What Is Mintlayer? A Beginner's Guide
October 26, 2023
Bitcoin layers are protocols built on top of Bitcoin that enhance the cryptocurrency network’s utility and scalability. This guide will look at Mintlayer, a Bitcoin layer-2 that’s standing out from the pack thanks to its different scaling approach.
What Is the Mintlayer Protocol?
Mintlayer is a Layer-2 protocol linked to Bitcoin with sidechain technology, opening the Bitcoin ecosystem to decentralized finance (DeFi), tokenization, advanced smart contracts, dApps, atomic swaps, and more.
Although connected to Bitcoin, Mintlayer is its own blockchain with a native token. It produces blocks using an improved version of the Proof-of-Stake (PoS) consensus mechanism. Furthermore, it integrates the Lightning Network to make Mintlayer even more performant.
San Marino-based RBB Lab, the developer behind Mintlayer, rolled out the project in 2020 and has worked on it continuously since then. The CEO of RBB Lab is Enrico Rubboli, who formerly worked as a Senior Software Engineer at the crypto exchange Bitfinex.
Mintlayer is currently in the testnet stage of development. The public release of the Mintlayer testnet occurred on July 31, 2023. According to its roadmap, the project plans to launch its mainnet in Q4 2023.
How Does Mintlayer Work?
Let’s take a look at how the Mintlayer protocol works.
Bitcoin Anchoring
Mintlayer relies on Bitcoin’s security by anchoring each block on its network to a Bitcoin block. The protocol synchronizes with Bitcoin’s timespace, allowing each Mintlayer round to last 1,008 Bitcoin blocks or approximately one week.
Consensus
Mintlayer combines the Proof-of-Stake (PoS) and Proof-of-Work (PoW) consensus mechanisms to create a consensus model called Dynamic Slot Allocation (DSA). This allows the protocol to benefit from the strengths of each mechanism, keeping it secure and energy efficient.
Network participation is based on pools. Anyone can run their own pool by staking (locking) 40,000 ML tokens to secure the protocol and produce and sign blocks. Stakers can also run their own nodes.
Those with less than 40,000 ML tokens can still participate in the network by delegating their tokens to an existing pool. Stakers and delegators earn block rewards in ML tokens. Rewards earned are proportional to the amount staked.
Mintlayer blocks are, on average, generated every 120 seconds, and the block size is limited to 1 MB. Block randomness is facilitated by Verifiable Random Functions (VRFs).
A pool can produce a block if the random number generated through the VRF is below the threshold. The network threshold is adjusted to ensure the block generation rate stays as close as possible to 120 seconds. Block production eligibility also depends on a pool’s stake.
The protocol’s blocks are finalized after 1,000 blocks.
Tokenization
Mintlayer’s tokenization system is UTXO-based, meaning developers can embed a token’s data into an unspent transaction output (UTXO). By adopting a UTXO structure, tokenization on Mintlayer is as simple as creating a transaction with extra data. As a result, users can issue all sorts of tokens on this protocol without any technical skills.
Mintlayer supports a smart contract feature known as Access-Control-List (ACL). With ACL, issuers tokenizing traditional assets such as stocks and bonds on Mintlayer can customize rules that comply with local regulatory laws.
Mintlayer’s Bitcoin-esque UTXO model enables it to be Lightning-compatible and allows users to batch payments in a single transaction, reducing the transaction size by 70%. As a result, users pay less money in transaction fees. Additionally, the UTXO structure facilitates confidential settlements.
Atomic Swaps
Mintlayer has a built-in atomic swap system, allowing token swaps between it and the base layer. In other words, the atomic swap system links the two networks, permitting the seamless exchange of tokens without an intermediary.
Users can convert Mintlayer assets to BTC, which they can then use on the sidechain as they would like.
What Is the Mintlayer (ML) Token & What Role Does It Play?
The Mintlayer token (ML), formerly MLT, is the native token of the Mintlayer protocol. It is an ERC-20 token with a total supply of 600 million, which it is expected to reach in about ten years. At the mainnet launch, the project will have created 400 million tokens.
The Mintlayer team sold $50,000 worth of ML tokens at $0.25 each during a public token sale held on March 13, 2023. This was followed by a token generation event later that month, where the initial unlocked token supply was 15,820,000.
The rest of the ML tokens were vested under schedules of different lengths. After two years, the project will unlock 335 million tokens.
Mintlayer’s token distribution is as follows:
Mintlayer plans to switch from ERC-20 to its own MLS-01 token standard. Token holders will receive the new tokens on a ratio of 1:1 to the ERC-20 ML tokens they own.
ML has the following functions:
Utility
ML tokens are used to pay for all transaction fees, including smart contract execution, on the Mintlayer protocol. However, users can pay transaction fees in other tokens accepted by the node. ML tokens are also used to interact with dApps on Mintlayer and are needed to create other tokens.
Staking
Anyone who wants to participate in Mintlayer’s consensus system must have ML tokens. In return for producing and signing blocks, participants earn block rewards in ML tokens.
Governance
ML token holders are eligible to take part in the decision-making process of the protocol’s future development.
Node Setup
To become a Mintlayer node, you need ML tokens. Running a node allows you to decide which other tokens users can utilize to pay transaction fees.
Mintlayer Token Standards Explained
Mintlayer has three token standards: MLS-01, MLS-02, and MLS-03. Here’s a brief description of each:
MLS-01
MLS-01 is a token standard for fungible tokens, similar to Ethereum’s ERC-20. It allows issuers to set their tokens' ticker, token supply, metadata, and decimals. Furthermore, the standard permits issuers to increase the circulating supply of their tokens or prevent the circulating supply from ever being raised.
Mintlayer’s ACL support ensures token creators can issue tokens in compliance with company or legal requirements.
MLS-02
MLS-02 is a token standard for fungible tokens focused on privacy. It permits token issuers to create tokens with a higher level of confidentiality than regular Bitcoin transactions.
MLS-03
MLS-03 is a token standard for non-fungible tokens (NFTs) on Mintlayer. Unlike MLS-01, token creators can include additional data like an NFT description, the creator’s name, a media URL, and an icon.
How Is Mintlayer Different from Other Bitcoin Layers?
Mintlayer is one among several Bitcoin layers looking to scale Bitcoin. Let’s look at how it differs from other protocols built on Bitcoin.
Lightning Integration
Mintlayer is natively being built with Lightning integration to scale and facilitate payments, making it one of the few Bitcoin layers to take this path. The Lightning Network will operate as an additional layer on top of Mintlayer, allowing users to make low-cost and fast transactions.
UTXO Model
Mintlayer stands out from other Bitcoin layers as it has adopted a UTXO model that’s interoperable with Bitcoin. This allows users to enjoy batched transactions and private settlements.
Bitcoin Can Be Used on Mintlayer
Most Bitcoin layers only allow users to utilize Bitcoin on their networks in a wrapped or pegged version. On Mintlayer, however, users can utilize native Bitcoin via a built-in atomic swap. All they have to do is swap a token on Mintlayer for BTC. Atomic swaps enable users to exchange tokens between two blockchains without a third party.
Efficiency
Contrary to other Bitcoin Layer-2 networks, Mintlayer prioritizes efficiency and sustainability. Therefore, network participants can run a full Mintlayer node using a consumer PC. The protocol’s hardware requirements are also inclusive, allowing anyone to run a Mintlayer node.
No Native Gas Token
Unlike other Bitcoin layers, which require users to pay gas fees in their native token, Mintlayer is more flexible. It permits users to pay for transactions in ML tokens or any other token the block signer has decided to accept.
How Can Bitcoin Benefit from Mintlayer?
Mintlayer brings stablecoins, security tokens, DeFi, NFTs, and advanced smart contracts to Bitcoin while leveraging Lightning’s scaling capabilities. This expands the utility of the Bitcoin network with new use cases such as asset issuance, decentralized trading, and private transactions while allowing Mintlayer users to enjoy the fast and low-cost transactions that Lightning offers.
By adding more use cases to the Bitcoin ecosystem, Mintlayer could add to the suite of Bitcoin layers poised to enhance Bitcoin’s utility and scalability.
FAQs
Is Mintlayer a Layer-2 solution or a sidechain?
Mintlayer is both a Layer-2 solution as well as a sidechain. It is built on the Bitcoin blockchain and linked to it via an atomic swap system. That means you can swap a Mintlayer token for BTC and use the latter on the Layer-2 protocol.
Mintlayer aims to scale Bitcoin by supporting advanced smart contracts that can help developers build DeFi applications and allow projects to issue fungible and non-fungible tokens.
What use cases is Mintlayer built for?
Mintlayer is helping expand the Bitcoin ecosystem by allowing developers to build a wide range of dApps and enabling token issuers to create stablecoins, security tokens, and NFTs.
Moreover, the protocol’s built-in atomic swap system permits the decentralized trading of BTC with assets issued on its network. Users can also enjoy private transactions thanks to Mintlayer’s Bitcoin-esque UTXO model.