on the Lightning Network will be fast, cheap, and private.
3. DHT Multiparty swaps- Uses atomic swaps, but introduces a messaging system so strangers can trade with each other. These messages are run by full nodes using distributed hash tables (DHT) and are p2p. Once the messages connect users, a simple atomic swap will take place. This method is simple and decentralized, but is more susceptible to spam attacks.
4. Observer of multiparty swaps- Specialized nodes will run the messaging system for the DEX. The observer will reduce the size of the DHT and filter out spam and inactive orders. This messaging system will be less resource-intensive than DHT multiparty swaps but provides an extra layer where information can be leaked, so it’s less private than DHT multiparty swaps.
5. Book Aggregators for multiparty swaps- Specialized nodes that communicate orders for users but still results in an atomic swap. The node stores the DHT for all users and makes trading possible for light node and mobile wallets. The book aggregator is a centralized system, so if it goes down, orders will not be able to go through; it’s also less private than the other options.
6. Programmable Pool DEX- Traders consolidate UTXOs into an account based address. This forfeits privacy but makes the system faster, cheaper and easier.

Competition

Mintlayer has a number of different competitors such as:

• Ethereum
• Cardano
• Polkadot

All of these smart contracts listed above provide stiff competition. Mintlayer does have unique strengths that give it advantages over its competitors, including:

• Not Turing reliant for security and efficiency.
• Sidechain features to Bitcoin that provide more security.
• Built-in features for security tokens, decentralized finance and decentralized exchanges.
• Bitcoin interoperability makes it possible to directly exchange Bitcoin for various MLS-01 and MLS-02 tokens. Bitcoin is not wrapped onto the Mintlayer blockchain. This saves system resources and takes out middlemen that blockchains like Ethereum must deal with.

From a use case perspective, its ACL features will give it an advantage for security tokens over other blockchains. I can see this chain becoming successful when it comes to trading stocks, Stablecoins, wrapped cryptocurrencies and other tokenized real-world assets. While Ethereum and other smart contract platforms specialize in utility tokens, Mintlayer may takeover the security token space. With its ACL filter, higher levels of security and DEXs Mintlayer should be able to compete with other smart contract systems for this coveted niche.

Team

For a startup, Mintlayer has a large team of highly specialized people. This includes people in charge of tokenomics, research, legal, marketing, cryptography, web development, engineering, branding, design and more.

Risks

Mintlayer appears to have four major risks:

1. A new blockchain that could experience significant bugs.
2. Competition in a cryptocurrency space that’s saturated with high-quality, smart contract competitors.
3. Not getting enough node validators to keep the network decentralized.
4. Not forming the correct partnerships to run significant security tokens that will make Mintlayer a significant blockchain.

The Mintlayer team has taken several steps to mitigate these risks.

1. Mintlayer’s whitepaper shows that the team put a lot of thought into making a secure blockchain by making it a Bitcoin sidechain they have mitigated many possible risks. Their roadmap also shows extensive time lines for running their blockchain through a testnet phase that should weed out the bugs.
2. The team is focused on being a security token chain, that focuses on a different niche than the current competition. Smart contract platform like Ethereum are focused on utility tokens but Mintlayer is aimed at the security token niche.
3. Mintlayer has Fabio Cardoni as a business developer adviser. He has successfully led many different projects. He should be able to help Mintlayer get the partnerships they need for high-quality security token projects.
4. With solid marketing the team should be able to build an active community to run the node infrastructure.

Token & Economics

MLT is a utility token that will run the Mintlayer network. It will initially launch with 400 million tokens, with a cap of 600 million tokens.

Mintlayer will be used for:

• Staking blocks to secure the Mintlayer blockchain
• Governance
• Ecosystem tools for smart contract development, security audits, and paying for the issuance of new tokens
• Gas fees (although Mintlayer will also accept other tokens as payment)
• Farming

Before Mintlayer’s mainnet launches, the tokens will be issued as ERC20 tokens and then later swapped into Mintlayer’s native blockchain. Mintlayer will divide its tokens among its public sale, institutional private sale, seed sale, exchange listing, adoption incentive, its team and finally, the company reserve.

Mintlayer will have four different vesting schedules for its different investors.

• Type 1- unlocking 12% at TGE (Token Generation Event)+ 8% monthly over 11 months
• Type 2- unlocking 10% at TGE + 6% monthly over 15 months
• Type 3- unlocking 10% at TGE + 5% monthly over 18 months
• Type 4- 4 months locked after TGE, then unlocking 5% monthly over 20 months

Roadmap

Mintlayer has a roadmap that goes to the year 2023.

• 2020 is the year that Mintlayer’s idea was born and started to get tested.
• 2021 Mintlayer has private sales, runs a testnet for its proof of stake blockchain, and will release full nodes.
• 2022 will host public sales, Mainnet launch, DSA consensus system upgrade, native token systems, programmable pools, smart contracts and the Atomic Swap DEX launch.
• 2023 Mintlayer will add their Access Controls List, create confidential transactions, and integrate into the Lightning Network.

Conclusion

Mintlayer is a proof of stake smart contract system with unique features that set it apart from other blockchains. Its use of Bitcoin as a security checkpoint is brilliant and getting away from Turing complete systems will increase efficiency and security. Their focus on batch transactions to save space and reduce fees is also ingenious and useful for scaling. Plugging into the Lightning Network should also make them faster and cheaper than other blockchains.

Mintlayer’s focus on creating a platform for security tokens is a potential avenue for success. Most smart contract platforms focus on utility tokens or NFTs, but Mintlayer has a chance to grab an important niche while its competition isn’t paying attention.

Note: 4SV invested in Mintlayer. Nothing written here should be considered financial advice of any kind.